Bills Digest no. 93 2012–13
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WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Eugenia Karanikolas
Economics Section
20 March 2013
Contents
Purpose of the Bill
Background
Committee consideration
Rationale for the Bill 5
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Main Provisions
Date introduced: 13 February 2013
House: House of Representatives
Portfolio: Trade
Commencement: Sections 1 to 3, and Part 1 of Schedule 1, commence on Royal Assent. Part 2 of Schedule 1 commences on 1 July 2013.
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
The purpose of the Export Market Development Grants Amendment Bill 2013 (the Bill) is to amend the Export Market Development Grants Act 1997 (the Act)[1] to:
- increase the maximum number of grants able to be received by exporters targeting markets in East Asia and other emerging regions from seven to eight
- reduce the number of grants available to exporters targeting established markets including the USA, Canada and the European Union
- remove the administrative expenditure limit from the legislation and instead give authority to the Minister to specify the percentage of the yearly appropriation that may be expended on administration
- prevent the further approval of joint ventures after 30 June 2013 and
- make event promoters ineligible for a grant.[2]
The Export Market Development Grant (EMDG) scheme aims to support small to medium sized businesses to break into export markets by reimbursing up to 50 per cent of the expenses relating to export promotion. The scheme was established in 1974 and is administered by Austrade.
In 2011–12 close to 3000 exporters received assistance through the EMDG scheme. The total value of the grants for that period was $125.6 million.[3] The top six countries targeted by EMDG recipients have in recent years been the USA, UK, China, Singapore, Germany and Japan.[4]
Grants are available to businesses that have:
- income of not more than $50 million for the year
- spent a minimum of $20 000 on eligible export activities in the previous financial year (new applicants are allowed to combine two years’ worth of expenses) and
- have principal status for the export business. [5]
In addition, to be eligible a business has to be engaged in developing export markets for Australian goods, services, intellectual property, trademarks or know-how. In particular, eligible goods and services include:
- goods made in Australia
- goods made overseas but are made primarily from Australian products
- tourism services including accommodation, passenger transport and tours[6] and
- conferences and events held in Australia.[7]
The scheme has been amended a number of times, mainly in response to reviews of its effectiveness.[8]
The most significant changes include the following:
- in 1988, New Zealand was no longer considered an eligible export market because the two markets were considered to be too similar[9]
- in 1991, the percentage of export expenses businesses could claim back was reduced from 70 per cent to 50 per cent
- in 1997, the total amount in grants paid within a year was capped to around $150 million[10]
- in 2003, the focus of the scheme shifted towards small to medium sized exporters
- in 2008, the total amount available under the scheme increased by $50 million to $200 million a year[11] and
- in 2010, when the government brought the funding available under the scheme back to $150 million a year.[12]
In general, all the reviews of the EMDG scheme have found that the program operates successfully and encourages small to medium sized businesses to export. The latest review of the scheme was conducted in 2008 by David Mortimer AO. As was pointed out in the Bills Digest for the Export Market Development Grants Amendment Bill 2010, while:
continuing to support a capped funding scheme, the Mortimer review identified two options to better align the cost of the scheme to its budget:
• allocate significant additional funding to meet current and future demand estimates, and
• set ongoing expenditure at the 2009–10 budgeted level ($200 million) through significant changes to grant provisions.
The review favoured the latter option but stopped short of recommending either option. Instead it recommended that the funding cap should be indexed annually to preserve the real value of the funding and a tightening of provisions to reduce access to the scheme.[13]
The Senate Standing Committee for the Scrutiny of Bills has advised that it has no comment on the Bill.[14]
As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.[15] The Government considers that the Bill is compatible, as it does not raise any human rights issues.
Notwithstanding the Government’s conclusion, the Human Rights Committee has asked for additional information to be provided in relation to the criteria used to determine whether a person is a fit and proper person under section 79A.[16] Further discussion about this amendment is set out under the ‘Key issues and provisions’ of this Bills Digest.
The primary underlying reason for the changes introduced by the Bill would appear to be the Government’s need to find ways to minimise its expenses as outlined in the 2012–13 Mid-Year Economic and Fiscal Outlook (MYEFO).[17]
Another reason given by the Government for the retargeting of the grants program predominantly towards Asian markets is to better align the EMDG scheme with its policy on the Asian Century.[18]
The Government’s decision to retarget the scheme is consistent with its Asian Century Business Engagement Plan.[19]
The Coalition has stated that it ‘has grave reservations about the Export Market Development Grants Amendment Bill 2013’. However, it did not oppose the Bill in the House – adopting the position that while it considered that the proposed amendments were not desirable, they were necessary in the current budgetary situation. [20] In her second reading speech, the Deputy Leader of the Opposition moved an amendment to the second reading motion to note that, should the Coalition win government, it will be reviewing the current changes to determine their impact on businesses.[21] The proposed amendment to the notice of motion was not successful.
All the members who participated in the second reading debate in the House of Representations in relation to the Bill acknowledged that government support is essential to encourage small to medium sized businesses to increase their exports, and that this will benefit not just the directly involved businesses, but also the economy more broadly. Liberal Member for Paterson, Bob Baldwin, explained the economy‑wide effects of the scheme in this way:
Money spent in a hotel helps to create jobs directly in the hotel, but it also creates jobs indirectly elsewhere in the economy. The hotel, for example, has to buy food from local farmers, who may spend some of this money on fertilisers, machinery or clothes. The demand for local products increases as tourists often buy souvenirs, which increases the secondary employment.[22]
On the issue of the scheme’s effectiveness to induce additional exports, the Member for Hughes, Craig Kelly noted that ‘Austrade worked out that, in most industries, a mature exporter will generate in additional exports 15 to 25 times the grants paid to them.’[23]
Whilst it is generally accepted that the promotion of exports has a positive effect on the economy, the degree to which this scheme encourages increased export activity, and the public benefits it provides, may be overstated and ‘appear optimistic’.[24] In particular, referring to the claim that ‘each dollar of EMDG generates some $13.50 to $27 of exports’[25], made by the Mortimer Review, the Productivity Commission noted that
This would appear an implausibly large response given that export promotional expenses comprise about 5 per cent of total exports costs. And the EMDG scheme only partially reimburses these expenses. [26]
As was noted by the Deputy Leader of the Opposition in her second reading speech on the Bill, the Australian Chamber of Commerce (ACCI) argues that there is ‘no credible commercial analysis provided that shows that the EMDG money spent on established markets is any less valuable than that spent in emerging markets.’[27]
The ACCI also raised concerns with the funding cuts to the scheme, pointing out that in a recent survey conducted by the body:
…exporters said EMDG Scheme was even more valuable than the current bi-lateral Free Trade Agreement (FTA) agenda. It is particularly helpful to entrepreneurial Australian companies entering into the often opaque and challenging markets in the Asia-Pacific region.[28]
The ECA also expressed concerns about the recent reduction in funding of the scheme and the scheme’s ‘re-targeting’ of grants away from established markets such as the US and UK. In particular, the CEO of the ECA, Mr Murray, commented that:
The recent changes to the scheme, apart from reducing the cap, include the reduction in support for established markets. Mr. Murray notes that nobody can argue against getting behind the trade opportunities presented by the Asian markets; after all Asian markets are expanding and contribute significantly to Australia’s export activity. However, it is imperative not to underestimate the value of established markets to new exporters. Many companies start out in the US and Europe and build from there. Reducing support in these markets, for what is a relatively small amount of money, simply doesn’t make sense.[29]
The AACB also voiced its objection to the Bill, arguing that making event promoters ineligible for grants under the scheme will result in:
fewer international delegates for Australia and therefore reduced export revenue, and a reduction in all of the indirect benefits brought to the economy by business events…[30]
According to the Explanatory Memorandum:
Expenditure under the Act is set through annual Appropriation acts. A capping mechanism ensures that expenditure under the scheme is limited to the amount appropriated.[31]
The Government’s intention to reduce the funding available to this scheme from $150 million to $125 million was announced in the 2012–13 Mid-Year Economic and Fiscal Outlook.[32]
Existing section 7 of the Act sets out the general rules for eligibility for a grant. One of those rules is that the person is not a grantee in respect of seven or more previous grant years.[33] Item 2 of Schedule 1 amends paragraph 7(1)(c) of the Act to substitute the number 7 with 8. Under this proposed amendment the maximum number of grants that an eligible business can receive will be increased from seven to eight.
Subsection 23(1), in summarising the operation of Part 4 of the Act, sets out the broad categories of products that may be eligible to receive EMDG grants. Currently ‘an event’ is listed as one such product category. ‘Event’ is defined at section 107 of the Act to include ‘a conference, a meeting, a convention, an exhibition and a sporting, cultural or entertainment event’.
Item 4 of Schedule 1 removes the reference to ‘an event’ from subsection 23(1), so it is no longer a product category eligible to receive a grant. In addition, item 5 repeals section 25A of the Act, which sets out which events are ‘eligible events’–one condition of which being that ‘there is an events promoter for the event’. ‘Events promoter’ is defined at section 107 of the Act as ‘a person that markets the event, under a written contract between the person and the event holder, to persons outside Australia’.[34] Item 6 repeals subsections 37(2) and (3) to ensure that an event is not considered to be an ‘approved promotional purpose’. Taken together, under these proposed amendments, event promoters will no longer be eligible to receive a grant under the scheme.
However, this does not mean that EMDG grants will no longer be available for those actually holding an event, or promoting venues for such events:
Applicants promoting eligible Australian events as principal continue to be eligible for EMDG support under the eligible services product category. Applicants promoting venues and associated facilities for meetings, conventions and exhibitions as principal also continue to be eligible for EMDG support.[35]
Some have argued that the proposed change to the eligibility of event promoters will have an indirect negative impact on Australia’s tourism industry. Liberal Member for Ryan, Mrs Prentice, commented that:
We know that tourism is one of the key export industries in this country. It is a growing one, and certainly event promotion falls under this category. Some of the very important work they do is to promote events within Australia as well as destination marketing for international tourists. I am concerned that by removing event promoters from the EMDG scheme we are removing a whole tranche of ways that the government can assist businesses to promote specific events in overseas markets.[36]
Against this view, Labor Member Tony Zappia argued:
Cutting out people like promoters—promoters of entertainment events; concerts and the like—is quite reasonable. Promoters are not, in my view, the beneficiaries for which this fund was set up. As a result of promotional activity you might get some economic benefit through the impact on tourism and the like, but, frankly, I believe there are much more worthy and much more deserving areas where these grants should be applied, and the decision by the government to tighten the rules in respect of some of those matters is quite appropriate.[37]
Section 40 of the Act contains a table that sets out which expenses are ‘excluded expenses’ and lists the provision that deals with each such excluded expense. Item 7 of Schedule 1 adds a new item to this table, to provide that certain expenses related to trade with the USA, Canada or European Union Member States are excluded expenses, in accordance with proposed section 43A, to be inserted by item 8 of Schedule 1. The effect of the amendments proposed by items 7 and 8 is that an eligible business claiming for their sixth to eighth grants will no longer be able to receive funding for expenses relating to the promotion of exports in the above mentioned countries. However, all eligible businesses are able to claim expenses relating to all markets for their first five grants.
Section 58 of the Act sets out the general rule that an expense is taken to be incurred only when it is acquitted. Under paragraph 58(2)(a), an expense is acquitted when it is ‘paid off’. The Explanatory Memorandum to the Bill states that this approach causes difficulty in circumstances where an expense is paid by someone other than the grant applicant (with the payer then seeking reimbursement from the applicant).[38] Item 9 of Schedule 1 will repeal and replace paragraph 58(2)(a) so that an expense will be acquitted when it has been paid by the applicant
Section 87AA of the Act provides that a grant is not payable if the CEO of Austrade forms the opinion that the applicant for the grant, or an associate of the applicant, is not a ‘fit and proper person to receive a grant’. Paragraph 101(1)(bb) of the Act requires the Minister to determine, by legislative instrument, guidelines for determining who is an ‘associate’ of an applicant and whether a person, or their associate, is a fit and proper person to receive a grant. The relevant guidelines are the Export Market Development Grants (Associate and Fit and Proper Person) Guidelines 2004.[39] Subsection 72(2A) allows the CEO of Austrade to ask an applicant to provide any written consent necessary to enable the CEO to obtain information to determine whether the applicant, or his or her associate, is a fit and proper person. Section 73 provides that the CEO may refuse to consider an application if a request under section 72 has not been complied with. Paragraph 97(1)(ca) provides that a decision under section 87AA is a ‘reviewable decision’, which means that a person affected by the decision may ask the CEO of Austrade to reconsider the decision, and may then apply to the Administrative Appeals Tribunal for review (sections 98 and 99).
Some applicants for an EMDG grant may be assisted by an ‘export market development grants consultant’, which is defined at section 107 of the Act as ‘a person who asks for, or receives, any fee for any work relating to the preparation of an application for a grant’. Under the current Act, such consultants are not subject to the ‘fit and proper person’ test.
Items 10, 11, 12 and 14 of Schedule 1 will enable the CEO of Austrade to form an opinion as to whether an export market developments grants consultant who prepared, or helped to prepare, a grant application is a fit and proper person. Item 10 will insert subsection 72(2C) to allow the CEO of Austrade to ask an applicant to provide any written consent necessary to enable the CEO to obtain information to determine whether the export market developments grants consultant is a fit and proper person. As set out above, section 73 provides that the CEO may refuse to consider an application if a request under section 72 has not been complied with. If the consultant is not deemed to be fit and proper the application is taken not to have been made (proposed section 79A). If the applicant wishes to proceed, he or she will need to submit another application (proposed section 79C). Proposed paragraph 97(1)(caa), inserted at item 14, provides that a decision under section 79A is a ‘reviewable decision’, the consequences of which are set out above.
This amendment has been flagged by the Human Rights Committee as a potential breach of a person’s right to ‘be free from unlawful or arbitrary interference with one’s privacy and reputation’.[40]
Section 105 of the Act provides that the costs of administering the Act are to be paid out of the money appropriated by Parliament for the purposes of the Act and must not exceed five per cent of that amount. Items 17 and 18 of Schedule 1 amend section 105 to remove the limit on the administrative expenditure from the legislation and give authority to the Minister to set the limit by legislative instrument instead.
The current legislative cap on administrative expenses was raised as an issue the last time the EMDG was reviewed, by David Mortimer. In particular, the review noted, that:
…the administration costs for the scheme are pegged as a percentage of a fixed grant budget, which is declining in real terms in an environment where both grant application numbers and administration costs are increasing. This inevitably raises questions about the adequacy of resources to responsibly manage the program risk.[41]
Items 24 to 57, in Part 2 of Schedule 1 remove joint ventures from the list of eligible bodies. Under the proposed amendments joint ventures will no longer be approved after 30 June 2013. Joint ventures approved before that day will be eligible to receive grants until their approval lapses.[42]
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.
[6]. Exemptions include services relating to migration to Australia and the purchase of assets in Australia including real estate and shares. Austrade, ‘Who can apply for EMDG?’, op. cit.
[25]. Report prepared for the Minister for Trade by D Mortimer AO, Winning in worlds markets, op. cit., p.1.
[26]. Productivity Commission, Trade and assistance review 2007–08, op. cit., p. 30.
[27]. J Bishop, ‘Second reading speech: Export Market Development Grants Amendment Bill 2013’, op. cit., p. 77.
[31]. Explanatory Memorandum, Export Market Development Grants Amendment Bill 2013, op. cit.
[32]. Australian Government, Mid-Year Economic and Fiscal Outlook (MYEFO), op. cit., p. 226.
[33]. Section 107 of the Export Market Development Grants Act 1977 defines a grant year as (a) a year commencing on 1 July during the period from the start of 1 July 1996 to the end of 30 June 2016 or (b) a grant year within the meaning of the Export Market Development Grants Act 1974 (the repealed Act) other than a year commencing on or after 1 July 1996.
[34]. This definition will be repealed by item 22 of Schedule 1 to the Bill. Similarly, the definitions of ‘eligible event’ and ‘event holder’ are repealed by items 19 and 21 of Schedule 1.
[35]. Explanatory Memorandum, op. cit., p. 3.
[38]. Explanatory Memorandum, op. cit.
[40]. For more information on the Committee’ comments, see Parliamentary Joint Committee on Human Rights, Third report of 2013, op. cit.
[41]. Report prepared for the Minister for Trade by D Mortimer AO, Winning in worlds markets, op. cit., p. 34.
[42]. Explanatory Memorandum, Export Market Development Grants Amendment Bill 2013, op. cit.
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