Editorial

More on that investment template — if we are serious this time

Tuesday, January 21, 2014    

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A few weeks ago, we discussed in this space the fierce competition waged by a number of American states for Boeing's 777X assembly plant.

For those who missed it, almost 24 states offered Boeing attractive tax incentives to set up its assembly plant for its new 777X aircraft in their jurisdiction.

Boeing, which was already established in Washington state, had opened the contest after a machinists' union there rejected the aircraft manufacturer's proposed contract for the 777X because it would have replaced their traditional pension scheme with a defined-contribution savings plan.

The upshot was that the governments of the competing states saw an opportunity to create jobs which, they calculated, would result in increased revenue earnings for their states.

Therefore, they see the wisdom of providing tax incentives to investors, even if those tax breaks may appear to be huge now. So, for instance, Missouri Governor Jay Nixon convened a special legislative session to approve a US$1.7-billion incentive package that would remain in effect for more than 20 years and create 2,000 new jobs.

Washington state approved nearly US$9 billion in tax breaks for Boeing as their calculation showed that keeping the 777X plant there would result in US$21.3 billion in tax revenue for 15 years, based on a total of approximately

57,000 jobs.

Washington's legislators went even further, offering the aircraft manufacturer new incentives over 16 years to include a 40 per cent reduction in business and occupation taxes, US$3.5 billion in tax credits for the development of the aircraft, a US$562-million property tax credit on land and buildings, a US$242-million sales tax exemption for purchasing computers, and US$8 million allocated in fiscal year 2015 to train another

1,000 workers.

Boeing eventually decided to stay in Washington State as the machinists' union accepted the company's contract proposal. But there's more.

Last week, news emerged that Forbes Media, publisher of Forbes magazine, decided to move 350 jobs from New York to New Jersey after the latter offered the company US$27.1 million in tax incentives over 10 years.

According to the New Jersey Economic Development Agency, Forbes' move will result in a net estimated benefit to the state of US$72 million over 20 years.

Those are not numbers to sneeze at and would do our Government good to examine closely. For it is clear that the legislators in these states are thinking long-term by offering what are very attractive incentives to investors.

New York, for instance, recently launched what has been described as a multi-faceted programme to attract jobs and business start-ups by dangling a corporate tax cut as well as a 10-year tax exemption to businesses that locate in certain areas there.

As we argued in this space last month, we don't expect the Government to give the country to investors on a platter. However, the Government needs to think big and act on that thinking.

That is, if we are serious about economic growth this time.

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