Article – Southern red tape hobbles Top End’s great leap forward, by Adam Creighton

Published in  The Australian on 06/04/13
In one sense Australia’s remote Northern Territory is enjoying an economic boom more impressive than Western Australia’s. The Top End’s economy grew by about 30 per cent last year, four times as fast as China’s or WA’s, and almost 10 times faster than Australia’s.
Yet the stellar statistic stems from the Territory’s minuscule size. Despite making up around a fifth of the Australian landmass, it is barely home to 1 per cent of the country’s population. Darwin, on the doorstep of Indonesia, an emerging economic giant with a population of more than 240 million people, still has a population half the size of Wollongong.
The NT’s economic explosion stems largely from one massive resource project: Japanese firm Inpex’s $34 billion natural gas project, which will generate more than 4000 jobs in Darwin during the peak phase of its construction and 700 once operational.
Darwin is closer to Jakarta and even Singapore than it is to Canberra. Yet Asia’s rapid development has largely passed by the city, whose palatial white Parliament on the gigantic clam-shaped harbour is easily the most impressive local building – a reminder the Territory’s economy still relies on government.
“The economic map of this continent needs to pivot much more in favour of land to the north, rather than to the traditional power hubs recognised in the past,” the Country Liberal Party’s Adam Giles, the NT’s new Chief Minister, tells Inquirer.
He reflects a growing view that Darwin, and more generally Australia’s north, is failing to take advantage of the opportunities Asia offers and is hamstrung by taxes and regulations more suited to Sydney and Melbourne.
A vibrant, dynamic, populous northern Australia has long inspired Australian patriots and successful business people, from Lang Hancock to Rupert Murdoch, who only this week said “everything north of the tropic of Capricorn can be expanded tremendously”.
The prospect of Coalition governments at both territory and commonwealth levels, Asia’s growing wealth, and growing community support for a big NT present the most favourable climate yet for development.
“There’s no reason why Darwin shouldn’t have a population of one million people and be one of Australia’s major population centres,” says John Roskam, director of the Institute of Public Affairs, which is leading a push to highlight the north’s economic potential.
“But it can’t be Australia’s gateway to Asia with the current policy settings,” he says, pointing approvingly to the federal Coalition’s leaked policy document from earlier this year that proposed freer regulation and greater public investment in northern Australia – creation of some sort of special economic zone. “There is a renewed momentum in the debate thanks in large part to the work of Andrew Robb,” he says.
“It was so refreshing to see the federal Opposition flagging special economic zones in the Northern Territory,” says WA gold miner Imants Kins, co-founder of Australians for Northern Development and Economic Vision, an advocacy group he founded with Gina Rinehart in 2010 to prosecute the case for a SEZ in northern Australia.
The Gillard government’s White Paper on Australia’s role in the Asian century says Darwin is unique “in its capacity to transform itself in coming decades because of its proximity to Asia” and was “on the cusp of evolving in the same way as Singapore”.
“Darwin has great opportunities to become a world-leading centre for engineering, financial, medical and education services,” the report enthuses, but it shies away from recommending any concrete measures beyond “working together” to “accelerate Darwin’s evolution”.
“The White Paper simply says the bleeding obvious,” says former chief minster Terry Mills.
ANDEV, of which Mills and Giles are both members, is less hesitant about what should be done. “Darwin should be first cab off the rank for a zone so we can prove they work,” Kins says, suggesting cuts in corporate and payroll taxes for NT businesses.
“Rapid economic development could also help bring Aboriginal people suffering from ongoing entrenched unemployment and low self-esteem,” he says, suggesting more than 5000 indigenous people are now working in the Pilbara thanks to the mining boom.
The idea also has an increasingly powerful advocate in Rinehart, chairman of Hancock Prospecting and Australia’s richest person, who inherited a passion for freedom and limited government from her father Lang Hancock.
She chose Darwin to launch the second printing of her latest book, Northern Australia and Then Some, last month.
“Darwin, the north of Western Australia and Queensland would be a magnificent place for a special economic zone,” Rinehart told a crowd of fans there earlier this month. “They are not unusual or peculiar, they are not mad; they actually work,” she said, arguing SEZs offer a bulwark against Australia’s taxes and regulations, which stifle growth and risk rendering Australia uncompetitive.
“Asia likes Australia but that doesn’t mean it will buy its produce, either mineral or anything else,” she said, worrying that the pace of exploration was already slowing.
Rinehart’s ANDEV is supporting the IPA’s campaign.
“We need a competitive business environment that will encourage both foreign and domestic investment in Australia over competing investment destinations globally,” says Roskam, who suggests the NT, endowed with significant agricultural potential, has a moral obligation to help feed Asia’s millions.
“Until recently, investors and settlers had been discouraged by the vast, remote and often desolate landscape, but people are starting to see the opportunities that exist in northern Australia,” he says.
Though naturally reluctant to spark a political stoush with their federal counterparts, senior NT politicians embrace the idea too. “I’d like to be given the freedom to make adjustments that suit our interests,” Mills told Inquirer a few days before his ousting last month, suggesting visa constraints and corporate tax rates were “southern-centric”.
The new Chief Minister says Indonesia is perfectly placed to provide NT employers, now fearful the Inpex project will siphon off their skilled tradesmen, with sponsored foreign workers on 457 visas.
ANDEV is inspired by the successes of SEZs in Asia. China’s spectacular growth rests on creative economic zoning. Inspired by Hong Kong’s rapid efflorescence, then leader Deng Xiaoping designated a special economic zone in Shenzen in 1980.
Shenzen’s share of trade in the greater Guangdong Province exploded from less than 1 per cent to near 20 per cent over the next five years, as migrants poured in. So impressed were China’s leaders they designated another three zones in 1990, including Shanghai’s now bustling Pudong district.
Inside the special zones, Chinese businesses and people enjoy far greater freedoms: company taxes are half those in other provinces, wages are less heavily taxed and are set by the market rather than China’s central wage-fixing regime, and red tape has been stripped away.
But Paul Collits, an associate economics professor at the University of Southern Queensland, is sceptical about how effective SEZs would be in Australia.
“Putting to one side any constitutional issues with the federal government appearing to favour different states or territories, the evidence that SEZs work is very patchy,” he says, suggesting the innate characteristics of a region determine whether it thrives.
Collits supports developing the north but cautions “special taxes or regulations won’t make a blind bit of difference to people’s desire to live somewhere”, pointing to decades of failed attempts in Britain to revive the economically moribund north, and Australia’s own failed attempts to spur development in underpopulated areas in the 1970s.
A 2012 NSW parliamentary committee recommended against special economic zones, arguing distinct regulations for particular areas would only add to an already substantial burden of complexity and red tape for business.
But Collits says “ANDEV is different from most zone advocates in preferring cuts in taxes and regulations rather than extra spending from the central government”.
If specific policy prescriptions for a northern SEZ remain vague, the Territory’s infrastructure shopping list is well prioritised.
Giles says the Territory’s infrastructure is 50 years behind the other states: “We need to enable Darwin Port to become a growth hub of the north that connects Australia to Asia,” he says. Darwin’s port has enjoyed more than a five-fold surge in traffic over the past decade.
His predecessor laments the lack of a gas pipeline between Tennant Creek and Mount Isa, meaning the Territory is cut off from a grid that connects Queensland, NSW and Victoria.
“Construction of such a pipeline would be a boon for jobs and increase domestic gas supply; it’s roughly 700km at $1 million a kilometre,” says Mills.
The Territory government spends around $4.7bn a year, but raises less than $600m in taxes.
By far the biggest mendicant among Australia’s states and territories, it receives $5.31 for every $1 of GST revenue its small population would justify.
Yet the government is still projecting deficits of around $400m a year.
For 20 years from 1983, the public payroll hovered steadily around 14,000 people, but surged 35 per cent to 19,500 in the decade to 2012. While the Territory’s population has grown 13 per cent since 2005, the number of executive officers in the public service – those earnings between $200,000 and $332,000 a year – has leapt by 71 per cent to 603.
Lucio Matarazzo, a prominent Darwin industrial relations consultant and former Australian Services Union officer, tells Inquirer the previous Labor governments of Clare Martin and Paul Henderson ratcheted up the public sector unsustainably.
“Not-for-profits and ordinary private sector firms can’t compete with the public sector wages,” he says, suggesting public sector jobs pay between 20 and 40 per cent more than similar jobs in the private sector.
Regardless, the Territory government is making tentative plans for a population explosion and has planned construction of thousands of new houses. “We are finally now asking questions like ‘where would 1 million people live?’,” Mills says, conceding the idea is not popular among locals.
Isn’t Darwin too inhospitable to accommodate such a big population? “Nonsense, it’s a beautiful place,” he says.
It seems a SEZ in the north could do little harm if it failed, but potentially great good if it worked.