Negative Effects of Tax Incentives Towards Foreign Direct Investment: a Hypothetical Report
Executive Summary
The tax incentive policy widespread around the globe in the 1990s due to the belief that attracting multinational firms would create more job opportunities and eventually better off for the whole economy. There have been some evidences that foreign direct investment (FDI) benefited developed countries’ economy. Recently, the Australian government has proposed a new policy that would give fairly large incentives to foreign direct investors. However whether the FDI would benefit Australia’s automobile industry and textile industry, is questionable, and needs to be critically evaluated.
This report has been written by the Manufacturers Association, and it is believed that there would be more disadvantages than advantages to Australian economy, especially automobile industry and textile industry. Giving incentives to FDI only helps to destroy small business sectors, and will have a negative impact on the government’s revenue. For the future growth of the industry and businesses, revising the government’s proposal will be important.
The Manufacturers Association suggests three main ideas towards the new policy, and the recommendation for the government is as follows.
The government should establish and improve laws that are relating to market's assessment, regulations and the standard system as soon as possible.
The government should carry out some policies to ensure market competitiveness.
The government should play a catalytic role in corporate mergers.
Introduction
This report has been written by the manufacturers association due to a new government policy proposal that was introduced lately. The new proposal states that the government will give significant tax incentives to foreign investors who are prepared to invest in expanding the nation’s manufacturing base in automotive and textile industries. However, there may be some problems that might arise with this new proposal. Thus the objectives of this report are to critically evaluate advantages
The tax incentive policy widespread around the globe in the 1990s due to the belief that attracting multinational firms would create more job opportunities and eventually better off for the whole economy. There have been some evidences that foreign direct investment (FDI) benefited developed countries’ economy. Recently, the Australian government has proposed a new policy that would give fairly large incentives to foreign direct investors. However whether the FDI would benefit Australia’s automobile industry and textile industry, is questionable, and needs to be critically evaluated.
This report has been written by the Manufacturers Association, and it is believed that there would be more disadvantages than advantages to Australian economy, especially automobile industry and textile industry. Giving incentives to FDI only helps to destroy small business sectors, and will have a negative impact on the government’s revenue. For the future growth of the industry and businesses, revising the government’s proposal will be important.
The Manufacturers Association suggests three main ideas towards the new policy, and the recommendation for the government is as follows.
The government should establish and improve laws that are relating to market's assessment, regulations and the standard system as soon as possible.
The government should carry out some policies to ensure market competitiveness.
The government should play a catalytic role in corporate mergers.
Introduction
This report has been written by the manufacturers association due to a new government policy proposal that was introduced lately. The new proposal states that the government will give significant tax incentives to foreign investors who are prepared to invest in expanding the nation’s manufacturing base in automotive and textile industries. However, there may be some problems that might arise with this new proposal. Thus the objectives of this report are to critically evaluate advantages
References: ABS (Australian Bureau of Statistics) Australian System of National Accounts, 2001-02, Cat. No. 5204.0 Foster and Stewart (1991) AMC (Australian Manufacturing Council) and McKinsey & Co. 1993, Emerging Exporters – Australia’s Emerging High Value-added Manufacturing Exporters, Final report, June 1993. Argyrous, G. 2000, ‘The high road and the low road to international trade – emerging exporters revisited’, Journal of Australian Political Economy, No. 45 The Economist Ernst & Young. 1994. Investment in Emerging Markets: A Survey of the Strategic Investment of Global 1000 Companies. Moran, T. 1998. Foreign Direct Investment and Development. Washington, D.C.: Institute for International Economics. Oman, C. 2000. “Policy Competition for Foreign Direct Investment: A Study of Competition among Governments to Attract FDI.” Development Centre Studies UNCTAD (United Nations Conference on Trade and Development). 1995. Incentives and Foreign Direct Investment. Background report. Geneva. Wells, L., N. Allen, Jacques Morisset, and Neda Pirnia. 2001. Using Tax Incentives to Compete for Foreign Investment. Paul Doremus et al, Myth of the Global Corporation, Princeton: Princeton University Press 1998 Boletin: Cedada da Divida No 12, May 31, 2005 La Jornada June 7, 2005 Tanushree Mazumdar, "Capital Flows into India", Economic and Political Weekly, Vol XL No 21 http://www.treasury.gov.au - Foreign Investment Policy in Australia — A Brief History and Recent Developments UNITED NATIONS New York and Geneva, 2000 - ASIT Advisory Studies No OECD tax policy study no. 3 corporate tax incentives for foreign direct investment The impact of tax incentives on foreign direct investment in China (2000) Journal of International Accounting, Auditing and Taxation, 9 (2) Aitken, B., Harrison, A. (1999). “Do Domestic firms Benefit from Foreign Direct Investment? Evidence from Venezuela.” Retrieved on 7th May 2011, from http://www.jstor.org/stable/pdfplus/117035.pdf?acceptTC=true. Business Breakfast: Arnotts bids for Snack Foods, Australian Broadcasting Corporation, July 6, 2002. Li, Q. (2006). The Journal of Politics, Vol. 68, No. 1, Retrieved on 7th May 2011, from http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2508.2006.00370.x/pdf. Morisset, J., Harrison, A. (1999). “How Tax Policy and Incentives affect Foreign Direct Investment.” Retrieved on 9th May 2011, from http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2508.2006.00370.x/pdf. Moynihan, Stephen: Tearful workers feel the final crunch at Arnott 's, The Age, August 3, 2002. Radio National (PM): Herron 's actions a contrast to Arnotts ' open-ness, ABC Radio, March 17, 2000. The 7.30 Report: Mars, snickers threat aimed at unnamed organization, Australian Broadcasting Corporation, July 4, 2005. Turkenburg, M. (1993). “The Nethernalnds Wood Foreign Investors.” International tax Review 4(9): 31-2. Yun, A. (2001). “Korea.” International Tax Review 2:51-56