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