Sweetheart deal to lure Land 400 “war machine” contract winner to Qld undesirable

If we want the most efficient and productive economy possible, with the largest number of sustainable jobs, then we should aim to minimise the taxes and charges on all businesses, not just the favoured few which have the resources to lobby governments and can play them off against each other in interstate bidding wars. Alas, the Queensland Government is getting into an interstate bidding war with Victoria to attract the winner of what the Courier-Mail has labelled a “lucrative multibillion-dollar war machine contract”, the Land 400 contract with the Australian Defence Force (for further information on the contract see Nick Behrens’s post Land 400 ADF Contract a must have for Queensland Manufacturing). While it would be terrific for the Queensland economy if the winning bidder invested in Queensland, the Queensland Government should avoid cutting a sweetheart deal with the winner.

Deputy Premier Jackie Trad has committed Queensland to do “whatever we can” to lure whichever multinational defence contractor, Rheinmetall Defence or BAE Systems, wins the contract. Doing “whatever we can” likely means exemptions from payroll and land taxes for several years. Previous governments have also done whatever it takes to lure investment, including most famously the Beattie Government in luring Virgin to Queensland, but that does not make it right. In its comprehensive 2015 Review of Industry Assistance in Queensland, the Government’s independent economic adviser, the Queensland Competition Authority, provided strong advice against engaging in interstate bidding wars (on pp. 32-33 of the Final Report, Volume 1):

…interstate bidding wars to attract investment and major events…are unlikely to provide long-term benefits to a state.

Queensland could engage in such activities and could conceivably ‘win’ at the expense of other states. But these potential gains would be at a significant cost to Queensland taxpayers. There is also no guarantee that a project will deliver expected economic gains, or remain in the jurisdiction once the inducements cease. The empirical evidence from overseas tends to suggest that at best, the losses tend to cancel out the wins.

Research shows that firms tend to base locational decisions on the rate of return they can achieve on an investment. The location decision is largely driven by general economic factors based on a range of cost drivers, as well as social and political factors (e.g. transport, energy and labour costs, infrastructure, workforce skills and social and political stability). Government assistance plays an insignificant role, if any, in a firm’s location decisions.

I applaud the Queensland Government for its commitment to jobs and admire the Deputy Premier for her fierce advocacy for the State, but I would suggest the Government should heed the lessons contained in the QCA’s Industry Assistance Review.

330px-Kim_Beazley

The Qld Government has recruited Kim “Bomber” Beazley to help it lure a multi-billion dollar defence manufacturing contract to Queensland

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6 Responses to Sweetheart deal to lure Land 400 “war machine” contract winner to Qld undesirable

  1. Glen says:

    Gene this sort of waste has to stop, whilst the govt is considering throwing incentives at these new businesses, existing businesses are closing their doors or downscaling their operations due to high power costs, in recent days I have spoken to two mid size manufacturers who are looking for new 3 year power pricing contracts and the best they can get is triple the current deal, at these prices they essentially don’t have a future in this country, the govt has a lot of other things to concentrate on before this sort of thing.

  2. Joe Branigan says:

    “Our inquiry into state assistance to industry showed that the bidding wars for
    investment and major events the state governments engaged in generally
    constituted not only a negative sum game nationally, but in many cases a zero
    sum game for the winning state”. Gary Banks (former Chairman of the Productivity Commission).
    http://www.pc.gov.au/__data/assets/pdf_file/0003/85836/cs20090204.pdf

    Here’s some homework for our politicians…please read this 2002 CEDA speech by Gary Banks ‘Inter-State bidding wars: calling a truce’:
    http://www.pc.gov.au/news-media/speeches/cs20021106/cs20021106.pdf

  3. Robyn Abell says:

    There’s economics, called the “dismal science” for good reason. And then there’s politics. Beating Those Southerners to anything important is unlikely to be bad politics for any Queensland premier, even if you have to bring in a Sandgroper to pull it off. Plus of course the prospects of “lots of new jobs” in the leadup to a State election. Which electorate is likely to benefit most, I wonder?

    • Gene Tunny says:

      Haha yes it is the dismal science! Thanks for the comment Robyn. Good question about which electorates would benefit. I suspect the government would like to see the jobs in a regional city such as Townsville, Rockhampton or Maryborough.

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