Chapter 2
Issues considered in the inquiry
Industry support for removal of the rebate
2.1
While some submitters to the inquiry expressed support for removal of
the 40 per cent rebate, the majority of submissions received by the committee
emphasised that industry support is predicated on implementation of
comprehensive, and overdue, reform. The Sheepmeat Council of Australia and the
Cattle Council of Australia told the committee that the removal of the subsidy
would provide an incentive to progress badly needed reform within AQIS.
However, the Councils went on to state that:
If the 40 percent rebate is removed without the necessary
reforms being successfully implemented, Australia's red meat producers would be
forced to shoulder the full cost of inefficiencies within Australia's monopoly
export certification body. This outcome is unacceptable to red meat producers
as it places Australian producers at a comparative disadvantage to our
competitors in international markets who receive taxpayer funded certification
services.[1]
2.2
GrainCorp told the committee that all members of the AQIS Grains
Industry Consultitative Committee (AGICC) support the removal of the rebate. In
its submission GrainCorp stated that:
Grains industry representatives believe removal of the rebate
will allow for funding and development of reforms to AQIS operations and that
this will bring about net benefits to the Australian grains industry. Members
of the AGICC also believe the reforms proposed by Beale will lead to a net
improvement in biosecurity arrangements in general.[2]
2.3
The committee notes that ABB Grain Ltd (ABB) was more qualified in its
support of the changes. ABB Grain told the committee that prior to the
announcement of the proposed reforms to AQIS's export inspection and
certification services, ABB was opposed to the removal of the 40 per cent
rebate due to concerns about the impact of the additional impost on the
industry. ABB now welcomes and supports the Government's reform agenda which it
believes will eventually provide industry with the choice of cheaper
alternative service options. However, ABB told the committee:
It is still an issue though that the realisation of these
alternatives will not be available for some time. In the meantime industry is
being asked to bear the increased charges for AQIS services.[3]
2.4
The committee also notes that the Australian Seed Federation may also
have some unresolved issues in relation to the removal of the rebate.[4]
2.5
A common theme in submissions was that removal of the rebate should not
have been contemplated ahead of the implementation of reform.[5]
Cherry Growers of Australia (CGA) told the committee that while it understands
the Government's decision to work towards full cost recovery, the process
through which this will be achieved will have a very negative effect on the
Australian cherry industry and the wider horticultural sector.[6]
The Australian Council of Wool Exporters and Processors Inc told the committee
that the decision to remove the subsidy prior to the implementation of reform
has created unnecessary and premature cost increases for exporters.[7]
2.6
However, frustration with the glacial pace of reform to date and advice
from AQIS that the changes were a 'fait accompli' have forced most sectors to
accept the withdrawal of the subsidy in return for government's commitment to
work with industry to address reform issues.[8]
2.7
The Horticulture Australia Council (HAC) told the committee that:
Horticulture is vehemently opposed, as we put in our
submission, to the removal of the 40 per cent rebate in advance of the promised
reforms. We think that is poor policy and poor timing, particularly in relation
to some of the points that the other agricultural industries have been making
here today.[9]
2.8
HAC told the committee that the industry had effectively been given an
ultimatum: industry could either have a rebate on fees for the current
financial year or reform.[10]
In its submission, HAC stated that:
The view of the Horticulture industries is that proceeding
with the proposed reforms apace is the best, lasting solution to this
unfortunate situation; as we believe that the reforms should lead to
significant efficiencies and cost-savings in the Horticulture Export Program,
and thus improve the service delivery to end-users (growers, packers and
exporters).[11]
2.9
Mr Ian McIvor, Chairman of the Australian Livestock Exporters Council
(ALEC), told the committee '[w]e do support the 40 per cent being withdrawn but
very much subject to the reform process taking place'.[12]
In its submission, ALEC told the committee that:
While it is accepted that removal of the fee rebate will have
a financial impact on the sector, industry views the short and long term
benefits stemming from this reform process as far outweighing the costs.[13]
2.10
ALEC also views the current reform package as offering industry an
opportunity to drive the direction and pace of reform.
ALEC understands that, if the reform agenda does not progress
as agreed, then industry will lose access to the funding and any reform process
will be driven by AQIS. This is not acceptable to the live export sector. While
AQIS may have the best intentions, they cannot engineer and impose regulatory
reform on an industry, without their involvement, and expect a positive
outcome. This has been tried and has failed.[14]
2.11
The Australian Meat Industry Council (AMIC) told the committee that
'removing the export rebate without corresponding efficiency offsets is
unacceptable to our industry when we have been led to believe that AQIS's
corporate overheads have increased in the order of 250 per cent in the last
four years'.[15]
AMIC told the committee that it had initiated the reform process with AQIS five
years ago and proposed the concept of reform to the minister and the
ministerial taskforce as a response to the decision on full cost recovery in
February of this year. AMIC said:
We clearly recognise from the outset that reform in the
export certification area is a complex one, indeed. AMIC have committed
significant industry funds over the last five years to actively engage the
department on reform, with joint AQIS and AMIC strategic planning forums which
were established in the year 2003. Through that process we identified a range
of initiatives that would modernise the meat inspection and verification system
in Australia and would lead to significant efficiencies and productivity gains
for the industry. When the decision to return to full cost recovery was
announced, we were in a position to put those five years of commitment and
innovation on the table in the form of efficiency gains and productivity gains
that if implemented would generate savings to offset the cost increases
proposed. Industry recognised these initiatives would take time to implement
and to deliver in full. Industry openly accepted the additional
responsibilities and the associated internal costs of this reform.[16]
2.12
AMIC also told the committee that its position on this issue had not
altered. AMIC submitted:
There must be agreement to postpone any decision to remove
the Government's 40% contribution to AQIS export charges until they can be
matched with the implementation efficiencies and productivity gains proposed by
industry.[17]
Potential to realise savings
proportionate to increase in fees
2.13
Submitters to the inquiry expressed concern at the flow-on effects of
the removal of the subsidy to grass root producers. While this will be dealt
with in greater detail below, the committee notes the submissions of AgForce
and the NSW Farmers Association which, while welcoming the opportunity to
achieve efficiencies for agricultural export trade, raise concerns that the
savings achieved through reform may be difficult to quantify and may not be
proportionate to the cost to producers.[18]
2.14
The committee also notes the comments made by ALEC regarding advice
received at a recent consultative committee meeting flagging the possibility of
further fee increases:
At the last consultative committee meeting Dr Ann McDonald,
who is the new head of our side of it for AQIS, indicated that because of
additional overheads being received the new charges may even in fact go up
again before this year is out. Needless to say, we were not very happy about
that and we lodged a protest. I say that now because from what you said,
Senator, they are receiving additional funds and it gives the impression that
there must be a fair bit of money in the system. But from what she explained to
us, that has already been absorbed by the additional costs that they are
incurring.[19]
2.15
Mr Greg Read sought to clarify this advice for the committee:
There is clearly going to be no change to the fees and orders
that are in place now. They are not going to be put up. In terms of increased
overheads, the department is now going through the process of looking at its
budgets and the implications of those budgets for these programs. Equally, with
this reform agenda that we are talking about now, I would not see any of the
fees and charges going up as a consequence.[20]
Transition to full cost recovery
2.16
Some submitters would have preferred to have seen the return to cost
recovery phased in. The Australian Dairy Industry Council Inc told the
committee that it had sought a transition to full cost recovery, but in its
absence had agreed to a compromise position whereby 50 per cent of the reform
funds will be rebated to offset the fee increase.[21]
Removal of Rebate as a disincentive
to export
2.17
A number of submitters expressed the view that some of the costs
involved in export are legitimate costs of government. Some submitters told the
committee that they considered the 40 per cent rebate to be an investment in
export industries by government.[22]
AMIC, who represent the largest contributor to AQIS's export certification
charges, told the committee that they have always opposed the removal of the 40
percent rebate because it reflects the legitimate cost of government.[23]
The committee heard that adding cost through higher government charges
fundamentally undermines the market access objective, especially when
Australia's competitors do not face the same costs.
2.18
AMIC outlined for the committee what it sees as the legitimate costs of
government:
The legitimate costs of government, as far as we are
concerned, are almost identical to what occurs in a number of other exporting
countries in the world. For example, with the meat processing sector, we will
pay for inspection, veterinary services, anything to do with market access.
Corporate costs, corporate overheads and DAFF overheads remain a cost of
government and a legitimate cost of government.[24]
2.19
AMIC provided the committee with a table based on Meat and Livestock
Australia data that indicates the range of functions paid for by industry and
by government in various export markets (refer Appendix 4).
2.20
AMIC also expressed concerns about the impact of the changes on smaller
processors. AMIC told the committee that research undertaken to assess the
impact of the removal of the rebate identifies that there will be clear adverse
impacts on processor profitability varying from a decline of over 2 percent to
over 25 percent with smaller scale facilities suffering bigger declines in
profitability. AMIC expressed concern that this may lead to job losses and
closures, particularly in regional Australia.[25]
2.21
Mr Michael Hastings, President, Australian Ostrich Association, described
removal of the rebate as an anti-stimulus package which is going to reduce
exports.[26]
Mr Hastings described for the committee the difficulties facing emerging export
industries such as the ostrich industry. While the industry has been hit by
losses in the last two years through rises in the value of the Australian
dollar and increased feed prices as a result of the drought, the international
ostrich meat market is significantly undersupplied. Similar scenarios were
outlined for the committee by members of the deer and emu export industries.
However, the ostrich meat export industry is reliant on a single specialist
abattoir. The operator of that abattoir, the Australian Game Meat Company, told
the committee that the removal of the subsidy and the resultant increase in
fees had placed serious questions over the viability of his operation and that
of the growers who rely on him.[27]
Transfer of costs from public to
private sector
2.22
A number of witnesses expressed concern that the reform process
represents a transfer of costs from the government sector to the private
sector. The Commonwealth Fisheries Association contend that the reforms
represent a cost transfer rather than a cost saving. Mr Melham told the
committee:
CFA contends it will be a cost transfer because, as I stated,
we are simply shifting functions from government to the private sector and in
many cases the seafood companies are going to have to undertake and add
functions to their existing activity at a cost.[28]
2.23
These views are shared by the Australian Horticultural Exporters
Association. The AHEA submitted that there is a very real danger of the reform
process resulting in a cost transfer for phytosanitary service provision from
AQIS to the private sector. AHEA told the committee:
This process will be pursued to generate the appearance of
cost savings within the AQIS Program, when in fact the costs will still exist
within the Export Pathway, simply transferred from the Public sector to the Private
sector, with no net savings.[29]
Adequacy of consultation by Government in development of industry work
plans
2.24
The committee notes that the perceived adequacy of the level of
consultation throughout this process appears to have varied dramatically from
sector to sector.
2.25
The Australian Livestock Export Council told the committee that the
livestock export sector is satisfied with the level of consultation by
Government in the development of industry work plans. ALEC had initiated
discussions around regulatory reform for its sector well in advance of the
initiation of this current process. ALEC has worked closely with AQIS in the
development of work plans and has invested significant time and resources
consulting with its industry.[30]
2.26
In its submission to the inquiry the Commonwealth Fisheries Association
told the committee that the Government had failed to adequately consult the
seafood industry on the initial development of the industry work plans as the
makeup of the Seafood Export Consultative Committee and the Ministerial
Taskforce did not include representatives of the peak industry bodies at either
state or national levels.[31]
The committee was told that while the taskforce included legitimate industry
players, the organisations represented did not represent the majority of the
seafood industry.[32]
The CFA successfully lobbied for inclusion on the Seafood Task Force, but its
late inclusion meant it had not had sufficient time to consult its members on
the development of the seafood work plan.[33]
2.27
Members of the horticulture sector also expressed concern about the limited
timeframe for consultation.[34]
The NGIA told the committee that 'the timeframe provided to industry for
consultation with constituents, in the development of the Horticultural
Industry Work Plan, was insufficient in order to clearly articulate and express
the needs of industry.'[35]
Cherry Growers Australia submitted that while there had been discussions
between AQIS and Horticulture Australia Council there had been limited or no
consultation with industry organisations and individual growers and exporters
in relation to the specific industry work plans.[36]
2.28
Cherry Growers of Australia also stated that the efficiency plan now
being presented by AQIS has not been tested through an appropriate and
independent cost benefit analysis and has not been benchmarked against
comparable services in competitor countries. Market testing of potential
private sector third party providers as recommended under the Australian
Government Guidelines for Cost Recovery has also not been undertaken. In
addition, there has been no discussion with affected stakeholders regarding a
Cost Recovery Impact Study as required under the Guidelines.[37]
2.29
The committee also notes the observations by the Australian Horticultural
Exporters Association. While the AHEA commends AQIS for a well and
constructively managed process of industry consultation in the development of
the Horticultural Work Plan, the AHEA expressed some serious concerns with
AQIS' consultation with industry. AHEA told the committee that the reform
budget developed by AQIS bears little resemblance to the Work Plan submitted by
the Ministerial Task Force for Horticulture in terms of desired outcomes. AHEA
submitted that:
Superficially, the areas addressed seem correct, but in reality
the allocation of resources is other than what Industry Representatives
detailed in the Work Plan.[38]
2.30
AHEA concludes that this demonstrates that industry consultation is 'an
empty chalice' and that AQIS has manipulated and distorted industry's desires
to achieve AQIS' desired direction:
Accordingly many in AQIS are confident with “managing the
reform process to AQIS’s own end” and this will severely compromise this
Review/Evaluation and Implementation of positive change potentially achievable
within this “reform phase”.
Typically AQIS avoid keeping accurate and definitive records
of meetings when AQIS service delivery deficiencies or short comings are
detailed, reducing the ability for measured improvement, benchmarking or
managing Key Performance Indicators.
In the Horticultural Ministerial Task Force Proposed Work Plan,
Review/Evaluation of AQIS and Services, AQIS have no formal accountability to follow
Industry reform desires. There doesn’t exist a process of appeal within the
Biosecurity Services Group for managing this review of AQIS Service delivery to
which Industry can call upon.[39]
2.31
These concerns led AHEA to withdraw from the Ministerial Taskforce.[40]
The capacity of the Government, including AQIS, to implement efficiency
proposals
2.32
AQIS told the committee that it was confident that the reform process
could be undertaken within 12 months. Submitters also expressed some confidence
in the Government's ability to implement efficiency proposals and a commitment
to working with Government to achieve reform. For example, ALEC told the
committee that 'the livestock export sector firmly believes that, following
implementation of these projects, government will be able to deliver outcomes
with a reduced capacity, in terms of resources. This will deliver financial and
efficiency benefits to industry.'[41]
2.33
HAC told the committee
AQIS have repeatedly assured us that the proposed reforms are
possible, and that they are well-motivated to achieve them in the given
timeframe – though the timeframes vary depending on the proposed reform (as
some will require legislative changes, for example).[42]
2.34
However, HAC's Chief Executive, Ms Kris Newton told the committee:
There is a degree of cynicism within some parts of the
industry and amongst some growers as to the capacity of AQIS to deliver those
reforms or deliver them sufficiently or within the time frames. We have had
assurances from senior AQIS officials and the minister’s office that those
reforms will be undertaken and that they will be expeditious, but at this point
we have to take that on trust.[43]
2.35
AMIC expressed concern that the timelines for the reform process are
unrealistic. AMIC told the committee:
The meat inspection reform agenda is a technical issue that
should have technical time lines. The political decision to return to full cost
recovery contains unrealistic timeframes for its implementation and this
potentially puts at risk reform in general.[44]
The adequacy of government funding to implement industry work plans
2.36
The committee notes that the government has allocated a total of $39.4
million for the Export Certification Reform Package. The committee also notes
that this funding is subject to the fees and charges legislation being passed
through the parliament.[45]
A total of $40 million has been split between six industry sectors based on the
average allocation of funds to these industry sectors over the three year
period from 2005/06 to 2007/08.[46]
DAFF advised the committee that the shortfall of $0.6 million will be subject
to further discussions with the Department of Finance and Deregulation.[47]
2.37
DAFF told the committee that this funding is seen as adequate to meet
the objectives of the industry workplans and that the most significant reform
in the packages is in regard to meat inspection.
The most significant reform in the packages is in regard to
meat inspection. The proposal developed through the Ministerial Taskforce has
the potential to return in excess of $15 million in savings over the course of
a full year once the main reform measures begin.[48]
2.38
The committee notes concerns raised by the Pastoralists and Graziers
Association that reform package funds should not be used to pay any staff
redundancies arising out of the reform process.[49]
Progress on meeting targets in industry work plans
2.39
The committee notes that to date only two of the ministerial task forces
have signed off work plans: horticulture and live animal exports. DAFF advised
the committee that work plans for the grain industry have been developed in
detail and that the meat proposal is still being developed[50]
DAFF also provided the committee with a summary of progress toward meeting the
targets in the industry workplans for each of the sectors and tabled copies of
Reform Papers developed in relation to each industry sector:
Meat industry:
-
Rebate in place until 30 September 2009 to discount all fees to
rates imposed prior to 1 July 2009;
-
Ernst and Young have undertaken an independent review of AQIS
costs and charges to provide the basis for an agreed approach to full cost
recovery;
-
Red Meat Reform Strategy outlining the development of the AQIS
meat inspection has been agreed with the taskforce.
Fish industry
Dairy industry
Horticulture industry
-
Independent external review of AQIS's Horticulture Export Program
to be undertaken to identify savings to begin in the next month;
-
Extensive mapping of AQIS and industry export processes also to
begin in next month to identify duplication, disconnectivity and gaps between
industry and AQIS systems.
Grain industry
- Detailed workplans for each of six key areas of reform developed;
- Implementation of each work plan commenced as of 4 September
2009.
Live Export Industry
2.40
However, the committee observes that some industries indicated that
little progress had been made in meeting the targets in industry work plans due
to the tight time-frames imposed. Most attention to date has been concentrated
on developing work plans.
2.41
The Australian Horticultural Exporter's Association stated that little
progress has been made in meeting targets as the industry is voluntarily-based
and most industry participants have businesses to operate. The industry argued
for the funding to be made available over a number of years – 'this process
will not work with a life span of only one year as Reviews and Evaluations take
time to be performed'.[51]
Other industries also indicated that little progress had been made in meeting
targets.[52]
2.42
Industry representatives also noted that progress has been hampered
because the reform funds have not yet been made available.[53]
The Australian Livestock Exporters Council indicated that the Council has been pro-active
in developing the project work plans, which have already been finalised and
presented to government. However, the Council noted that it does not have the
resources to implement these projects without the resources proposed by
Government.[54]
The funds will be transferred to the Australian Livestock Exporters' Council
for implementation of reform projects once the threat of regulation
disallowance in relation to the revised fee schedule has passed.[55]
2.43
The committee notes ALEC's confidence that it will meet the milestones
identified for its reform projects, despite the delayed start to commencement
of its work program.[56]
Financial or other impact on industry sectors of the failure to meet reform
targets
2.44
A number of farmers' organisations and others in the industry expressed
concerns at the impact on industry sectors of the failure to meet the reform
targets. Several groups argued that that full cost recovery of AQIS export
inspection charges should not occur prior to efficiencies being gained in the
delivery of AQIS services.
2.45
WAFarmers indicated a level of uncertainty over the benefits that the reform
process will deliver, given that farmers are currently faced with a short-term
increase in costs, due to the ‘push back’ of (effectively) higher export-related
costs. The Federation noted that should cost and process benefits not be
realised through the reform, these costs will add to long-term costs for
farmers.[57]
2.46
Similar concerns were expressed by the NSW Farmers Association. The
Association stated that the removal of the subsidy will impose extra costs on
exporters who will then pass these costs back to farmers.[58]
2.47
AgForce Qld also stated its concerns over the removal of the 40 per cent
rebate for export certification functions and the affect that this will have
financially on grass-root producers:
While AgForce welcomes efficiencies for the agricultural
export trade, including the removal of duplication between federal and state
jurisdictions and the electronic processing of export certificates, it does not
believe that the systems that have been implemented are proportionate to the
cost to producers.[59]
2.48
Industry groups also expressed their concerns. The Australian
Horticultural Exporter's Association argued the need to remain competitive in
the world market, with increasing competition from other global suppliers. The
Association stated that exporters are unable to pass these large increases onto
their customers and remain competitive, therefore exports will decrease, which
will see an increase in product on the Australian domestic market. The
Association noted that exporters, who have already been affected by drought,
the high Australian dollar, global recession, and increasingly difficult
protocol measures have reduced exports significantly.[60]
2.49
One submission noted that citrus growers 'already battling with higher
water, fertiliser, chemical and wage costs are in no position to absorb
increased AQIS charges'.[61]
2.50
Similarly, Cherry Growers of Australia stated that:
Export of fresh horticultural products is already under
extreme pressure due to Australia’s lack of international competitiveness. With
Australia’s wage structure being higher than any of Australia’s major
horticultural exporting competitors...When this is combined with the fluctuating
value of the Australian Dollar against the major trading currencies, it is
likely that Australian horticultural exports will decline by $125 million to
$180 million (down by 10% to 15%) over the next two years.[62]
2.51
Cherry Growers of Australia stated with an estimated 130 000 people
directly employed in Australia horticulture such a reduction in exports could
cause the loss of up to 20 000 jobs in regional areas over the next 2-3
years.[63]
2.52
AMIC argued that the removal of the rebate places Australia’s 'most
successful' agricultural export industry at a competitive disadvantage in the
export market place. AMIC stated that if the rebate is removed the export processing
sector (84 establishments) will pay the government approximately $84 million
for the right to operate in the export sector (an average of $1 million per
plant). Exporters in many other countries pay very little or no impost (the US
industry contributes 10-12 per cent of FSIS operating costs compared to
Australia’s industry funding 100 per cent of AQIS operating costs). AMIC noted
that the red meat industry employs 55,000 people, many in remote and regional Australia
and earns approximately $8.7 billion in export earnings.[64]
2.53
Similar concerns were expressed by other industry groups.[65]
2.54
Other industries were supportive of the reforms. The Australian
Livestock Exporters Council argued that the implementation of the reform
projects will deliver savings to the sector at least equal to the fee rebate
removed on 1 July 2009. Other benefits include more efficient use of industry
resources, reduced ‘red tape’, reduced resource requirements by regulators,
more timely delivery of services and more effective engagement with destination
markets.[66]
Other matters
Consultation on return to full cost
recovery
2.55
Despite AQIS's statements that industry had been prepared for the lapse
of the 40 per cent subsidy, the return to full cost recovery appears to have
caught many in the industry unaware. Concerns were raised at the lack of an
appropriate level of consultation by AQIS with key stakeholders during the
process to introduce full cost recovery.[67]
The Cherry Growers of Australia complained that:
The Horticultural Export Consultative Committee (HECC), which
has a long standing role to represent stakeholders in all matters to do with
AQIS was forced into agreeing to confidentiality during the full cost recovery
negotiation. When HECC could not be convinced to accept a plan to gain
efficiencies, a Ministerial Task Force was appointed with a view to
“rail-roading” horticulture into agreeing on a poorly conceived plan which, if
implemented, will not bring cost relief until long after the 40% subsidy is
dropped, if at all.[68]
2.56
CGA also expressed concern that many of the basic principles set out in
the Australian Government Cost Recovery Guidelines have not been adhered to as
part of the decision to remove the rebate.[69]
2.57
The Australian Council of Wool Exporters & Processors (ACWEP) stated
that it was advised by AQIS that the wool industry would not be part of the
Reform Review process and that the wool industry’s interests would be attended
to by changes made for the meat industry. The Council noted that 'with due
respect to the meat industry, they will be more concerned with their own
industry than the wool industry'. ACWEP stated that the wool industry made
repeated requests to be included in the consultation process. All requests 'have
been either denied or ignored'.[70]
2.58
The CFA also indicated that the seafood industry would prefer to see the
reforms identified and implemented and then a proper cost recovery impact
statement produced to determine which functions of AQIS should be fully funded
by industry and which functions should be either fully or partly funded by the
taxpayer.[71]
I appeal to the committee not to forget that all government agencies
are supposed to undertake a proper cost recovery impact statement in
consultation with industry when determining their cost recovery policies.
One thing that sticks out in this particular process is that
that has not been done, and in my opinion that it is the issue that should be
at the top of this process. Whilst I agree that we should be looking at
reforms, I think that due process should also be followed. The CFA is currently
going through exactly the same process with the Australian Fisheries Management
Authority, another government agency, reviewing its cost recovery policy and in
stark contrast to AQIS we are at the table with them and have been for six
months. We are being presented with detailed budgets as industry, saying, ‘This
is what we propose to charge in line with the government’s CRIS policy and this
is why we are recommending this. What do you think?’
We have been negotiating and are now at the point where we
will sign off, whereas if you bring it back to AQIS, we have not seen any
budgets. We do not know whether the 100 per cent charge is justified, whether
that activity is fully driven by the exporter or whether it is being driven by
the department itself or other government policy. This is a really important
issue that I think the committee needs to look at and take into consideration.
CFA certainly believes that it has been negligent in that area.[72]
2.59
A number of submitters indicated that had they been aware cost recovery
of export certification fees was being considered by the Beale review, they
would have addressed this in submissions to that review. As it was, the
recommendation of the Beale review to return to 100 per cent cost appears to
have surprised many in the industry.
2.60
AMIC told the committee:
Beale was commissioned post the equine influenza outbreak.
Its primary function was to look at importation and importation risks to this
country. We are not aware of how that transferred to cost recovery from AQIS.
It was never on the radar screen. When it started appearing in the press, we
certainly became alarmed, but at no stage did Beale contact us, as AMIC, for
input.[73]
2.61
AMIC also told the committee that while there had been 'rumblings' about
a return to full cost recovery, there was no official word that removal of the
rebate was under consideration.
We wrote to the Minister. The Minister assured us that we
would receive consultation before anything occurred. When we finally met with
the Minister in February, we were told it was a fait accompli and the 40 per
cent was gone.[74]
Impact of disallowance
2.62
As discussed earlier, the committee notes that the Government has stated
that provision of funding for the development of reforms in each industry
sector is contingent on the safe passage of fees and charges legislation, the Export
Control (Fees) Amendment Orders 2009 (No. 1), being passed through the
parliament. In light of the current motion to disallow these regulations, the
committee explored the impact of disallowance on AQIS and industry.
2.63
DAFF advised that if the regulations are disallowed the charges would
revert to the previous schedule of fees and charges. Mr Delane, Deputy
Secretary Biodiversity Services Group, DAFF told the committee:
If this is disallowed then we revert to the previous fees and
charges, some of which were being under-recovered, leading to deficits in the
industry liability accounts. We expect that the revenue shortfalls in the
department for this financial year will be of the order of $30 million. If not
corrected, those shortfalls will persist and in fact get larger. Because of the
scale of the industry et cetera, we expect that the normal revenues would
be in excess of $40 million. We also expect that, because the fees and charges
are based on a previous level and under recovering, there will be shortfalls in
the industry liability accounts, the balancing account from which the industry
revenue is returned and costs are met.
By the end of 2009-10, we expect that those shortfalls will
accumulate to approximately $18million. There are a lot of questions around
that, but our estimate currently is about $18 million. That has to be offset by
the department, so we have some balance sheet issues which we will also have to
manage. As that rolls through, if it rolls through into next year, we will have
further shortfall issues with those industry liability accounts in excess of
$10 million. Those accounts have to be balanced off at some point, so to do
that we would have to have quite substantial fee increases at some future point
to meet the cost of service provision at that time—normally we would expect
that to be higher—and to recover those shortfalls. So we would be expecting
cost increases, and fees and charges would have to come forward that would be
significantly higher than those that have been brought forward this
year—potentially over 100 per cent higher.[75]
2.64
The committee noted DAFF's observation that there was a trade-off
between the $42 million government would gain through the discontinuation of
the 40 per cent rebate and the $39.9 million government has committed to
implement the reforms. The committee notes the view that disallowance would
compromise the availability of funds to support the review program. The
committee also observes that if the fee changes are passed, industry will
effectively be paying for government to reform itself.[76]
The Secretary of DAFF, Dr O'Connell clarified the situation for the committee:
One is a cost recovery and we are just recovering the cost of
the services, and the other is a government program to provide reform. So it
would not be accurate to say that they are paying for the reform in that sense.[77]
2.65
A number of witnesses expressed concern that disallowance would
compromise an opportunity for regulatory reform. Mr Geoff Masters, Quality and
Technical Services Manager for ABB Grain told the committee that
I suppose if the reforms were disallowed we assume the 40 per
cent goes back on, so we are back in a situation where we are paying at those
lower rates and we would be back where we were. Now there would be a gap that
has occurred where we have been paying the higher rate, so the question is how
that would be refunded to industry, if at all. I think it would be more the
longer term penalties and how we are going to get the reforms, because this is
clearly an expensive process to go through. If industry or the government were
to commit to a reform process, that is one thing. But it is the funding that
has given us the opportunity to move forward. If it was disallowed I suspect the
reform process would stall, if not totally stop. That would obviously have a
very long-term impact on the industry in our capacity to perhaps have some real
reforms around the way industry or exports occur.[78]
2.66
The committee believes that the Government should commit to the reform process
and provide adequate funding for the reforms proposed.
2.67
The Dairy Industry told the committee that it believed disallowance
would remove the opportunity for the industry to progress reform, Mr Judd told
the committee that in light of how far industry had progressed with the reform
process to date, it would have to consider how to proceed.[79]ALEC
also expressed concern that disallowance would compromise its ability to
continue to implement the reforms it has identified. The committee was in no
doubt that ALEC's support of the removal of the rebate and the implementation
of the new fee structure is because the reform program has been linked to the
safe passage of the regulations.[80]
Mr Lach MacKinnon told the committee that ALEC 'need the money'.[81]
2.68
AMIC told the committee that it did not support disallowance. AMIC's preferred
position is appropriately funded reform agenda with a realistic time frame that
does not compromise market access. AMIC's Chairman, Mr Gary Burridge, told the
committee:
It was a political decision to put this time frame around the
funding arrangements for this year; it was not our decision. So the decision
[to disallow] is, in our opinion, purely a political one.[82]
2.69
AHEA advised the committee that it strongly supported disallowance.
Senator STERLE—Mr Scott, just a yes
or no will suffice. Does the Australian Horticultural Export Association support disallowance?
Mr Scott—Insofar as you are saying
that we want to block this?
CHAIR—Yes.
Mr Scott—Most definitely we do. We
have from the very outset. We have not wavered in our position on that and it
has been known publicly basically since the 100 per cent recovery was proposed.
2.70
The committee notes that there is some confusion regarding the fate of
the additional funds collected to date in the event that the regulations are
disallowed. Neither DAFF nor industry representatives appear to have a clear
understanding of whether the additional funds collected to date will be
returned to industry.
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