States induce costly mistakes

SIR, Your editorial ("The way forward on State taxes", AFR, August 14) points out that, when competition between States takes the form of tax concessions provided to just one business, or even one industry, it can be counterproductive.

Indeed, many costly mistakes have been made in the past by all State governments in providing assistance of one form or another in order to induce enterprises to invest in their State.  State governments are nonetheless still in the business of providing such incentives.

While the scope for making costly mistakes may now be less than it was in the 1980s, there remains considerable public unease when governments do special "deals" with business enterprises.

It would help relieve such unease if, before such "deals" were consummated, the costs and benefits were evaluated by an independent body.  There is now a long record of federal bodies such as the Industries Commission, Foreign Investment Review Board and Trade Practices Commission examining commercial in-confidence material, evaluating it, and providing advice to the Commonwealth Government.  Even though some of that advice is itself provided in confidence, the processes undertaken reduce the mistake-risk and improve transparency.  One option for the State governments would be for them to establish their own Industry Commission to evaluate the costs and benefits of providing incentives where special deals are proposed, and to report to the Government.  Another would be to contract out such evaluations to the federal Industries Commission.  Either way, in the long run this approach could produce political as well as economic benefits.

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