2nd July, 2018, By Cian Hussey
For a country which has benefited immensely from the liberal international order and modern economic development, Australia has done remarkably little to facilitate the development of some of its own territory.
Northern Australia – usually defined as everything above the Tropic of Capricorn – has always been the poor relation of the more densely-populated areas of New South Wales, Victoria, and southern Queensland.
Although it accounts for roughly half of Australia’s landmass, it is home to only 5.5% of the population, and generates only 11.7% of GDP. And while the harsh climate and lack of infrastructure linking it to the rest of the country pose challenges, there are ample economic opportunities to be unlocked by a government with the vision to create effective policy.
The vision set out for the north of Australia has so far failed to get underway; though things looked positive during the mining boom, a strategy for long-term development and success needs to be implemented. The north, with its ports, agriculture and abundant untapped primary resources, has huge potential to grow its population, improve employment, and support emerging markets in Asia.
Change appeared to be on the horizon in 2015, when the Australian government released the inspiring-sounding Our North, Our Future: White Paper on Developing Northern Australia which outlined that:
“It is not the Commonwealth Government’s role to direct, or be the principal financier of, development. Developing the north is a partnership between investors (local and international investors who provide capital and know-how) and governments (that create the right investment conditions).”
While the document set a promising tone, it has yet to translate into effective policy. One outcome of the White Paper was the establishment of the Northern Australian Infrastructure Facility, an initiative which, in theory, operates in partnership with businesses to develop vital infrastructure. In the two years since the initiative was established, it has approved just two loans totalling $23.98 million – a tiny fraction of the $5 billion allocated when it was created.
Rather than trying to develop the north by government edict, it’s time for a different approach, ideally the use of Special Economic Zones. Special Economic Zones (SEZs) are specific regions within a nation which have tax, tariff, and other regulatory incentives to promote investment. While SEZs are not a guarantee of success, Northern Australia is a perfect example of a region that could benefit from them.
Establishing SEZs in Northern Australia would allow for the sort of business-led development the government called for back in 2015. A streamlined regulatory process, including reformed labour market regulations, and reduced business and personal income tax rates will encourage businesses and individuals to move north.
The trouble is, the Australian Constitution explicitly prohibits the creation of such zones in the States. And while the constitution can be amended, it very rarely is.
Fortunately, a significant part of the region is the Northern Territory. Unlike states, territories are the domain of the federal parliament, meaning an SEZ is perfectly feasible. SEZs provide a testing ground for changes in tax and regulation, and this could be done in the Northern Territory. If successful, zones could then be created in the rest of the north if the Commonwealth gave states power over regulation and tax rates.
In the 2015 white paper, the government stated that it would not create a Special Economic Zone in the north because it wanted to implement reforms “which are in the national scope” – this has hampered the growth of the north and is completely meaningless.
John McLaren of Charles Darwin University has argued that if the government is serious about developing Northern Australia, it needs to consider tax reform. McLaren argues that without taxation benefits the north will not attract investment and will remain relatively undeveloped.
The need for action is obvious. Since 2015 Australia has fallen in The World Bank’s Ease of Doing Business rankings, while the Northern Territory is 10th out of Australia’s 13 regions in terms of contribution to GDP growth over the past three decades.
This is especially frustrating as both the Territory and Northern Australia as a whole have huge potential in primary and extractive industries, tourism, and agriculture. Given its geography, there is also ample scope to enhance Australia’s trade with its neighbours.
With 11 of its top 15 trading partners in Asia, that matters for both the Australian economy and emerging economies in the region.
SEZs in Northern Australia would encourage investment from all over the world and enhance Australia’s already exports of agricultural products and primary resources, helping to provide food and infrastructure which Asia needs.
Encouraging the development of the north will also lead to greater connectivity by establishing a major city on the north coast, much closer to the Asian capitals than Sydney or Perth. A feasibility report has been published by Australian Venture Consultants who have argued the case for establishing the north-western town of Broome as a major city in the north. It already has the basic infrastructure needed to establish a hub in the region, and its geography, seaport, and international airport make it an ideal civic centre to further develop as the effective “Capital of the North”.
It is time for politicians to translate their warm words into meaningful action and give the long-neglected north the attention it deserves. Should they do so, the benefits for both Australia and its neighbours would be substantial.