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Government help for the lucky few

DOZENS of private sector projects are launched every year in Western Australia. Of all these projects, a select group has received big-ticket financial assistance – $600,000 or more – from the State Government.

The list of recipients includes some of the world’s biggest and most profitable companies – global computing giant IBM, communi-cations giant Motorola, banking group Westpac, US defence contractor Raytheon and the world’s second largest container shipping operator, Mediterranean Shipping Company.

Prominent local companies such as food group Kailis & France and towel manufacturer Canning Vale Weaving Mills have received government assistance.

The recipients also include several little-known companies that operate in the State’s South West.

The Gallop and Court governments have provided or committed $50 million of assistance to these and other companies over the past five years (see table).

The total amount of State government assistance would be substantially higher if it included infrastructure support, such as the $30 million of land purchased for Rio Tinto’s HIsmelt project at Kwinana and the Mid-West pipeline built for the failed Windimurra vanadium project.

What is the common thread that links all of these companies together? Why have they all qualified for government assistance at a time when most small and mid-sized businesses have to cope with higher taxes and charges?

It’s all about strategic value, according to State Development Minister Clive Brown.

“You need to look at what is the strategic value of these projects to the State,” Mr Brown said.

“We don’t have a one-size-fits-all approach. We looked strategically at what the government wanted to achieve.”

What does this mean in practice?

In many cases, it simply means creating jobs in regional communities.

Four call centre operators have qualified for government help because they chose to establish call centres at Joondalup and the South West.

Similarly, at least six timber and horticulture companies have received government help because they established operations in hard hit timber towns such as Manjimup and Nannup.

Rio Tinto’s HIsmelt project qualified for government assistance because of its potential to revolutionise the development of the iron ore industry.

In the case of big technology companies such as IBM, Motorola and Raytheon, the Government believes they will help to put WA on the global business map.

“In seeking to attract more international investment, it’s a definite selling point for us to be able to point to the presence of IBM and Motorola here, using home-grown research talent to develop international products,” Mr Brown said.

The Gallop Government expects these companies will deliver a range of direct and indirect benefits.

Raytheon, for instance, will directly create 150 high-paying jobs at its naval systems division headquarters at Jervoise Bay.

It will also work in conjunction with local universities and engineering companies on research and development activities.

And importantly, the Government believes Raytheon’s presence will boost Western Australia’s prospects of winning future naval contracts.

Of course, this argument can be turned on its head.

Raytheon might have relocated to Jervoise Bay anyway, to boost its own commercial prospects.

Mr Brown sees this as an inherent risk of investment attraction programs.

“Will a company come here anyway? That’s the dilemma you always face,” he said.

In Raytheon’s case, there are strong commercial reasons to relocate from Sydney to Jervoise Bay.

The company already has some work at Jervoise Bay – to install combat systems on HMAS Shean – the Australian and US navies are increasingly active there, and the area is set to attract even more defence work.

Just last month, for instance, the Defence Department announced that Tenix and Austal, both of which are based at Jervoise Bay, were the final two bidders for its patrol boat replacement contract, worth an estimated $380 million.

The political reality facing the WA Government is that other States are also offering financial incentives to big private sector companies to win their projects.

The South Australian Government, for instance, was known to have offered financial incentives to Raytheon.

Call centre operators are renowned for attracting competing bids from different States.

But unlike the WA Government, other States generally do not publicly disclose the assistance provided to private sector projects.

The Government argues that this interstate competition leaves it with little choice.

“If the State Government was not providing incentives we would be failing the WA economy and more importantly the WA people,” a spokesman for Premier Geoff Gallop said.

“We have to compete and we make no apologies for doing so.”

In this context, big companies are ideally poised to play off different States against each other.

The likes of Westpac and Stellar can establish their call centres in any number of cities around Australia, and even offshore.

Similarly, Motorola and IBM could establish their R&D facilities in any number of cities around the world.

Perth has some strong selling points, such as a skilled labour force, competitive salary levels and attractive lifestyle.

If the State Government throws in several million dollars of assistance, then Perth becomes even more attractive. In Motorola’s case, the State Government has agreed to provide $5.4 million over five years for its new software engineering centre.

This equates to a subsidy of $27,000 for each of the 200 jobs Motorola expects to create.

The assistance to Motorola didn’t stop there. The University of WA has also spent $15 million building Motorola’s software centre on its Nedlands campus.

This isn’t a pure subsidy. The building will have some value to the university, irrespective of Motorola’s involvement.

And having Motorola on campus is a prestigious feather in UWA’s cap.

Nonetheless, Motorola is in the envious position of being able to walk into a purpose-built software engineering facility.

Not many other companies receive that kind of red carpet welcome.

To try and ensure its money is well spent, the Gallop Government intensively scrutinises all proposals.

Mr Brown said that for every project that does obtain assistance, there are many other unsuccessful applicants.

The Gallop Government has also structured its assistance programs so that payments are made over several years and are subject to the recipient meeting key performance targets, such as capital investment, employment levels and research spending.

Despite the Government’s stated caution, the Chamber of Commerce and Industry of WA remains wary of any assistance to individual companies.

“They would need to demonstrate market failure or some significant public benefits,” CCI chief executive Lyndon Rowe said.

He said the chamber preferred assistance to be in the form of infrastructure that could be used by several companies or projects.

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