Institute Of Chartered Accountants In Australia Campaigns For Introduction Of Enterprise Zones

by Mary Swire, Tax-news.com, Hong Kong

11 April 2001

The Institute of Chartered Accountants in Australia (ICAA) is backing a study which calls on the Federal Government to intervene with tax policies for poorly perfoming regions in Australia. The study is the first of its kind in Australia to look into the potential for achieving regional equity through business-driven economic development.

The study examined the reasons for the current state of decline in regional Australia and makes 16 recommendations to address the problem with an overall argument that the concept of 'Enterprise Zones' could be implemented as a sound solution to bringing poverty-stricken areas out of recession.

According to the study, conducted by Dr Ian Manning from the National Institute of Economic and Industry Research (NIEIR), the introduction of Enterprise Zones in other countries around the world has proven a successful model whereby poor areas are identified as zones in which appropriate levels of government assistance to encourage viable commercial activity are applied to each individual area.

In a press release from the ICAA, the Institute states that the problems can be attributed to the lack of Government intervention, or the nature of current intervention, and also because Australia's industry structures have clung to outdated economic models. As ICAA spokesman, Bill Sheehan, explained: 'This lack of Commonwealth support for regional economic initiatives is particularly serious given the Commonwealth's dominance of taxation, and the consequent liminted capacity for state and local government to finance investment and grant tax incentives.' He added that there is no constitutional impediment to 'Commonwealth participation in the setting up of such Zones or providing for tax incentives in these designated areas.'

Under the study's proposals, tax incentives are recommended to entice businesses to economically depressed regions to boost employment and the local economy as well as wage subsidies and a cash injection to strengthen infrastructure funding.

Using the experience of governments that have implemented Enterprise Zones throughout America and Europe, the ICAA estimates that the Zones could cost the Australian government around AU$5 billion a year but claims that the bulk of the cost could be cancelled out by savings from social security payments.

According to Australia's media, some government MPs, including Regional Services Minister Ian Macdonald and Agriculture Minister Warren Truss, have already agreed to support the proposal in principle and National Party backbenchers are currently drafting their own Enterprise Zones proposals.

However some government MPs have expressed concerns that the introduction of Enterprise Zones could lead communities' discontent as the government could be seen to be favouring some areas over others resulting in businesses operating under different tax rates to the competition. For example, the government would have to decide what factors an area would have to suffer from before it could be offered fiscal incentives. Would an area have to be in economic depression, or would its remoteness be taken into account? Senator Macdonald said: 'I do think there is an argument for some form of tax concession that recognises remoteness, but whether this is the right model is something that we have to look at. This concept isn't new but there are a lot of things that have to be looked at.'

Other MPs have argued that instead of implementing a new tax concession scheme levied on Enterprise Zones, the government could simply modify its existing zonal tax rebates schemes. These schemes, which are currently under review, offers tax breaks of up to A$1000 a year to those who live in remote areas and the government has hinted that this could be extended in the next Budget to company tax as well.

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