Special Economic Zones for Western Australia?

| April 11, 2018

Recent improvements in aircraft technology make long-distance commercial flights to the other side of the world a reality. On March 24, 2018, Qantas commenced flying direct from Perth to London, a distance of almost 14,500km.

How could state and federal governments take advantage of this direct route to Europe? One of the best ways – which requires no government outlay or investment and where the risk is borne by private investors – is through a Special Economic Zone.

A Special Economic Zone (SEZ) is a discretely defined geographical region where business and trade laws differ from the national laws. SEZs allow governments to experiment with different governance structures, tax rates, regulatory burdens and zoning laws to promote growth and innovation.

To incentivise investment, lower rates of tax, simplified approval processes and lower regulatory barriers are some possible mechanisms to attract capital and business.

There are many examples to which Western Australia can look for inspiration. Hong Kong was originally a barren piece of rock, ceded to the British as a treaty port. Enforcement of rules was expensive, and so a light touch in regulation and governance was the preferred option of Whitehall.

This has resulted in spectacular growth and improvement in the standard of living of the trading post. Hong Kong is now one of the richest countries per capita in the world while remaining close to the top of the economic freedom rankings.

An SEZ need not be an ambitious undertaking. Australia has a similar structure where certain zones across the country attract a tax offset. Expanding the coverage and scope of tax offsets to a new specific zone would not be difficult.

Western Australia should consider creating an SEZ, coupling the already available tax offsets with reduced regulatory and licensing barriers to encourage investment and economic development in the zone.

With rapidly changing technology, businesses need to be nimble. A restrictive regulatory regime hinders the ability to adapt. In contrast, a lower tax zone with simplified environmental regulatory approvals, minimal zoning restrictions, and flexible labour laws would attract investment and capital to the SEZ.

There is some opposition to SEZs. It is often argued that these zones are not fair as they do not apply to the whole country; they only confer the benefits on a small geographical area. However, the aim of SEZs is to experiment on a small scale.

These benefits can later be expanded. Australia needs to stay competitive in an age where businesses and individuals are mobile. Countries around the world are fighting to remain attractive investment options.

Our nation has plenty of land, a highly educated workforce, access to cutting edge technology, and enjoys direct access to most of the globe in a single flight. We have all the pieces of the puzzle, except for one: a government willing to facilitate the SEZ.