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Donghai dong low sweet subsidy chariot

June 3, 2018 - 20:17 -- Admin

Long-ish article but a must-read in my humble opinion for Territorians interested in NT economic development (especially tourism).

The Gunner government isn’t keen to disclose the terms of its “partnering” agreement with Donghai Airlines that resulted in the airline’s inaugural flight from Shenzhen to Darwin earlier this week; apparently the first of two flights per week for an indeterminate period of time. It was full of junketing “VIPs” travelling at NTG expense, reportedly to the tune of a total $70,000. Exactly how much taxpayers’ money will be going to Donghai on an ongoing basis is a mystery, because the Gunner government refuses to tell us. I wonder how much of the $10.85 million the NTG recently announced as being committed to “cooperative marketing with domestic and international airlines” is going to support the Donghai deal? I suspect it’s probably the lion’s share. Moreover, there are also rumours that the Government is subsidising Donghai’s landing fees at Darwin Airport.

Why is this important? There are two reasons. First, the history of NTG attempts to increase the number and frequency of overseas airlinks is patchy to put it mildly, as I recently highlighted in a Twitter thread. Essentially what the subsidised airlines typically do is trouser the NTG subsidy dollars until the money stops, then cancel the formerly subsidised service/s. Historically these deals have been a waste of money. I’ll explore that proposition in greater depth below.

Secondly, we will actually need to rely on government subsidies of one sort or another if we hope to establish the type of attractions Darwin will need to entertain all those Chinese visitors so they recommend it to their friends. At the moment, during the wet season  Darwin regularly features hordes of American and European tourists from visiting cruise liners wandering bored, broiling and bemused around the CBD because few shops are open and there’s little or nothing to do.

Things will be marginally better at least in the dry season for Chinese visitors jetting in from Shenzhen, but Darwin still isn’t exactly excitement city. The potential is there but the execution is badly lacking. If our Chinese visitors also end up bored and bemused they won’t recommend Darwin as a destination and the Donghai service won’t last very long. Subsidising creation of one or more air services is potentially a good idea, but only if the subsidy period is used constructively and urgently by government and businesses to develop features and attractions that will make us a desirable destination and therefore make the air service sustainable in the longer term without a subsidy. Fortunately Darwin already has most of the necessary characteristics and natural beauty, compared with hot arid s**tholes like Dubai that have nevertheless constructed themselves as viable destinations, albeit only with vast amounts of oil money.

What we clearly need is a concerted, co-ordinated and well-planned program to develop Darwin as an exciting, attractive and relaxing tourist destination. That program will have to be planned and to some extent funded or at least subsidised by the Northern Territory Government. That’s why the question of subsidies is critically important.  The money has to be intelligently and carefully spent so we get maximum “bang for the buck”. Some types of subsidy are good and some are wasteful or even damaging. Most of the previous attempts at airline subsidies have been bad and wasteful. Whether any lessons have been learned for the current Donghai agreement remains to be seen because its terms are secret. They shouldn’t be. Not only is it our money the Government is spending, but sunlight is the best disinfectant for dodgy deals.

Transparency and accountability are critical in arrangements like this. In some ways it is understandable that the Gunner government is gun shy about disclosing the details of this deal, because some parts of the media habitually run condemnatory stories about almost any government-generated development whether or not its terms are in fact sensible and well-structured. The same goes for the usual local community Nattering Nabobs of Negativism who frequently feature on talkback radio and in the letters pages of the NT News. However, trying to cover the deal up and hide behind nonsensical incantations of “commercial-in-confidence” makes the situation even worse. It provokes suspicion even among strong supporters of industry growth and development like me. If our politicians can explain clearly and persuasively the necessity for deals of this sort then most Territorians will support them because most of us want the Territory to prosper. If they can’t explain then they shouldn’t be in politics.

Subsidies good and bad

Bad subsidies are those that undermine the “level playing field” in a given industry by giving one operator an unfair advantage over its competitors. With a bit of luck the Donghai deal won’t do that because no-one else is currently flying between China and the Northern Territory. Hopefully, however, the deal has been structured in such a way that future operators won’t be deterred from entering the market because of Donghai’s entrenched advantage. That was the lesson that should have been learned years ago from the botched subsidy deals for the building of the Darwin and Alice Springs Sheraton hotels in the 1980s. The NTG underwrote their operations by guaranteeing a 15% rate of return. Not only did it mean Sheraton didn’t need to try too hard to build a market (and they didn’t) but it deterred other operators from building more 4 and 5 star hotels for several years.

Good “subsidies” include simply seeking tenders or expressions of interest from the marketplace to ascertain what sort of subsidies or inducements are needed from Government for a particular key piece of economic infrastructure to be built and operated by the private sector. Sometimes, as with the Jemena gas pipeline to Queensland, it turns out that no government subsidies at all are needed. Other times provision of free serviced land is enough, as seems to have been the case with the Landbridge Hotel project at the Darwin Waterfront. The Government is hoping that the same will prove true for the Expressions of Interest it is currently seeking for the proposed new major water theme park near Stokes Hill. Provision of free serviced government-owned land is a good form of “subsidy” because it doesn’t actually cost the government anything in budgetary terms, nor does it distort the market by allowing the developer to compete unfairly with existing businesses.

Other potentially good subsidies in some circumstances include concessions for a defined establishment period on government taxes and charges including water, electricity, council rates, stamp duty, payroll tax and reductions in CBD levies for provision of parking in new buildings. That sort of inducement isn’t an immediate drain on the Budget: the Government doesn’t currently collect that revenue so foregoing it to induce a new business into the market doesn’t have a direct fiscal cost. However, subsidies or concessions of that sort must be evaluated carefully so they don’t give an unfair advantage to the developer over existing businesses in the same market. It’s fine if the business being created by the developer is the first one of that type into the market and therefore won’t detract from existing businesses (as with Donghai); or if it’s  a keystone facility or essential building block for the city or a particular industry, and therefore something from which everyone will ultimately benefit.

We badly need mature, nuanced community discussions around these issues if the Territory’s economy is to grow and prosper sustainably rather than continue to exhibit an endless boom/bust cycle as businesses crash and burn, partly as a result of exaggerated expectations induced by gung ho government rhetoric and ill-considered subsidy regimes.


The inaugural Donghai airlines flight arrives in Darwin from Shenzhen, China, under a water cannon salute. Picture: Justin Kennedy NT News

That is quintessentially the situation with all the ballyhoo surrounding Donghai’s inaugural flight, because the service won’t last very long without development of exciting attractions to keep tourists and other travellers coming here. Moreover quite a few of those facilities won’t be developed at all without well structured government subsidies and other support mechanisms.

The rest of this article suggests a series of ideas that should at least be explored if not developed in order to transform Darwin into an exciting destination for tourists, business travellers and (not least) local residents.  The first group consists of ideas that can be developed with little if any need for government funding as such but lots of encouragement and in some cases regulatory intervention. The second group comprises proposals that probably will need some sort of tangible government support or subsidy.

All of these concepts assume progressive implementation of the ideas in the mooted Darwin City Deal between federal, NT and local government, together with those I advocated involving a co-ordinated public transport system in this article , That is, parking stations and main bus terminus situated below McMinn Street and free CBD electric shuttle buses running every 5 minutes. All of these are vital for Darwin to develop as a liveable, attractive “creative” city.

Ideas that won’t need government money

CBD retail outlets open in the evenings – This should be self-evident as a key concept for enlivening Darwin. The Darwin City Deal places huge emphasis on strategies for making the CBD a cool, pedestrian-friendly oasis, but the cheapest strategy will cost government almost nothing at all. CBD retail businesses simply need to exhibit the initiative to decide to act collaboratively and open their shops every evening until at least 9pm. It’s relatively cool and pleasant in the evening, even for much of the wet season. Both residents and tourists would flock to the city in the evenings if retail outlets other than “bloodhouse” Mitchell Street bars were reliably open.

Delivering the concept might need some minor NTG assistance to shopkeepers to make a joint application to the Fair Work Commission for a Darwin CBD Retail Industry Award which would equalise wages so that evening opening is no more expensive in than during the day. Perhaps also there might need to be “sticks”  as well as “carrots”, in the form of higher rates and government charges for those who fail to participate and/or discounts for those who do.

Legalised cannabis in licensed bars and cafes – The Northern Territory Parliament should legalise the consumption of small quantities of cannabis (both medicinal and recreational) for on-premises (not takeaway) consumption in licensed coffee shops, bars and restaurants. The Government would grow, tax and undertake the wholesale distribution of product to retail premises operating under tight control. This would not be a cost to government, indeed quite the reverse. The tax revenue would probably go quite some way to solving the NT’s chronic budget deficit problem.The slogan Get High With Donghai probably wouldn’t be suitable for the Chinese market but it might play well with some partis of the Australian domestic tourism market.

Daytime produce market – I have in mind something like Victoria Markets, South Melbourne Markets or Prahran Markets in Melbourne. Darwin has lots of agriculture, horticulture and aquaculture producers keen for a reliable retail outlet. Many of those primary producers attend night markets each week at Mindil Beach, Nightcliff, Rapid Creek and so forth, but a daytime outlet in the CBD would be a sure winner.  Government should seek urgent tenders/EOIs for construction and operation of produce markets on free serviced land on the old oil tanks site in McMinn Street at the bottom of Knuckey Street. I’m sure they would be knocked over in the rush from developers because it would be very profitable. All that would be necessary is a large, air-conditioned but cheap-to-construct lined corrugated iron shed with wide shade awnings to facilitate pavement dining.

International cookery school – South Melbourne Markets has just such a cookery school offering intensive masterclasses for professional chefs and ordinary classes for keen amateurs in many styles of Asian and European cuisine. Darwin has enough skilled chefs to offer a wide range of daytime classes. Perhaps Charles Darwin University, which already runs a Culinary Arts school for students/aspiring chefs could consider running this facility.

Chinese weddings – Both Melbourne and Sydney both attract lots of Chinese and other Asian marrying couples and their friends and family for weddings in an exotic, attractive overseas locale.  Donghai and other airlines flying into Darwin opens up the possibility of Darwin to capitalise on that growing market as well. Climate and proximity will be major drawcards. It probably only needs some targetted spending from the $1085 million dollar marketing budget that NTG has already committed, and some concerted effort by a few good, entrepreneurial wedding planners working with other business that will benefit (reception venues, hotels, florists and so on). It’s time for Darwin businesses to stop whingeing, blaming others for their predicament and expecting Government to do all the work for them.

Projects that probably will need government funding or subsidy

Chinese department store – This is a critical piece of commercial infrastructure essential for attracting and keeping mainstream Chinese visitors. They expect high end shopping and Darwin CBD currently doesn’t have any.

Previous governments have made unsuccessful attempts to attract Australian department store chains like Myer and David Jones to open in Darwin, but with no success. They have rigid policies about the local population size necessary to support a department store. But Townsville has a Myer store that is by all accounts quite successful and it isn’t much bigger than Darwin and arguably has less tourism potential. The Government should go all-out to attract a suitable Chinese department store chain to open in Darwin CBD, including by offering free serviced land, and carefully designed concessions for up to (say) 10 years on rates, taxes and charges. In contrast to Myer and David Jones, Chinese department stores have actually done quite well in recent years by developing their online shopping strategies and concentrating on optimising the sales and marketing mix between online and in-store.

There would of course need to be a careful study to ensure that smaller existing local retailers are not damaged by such concessions. However I suspect that the benefit of having a large prestige “anchor” retailer would actually be a net benefit to smaller retailers by attracting more people to shop in the CBD. Probably it should also be built on part of the old oil tanks site below McMinn Street. In addition to free serviced land, the developer would not be required to construct or provide carparking space. The site would be immediately above the large parking stations that would also be constructed there as part of the vision of a pedestrianised CBD (discussed in my previous article).

Major expansion of Bullocky Point Museum – A major reason why both domestic and overseas tourists come to the Territory is to experience the unique Aboriginal art and culture, and indeed our fascinating, colourful and harmonious multicultural community.  Moreover they really aren’t showcased or made accessible to a significant extent. Most visitors don’t have the time or resources to travel to remote communities so all they see are the major urban itinerant casualties of white settlement/invasion, who are frequently outcasts from their own communities and suffering significant drug and alcohol problems and mental illness.

Cairns delivers the Indigenous tourist experience much better than Darwin with its Tjakupai Culture Park, showcasing both visual and performing arts with dinner and multi-media shows several times a week. Darwin could do a similar thing only better, and an expansion of Bullocky Point Museum would be the best and most cost-effective way of achieving it. To reduce pressure on the NT’s budget it should be a joint venture between Government and relevant Top End Indigenous organisations, financed in part by funds from the Aboriginal Benefits Account (part of the proceeds of mineral royalties for mining on Aboriginal land) and perhaps with some money from the Darwin City Deal, the federal Northern Australia Infrastructure Facility or  the NT Industry Development Fund. Again this is a critical piece of infrastructure and the NTG should go all-out to achieve it as soon as possible.

Water theme park – This is already happening depending on receipt of positive Expressions of Interest. It’s a great idea; Darwin can be a very attractive tropical holiday resort destination, though not based on open ocean swimming because of crocodiles, box jellyfish and other nasty marine critters. Darwin is clean, safe and prosperous (in contrast to Bali) and has a great tropical climate eight months of the year. Add water attractions and tropical beachside resorts and Bob’s your uncle!

Wave lagoon – I have argued for some time that we should also develop a large wave lagoon like the one currently under construction adjacent to Melbourne’s Tullamarine Airport. When completed it will generate up to one thousand perfect two metre “tubing” waves every hour, a surfer’s dream. Melbourne has a much larger population than Darwin, but why would you surf in freezing cold Melbourne in the middle of winter if you can come to Darwin and have fun and perfect waves in the warm dry season sun?

The area behind Lake Alexander at East Point would be perfect, and could also accommodate a Cable Beach-style resort. I understand that construction cost would be about $30 million, less than the projected cost of the Stokes Hill water theme park project but catering to a more mature keen surfer market.

Cheap electric shuttle buses linking Waterfront, CBD, Cullen Bay, Casino, Museum, Ski Club, Sailing Club, Trailer Boat Club, Lake Alexander, Fannie Bay shops and return. Unlike the free electric CBD shuttle buses mentioned above and in my previous article, there would be a modest charge for catching these buses, say $4.00 for a 4 hours multiple journey (jump on-jump off) ticket. They should function with something like a Myki card, which would also be extended to the normal suburban bus services. That would facilitate the suggested affordable multiple journey time-based charging method.  The idea is to link the city in a fairly seamless way with the listed nearby attractions, for the benefit of both tourists and local residents. Most of the listed stops include venues serving food and alcohol, so an option that allows tourists and residents alike to get around town without needing to drive is an important and positive one. The concept is one of linking the city and nearby coastal attractions with an affordable transport system that might be seen as a high tech string of jewels ( a concept I stole from the Paspaley family).

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For Darwin to break through to a sustainable local economy after a history of mostly failed attempts in the past requires Government, business and Territorians generally not only to dare to dream but to dream smart and then work smart and collaboratively make those dreams an exciting reality. Don’t be a Nattering Nabob of Negativism, cultivate the audacity of hope. I love cliches, especially when they’re exciting and true.