The Coalition and ANDEV: A shared vision for developing northern Australia?

If it looks like crony capitalism, and it smells like crony capitalism, and your policy paper is nearly identical to one proposed by Gina Rinehart's lobby group – it's probably crony capitalism.

A cursory inspection of the backgrounding provided prior to the release of the Coalition's '2030 Vision for Developing Northern Australia' policy paper renders the notion that it originated from the party-room laughable. As the Sydney Morning Herald commented when the draft version was leaked in February, "the 'visionary' document aligns almost exactly with the manifesto of the mining magnate Gina Rinehart and others who have formed a lobby group called Australians for Northern Development and Economic Vision (ANDEV)."

Crony capitalism is the favouring of specific groups, areas or people over others. Usually those favoured have the right connections or the deepest pockets. It's anathema to free market liberalism in which the government is agnostic on who succeeds and fails in an economy.

The Coalition's adoption of an economic policy pushed by mining interests represents the triumph of crony capitalism in the party of the free market faithful. It would be naïve to think this sort of lobbying doesn't happen to every political party. The success of this attempt, and also its brazenness, is particularly mind-boggling.

The catalyst for the policy was a 2010 open letter signed by the executives of over 50 resources companies that called for the establishment of a special economic zone with fewer regulations and taxes to develop Australia's north. It was quickly followed by the establishment of ANDEV, a lobby group chaired by Gina Rinehart to realise this vision. The Institute of Public Affairs, famous for its mercurial campaigning and opaque funding, was soon recruited to give the project a veneer of free market respectability.

ANDEV's plan was not just a slight drop in taxes. It included vast sums of taxpayer investment in infrastructure, accompanied by the abolition or dramatic reduction of taxation levied. Eerily, LNP MPs sketched many of the demands out in wording pulled straight from the ANDEV site in a series of op-eds and speeches. The 2012 National Party Conference keynote address, given by one of Rinehart's employees, was dedicated to promoting this vision, going so far as to include ANDEV promotional material in all delegate's packs and exhorting the audience to meet with him to discuss ANDEV privately.

Why is an influx of subsidies necessary? The central thesis behind the ANDEV plan is that northern Australia is 'underdeveloped', 'underutilised' and 'underpopulated'. The Coalition's policy adopts these claims uncritically, spicing them up with promises of taming Australia's 'last frontier'. ANDEV also bandies around some odder reasons; the "multitudes of snakes" and "excessive heat" that afflicts residents of the North apparently entitles them to generous tax offsets.

The trouble is, deciding where is under-developed is an impossible task. Any part of Australia that does not match CBD Sydney for population density could be considered underdeveloped. Governments generally don't make these kinds of calls, as they have no tools for making them in an evidence-based way. Indeed, NSW Premier Barry O'Farrell jumped on board after the Coalition's policy was leaked to suggest that western areas of his state should get similar tax breaks and allowances to attract residents. The logic can be extended anywhere.

Going on the word of vested interests, especially when the result is worth a huge influx of government subsidies, does not make for sound economic policy.

At any rate it transpired that everyone had gotten rather too excited to notice that the preferential tax basis of the policy is probably unconstitutional. S.99 of the constitution explicitly forbids preferential regulation or taxation of geographic areas. The latest Coalition incarnation of the policy leaves it to a future white paper to review how to achieve a preferential taxation regime without ending up in the High Court.

The policy paper itself is replete with qualifiers that are acutely self-conscious: "While there is some suggestion that the Commonwealth should take an interventionist approach, the Coalition is emphatically of the view that the development of the North is best maximised through private sector investment and ingenuity."

How "private sector ingenuity" became distortive taxation, vast infrastructure projects, rerouting of Foreign Aid money, and wholesale redeployment of federal government agencies one sentence later is somewhat puzzling. For a real zinger see page 25 for a tortured explanation of how building infrastructure that is unviable can actually lead to a "virtuous cycle" of growth and "positive feedback" that will cause the infrastructure to become viable.

This isn't to say some reasonable ideas aren't floated. Changing restrictive leasehold arrangements and cutting out red-tape duplication can help boost Northern Australian growth without turning it into a fiscal sponge. But if red-tape is blocking growth – why not cut it Australia wide?

Herein lies the problem at the heart of the Vision for Developing Northern Australia: it's been driven from the office of a vested interest into a Liberal party that can no longer distinguish between crony capitalism and free markets. It undermines federalism by subsiding infrastructure spending and tax cuts without imposing the fiscal responsibility that a state faces in having to balance the books on this equation. No doubt growth will occur under this formula, it would be a miracle if it did not, but it will be the product of government distortion, as much a 'pick a winner' approach as the Direct Action scheme.

In 1987, a young Tony Abbott wrote to his political mentor B.A. Santamaria for guidance over whether to join the Liberal Party, worrying that it was populated by "more or less simple-minded advocates of the free market". Such a fear seems increasingly quaint.