Article – Let's not be too hasty in rejecting northern development

18 August 2013
Sinclair Davidson, Professor of Institutional Economics at RMIT University
The Conversation
In the early noughties former Labor leader Kim Beazley suggested that he’d like to see the unemployment rate with a ‘5’ in front of it. At the time this was considered a huge faux pas.
At the time he had no specific ideas as to bring this about, and no costed policies either.
As it turns out we do now have an economy with an unemployment rate with a ‘5’. In fact, the 5.7 per cent unemployment rate represents something of a policy failure. The unemployment rate is forecast to rise over the next year.
The point being that Kim Beazley was expressing an aspiration – even thinking out loud. This week it was Kevin Rudd’s turn to think out loud – to express an aspiration. Similarly, he had no costed policies but he did have, at least, one specific idea.
Kevin Rudd suggested cutting the corporate income tax rate in the Northern Territory to 20 per cent from the current 30 per cent.
He also made a very important concession – cutting corporate income tax would attract foreign direct investment (FDI). Quite possibly – the academic literature suggests that for every one per cent decrease in the corporate income tax that FDI would increase by 3.3 per cent. That’s huge – perhaps even too big. If attracting FDI is a ‘good thing’ for the Northern Territory, it must be a good thing for everyone; so why not cut the corporate income tax for everyone?
Let’s look at this from Kevin Rudd’s perspective. He is telling us that the mining boom is over and it needs to be replaced by something else else.
Okay – developing the north of Australia is ‘something’. To be fair – developing the north may even be a good idea. Yet given the lack of preparation – it really is just a thought bubble – the question remains whether developing the north is the something that Kevin Rudd has in mind to replace the mining boom?
Tinkering with the corporate income tax wouldn’t be enough to develop the north – especially given the increased compliance that the parliament (and ATO) would introduce to prevent tax avoidance and evasion on the part of non-Territory based firms. One of the biggest challenges to northern development, I would have thought, is increasing the population – and not just increasing migration from the southern states. That is a topic that our politicians avoid.
Courtesy of the Conversation