Of these tools, recent research by the United Nations Trade and Development( UNCTAD) World Investment Report 2024 found that investment incentives comprised one-third( 33 %) of the policy measures most favourable to investors in both developed and developing economies, slightly behind investment facilitation at 39 %. This figure has grown in importance from 26 % in 2014 and again highlights the growing importance of incentive schemes. i
DEFINING INCENTIVES At a high level, there are four different types of incentives:
• Positive Incentives: include financial and fiscal incentives( e. g., money) as a reward to achieve a desired end state.
• Negative Incentives: such as taxes or fines impose a cost towards an undesirable action( e. g., carbon tax).
• Market-based Incentives: such as supply and demand which impact investment decisions; and,
• Non-market-based Incentives: such as regulations and society values and norms influence decision making. ii
EDOs typically utilise positive or nonmarket-based incentives to stimulate economic activity or reduce negative incentives impeding growth. Common global incentive programs include:
• Financial Incentives: These typically include grants, rebates, loans and other subsidies from governments to minimise the upfront costs to businesses( e. g., reducing planning fees). Direct grants typically focus on providing cash to projects that create jobs or infrastructure whereas indirect grants, or subsidies are tailored towards reducing the cost of doing business( e. g., discounted utility rates).
Figure 1: Investment Policies Most Favourable to Investors(%) i
• Other Incentives: Are tailored towards addressing a specific pain point and can include workforce training or job placements schemes, relocation support, wage subsidies, visa and pathway to citizenship assistance, and streamlined permitting or regulatory relief. Some countries also permit the establishment of special economic zones( SEZs) which have favourable tax, regulation and infrastructure assets aimed at attracting investments. iii
Note that not all incentive schemes are implementable within an Australian municipal context due to varying legislative constraints( e. g., limits to Council ' s ability to differ rates). Therefore, before implementing an incentive policy or program, EDOs should thoroughly analyse the legal, economic and budgetary impacts.
GLOBAL INCENTIVES BY THE NUMBERS The FDI Insights Global Incentives Report 2024 iii found that total investment incentives awarded worldwide in 2023 was US $ 65.83 billion. The United States topped this list when measured by incentive value and deal count, at US $ 24.97 billion and 4,624 deals respectively in 2023.
Canada, France and Germany made up the remaining top four spots with a total of US $ 31.02 billion spread over 317 deals.
• Fiscal Incentives: Target reducing taxes, rates and tariffs. These can include tax credits for research and development, tax exemptions or rebates, or rate reductions. Some governments provide low interest loans or loan guarantees to stimulate investment.
• Infrastructure Incentives: Focuses on providing developers with assistance in site development( e. g., creating new industrial parks) by shifting the costs of establishing or upgrading core services to local governments( e. g., roads, utilities).
ECONOMIC DEVELOPMENT JOURNAL VOL 18 NO 1 2025 07