Enterprise zones
ALGA recognises that there are a variety of regions in Australia, a number of which are under-performing. A principal impediment to stronger regional development in Australia is a lack of coherent policy that encourages and stimulates the private sector and which is effective at a microeconomic level. Without more effective incentives for business, regional Australia will struggle to realise its full potential no matter what structures are in place. It is with this in mind that ALGA is a strong proponent of Enterprise Zones.
An Enterprise Zone is a designated region which falls below certain agreed economic and/or social indicators of disadvantage, such as high unemployment, and is provided government assistance for a certain specified period of time. Once designated, an Enterprise Zone offers a range of attractive benefits to businesses. Any business locating in the zone, or an existing business expanding in the zone would be eligible for a range of benefits subject to that business creating new net employment for Australia.
Enterprise Zones represent a substantial policy initiative, successfully used overseas to stimulate business activity and counter the effects of market failure. The widespread use of enterprise zones in the United Kingdom, the USA, similar mechanisms in European countries and the European Union highlight the potential benefits of these policies.
United States of America
An enterprise zone is a local-option, and economic development tool that allows a community to partner with the State to offer a package of local and state tax and regulatory benefits to new or expanding businesses in economically distressed areas.
An enterprise zone is a defined geographic area within which businesses can obtain tax benefits and other incentives designed to stimulate business investments. The reason for promotion business investments within the zone is to increase the number of jobs available to area residents, because the best economic development is a job.
An enterprise zone comprises an area identified by local elected and economic development officials and designated by the state. Under the program, certain types of businesses locating to, or expanding in a designated zone may claim tax credits provided in the law.
The Illinois Enterprise Zone Program was signed into law December 7, 1982. The purpose of the Act is to stimulate economic growth and neighbourhood revitalisation at the local level. This is accomplished through state and local tax incentives, regulatory relief, and improved governmental services.
United Kingdom
The government has announced its intention to legislate for the creation of enterprise zones. The purpose of these zones is to test as an experiment, and on a few sites, how far industrial and commercial activity can be encouraged by the removal of certain fiscal burdens, and by the removal or streamlined administration of certain statutory or administrative controls. Some of the measures to be applied in enterprise zones will be discriminatory and will not be suitable for wider application.
Companies located in the enterprise zones (East Durham - UK) can take advantage of the following financial assistance: freedom from business rates for the 10 year life of the enterprise zones (December 2005), 100% tax allowances on the costs of industrial/commercial buildings, a streamlined planning process and possible rent free periods from developers.
Criticism of Enterprise Zones
Enterprise Zones are not well received in all economic development policy circles. Most recently in the Regional Business Development Analysis Plan for Action Enterprise Zones were rejected as a viable option to attract investment and promote stronger regions. Common criticisms against Enterprise Zones are addressed below:
- Enterprise Zones crowd out each other's window of opportunity
- A key requirement of enterprise zones is that businesses cannot simply move from a non-zone to a zone to earn benefits. In Australia's regions most new jobs will be generated from existing businesses. Enterprise Zones provide a way to stimulate those existing businesses to think about expansion.
- They create more artificial boundaries, which in turn can create winners and losers and replicate the problems created by state borders.
- It is a mistake to see enterprise zones as creating winners or losers. The implementation of enterprise zones does involve a recognition that in parts of the country market failure has led some regions to under perform in comparison to others. This is a current reality-not a product of boundaries (state or other) but a consequence of market failure. The provision of Enterprise Zones is not about picking winners or losers but about committing to a process of rejuvenation.
- Declaration of a region as an enterprise zone implies that the region is disadvantaged thereby discouraging capital markets and investors.
- The Enterprise Zone system has a long and successful track record overseas. It should be noted that the RBDA report does not identify any Australian peculiarities to restrict the implementation of Enterprise Zones here. Commonsense and overseas experience tells us that businesses and capital markets are guided by profit. The improved bottom line offered by the benefits accrued in Enterprise Zones will encourage investment.
ALGA wishes to make it clear that enterprise zones are not proposed as a single solution to the impediments for businesses in regional areas. Overseas experience is adamant that Enterprise Zones, while a significant and necessary tool, can only be successful when combined with other new and existing programs together with commitment by the respective community. EZTMs however are a departure from traditional indirect and competitive grant programs and are available to individual businesses should they chose to meet the obligations imposed by them.
It is important to state at this point, that as enterprise zones do not exist in Australia at present, we have an opportunity to fairly and objectively assess the way they may assist regional areas. The Trade Zone at Darwin has been mistakenly referred to as an enterprise zone however it does not operate in the same way as the typical enterprise zones found overseas.
Related links
- ALGA's Submission to the RBDA Panel
- ALGA's Response to the RBDA Plan for Action
- Cost Benefit Analysis of California's Enterprise Zones [PDF]
- US Department of Housing and Urban Development Community Renewal Initiatives
- Economic Gardening in Littleton Colorado
