Bills Digest 75 1995-96 Shipping Grants Legislation Bill 1996


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WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 10 May 1996

CONTENTS

Passage History

Date introduced:1 May 1996
House: House of Representatives
Portfolio: Transport and Regional Development
Commencement: Other than the repeal of the International Shipping (Australian-resident Seafarers) Act 1995, which will have effect from 1 July 1996, the Bill will commence on Royal Assent.

Purpose

To repeal the International Shipping (Australian-resident Seafarers) Grants Act 1995 and to alter the sunset clause in the Ships (Capital Grants) Act 1987 from 30 June 1997 to 30 June 1996.

Background

Shipping serving Australia is both a major industry and a large contributor to Australia's current account deficit. In 1993-94, the cost of freight on Australia's external trade carried by sea was approximately $9.9 billion, with Australian shipping earning approximately $1.6 billion. The net cost of using foreign shipping in 1993-94 was approximately $2.5 billion, or 15% of Australia's current account deficit in that year. (1) In June 1995 there were approximately 30 Australian ships engaged in international trade.

Australian shipping faces greater costs than many other international operators. This results from the higher standard in Australian ships than those registered under flags of convenience, relatively high wage costs and relatively high crewing levels. The latter problem has been addressed through industry reforms, which saw the number of seafarers at the end of 1993-94 being 233, or 8%, lower than at the end of 1992-93. Australian crewing levels now are close to international standards.

The shipping industry receives a number of concessions, including:

  • International shipping is exempt from many of the restrictive trade practices prohibited by the Trade Practices Act 1974; To enable international conference agreements to act;
  • The existence of cabotage which restricts most coastal trade to Australian ships;
  • The Tasmanian Freight Equalisation Scheme which provides subsidies for the carriage of freight to and from Tasmania. Payments under the scheme totalled $39.5 million in 1994-95; (2)
  • Bass Strait passenger subsidies, which totalled $411 624 in 1994-95; (3)
  • An accelerated rate of depreciation for Australian trading ships;
  • Grants under the International Shipping (Australian-resident Seafarers) Grants Act 1995 (the IS Act); and
  • Grants under the Ships (Capital Grants) Act 1987 (the Capital Grants Act);

As the Bill deals with the latter two Acts, they will be dealt with in more depth.

The IS Act was introduced following negotiations on the proposed sale of the Australian National Line (ANL). The proposed sale of a substantial part of ANL was raised during debate on the Appropriation Bills in 1992. In August 1994 the Government appointed a new board with the task of restructuring ANL after doubts were raised about the financial viability of ANL. The sale of ANL was subsequently endorsed by the ALP National Conference. In September 1994 members of the government, ACTU and maritime unions met to discuss an industry reform package, which was designed to make ANL more attractive for sale. As part of the reform package it was announced that grants would be paid to ships owners and operators to offset the impact of income tax on seafarers engaged in international trade.

The explanatory memorandum for the Bill introducing the IS Act estimated that the scheme would cost $19 million for 1995-96 based on 30 ships being engaged in international trade, with approximately one third of this amount being recouped through tax paid by those receiving the grants (this is based on the assumption that all the recipients would be paying the full company tax rate). Each additional ship was estimated to cost, after tax, $400 000 per year and the cost of the scheme to 30 June 2000 was estimated to be $59 million. The explanatory memorandum to this Bill estimates that the repeal of the IS Act will save $40 million of the estimated $59 million expenditure, with $19 being paid for entitlements to 30 June 1996.

The IS Act was opposed by the then Opposition which voted against the legislation. The repeal of the IS Act was not detailed in the Liberal and National Parties' transport policy released prior to the 1996 General Election.

The sale of ANL did not proceed. After various other potential buyers had dropped out, negotiations continued with the sole remaining potential buyer, P&O. However, the sale of ANL to P&O was strongly opposed by the Maritime Union of Australia (MUA) which threatened industrial action unless P&O gave certain assurances about crewing matters. Such assurances were not given and the government announced in December that the sale had been abandoned and that ANL would be restructured instead.

The Capital Grants Act was, again, introduced as part of a shipping reform program. The Act provides for grants at the rate of 7% of the cost incurred in relation to registered Australian ships that are:

  • purchased as new ships
  • purchased as ships less than 5 years old that have not previously been registered in Australia
  • extensively modified ships

The Capital Grants Act was introduced to facilitate the updating of the Australian shipping fleet to allow crewing to reflect international standards. It is a condition of all grants that the crewing of the ship in respect of which a grant is made does not exceed the maximum number fixed under the Capital Grants Act. The Capital Grants Act as originally enacted contained a sunset clause (section 9) which provided that grants would not be payable in respect of activity (ie the purchase or modification of vessels) that occurred after 30 June 1992. The sunset clause was extended to 30 June 1997 in 1990.

In relation to the Capital Grants Act, the Department of Transport's 1994-95 Annual Report states:

....grants made under the Ships (Capital Grants) Act 1987 totalling $5 604 544.97 [were made in 1994-95]. The grants were for the purchase of one new ship (introduced in 1994) and two supplementary payments in respect of previous grants. This expenditure was down on the 1993-94 grant payments of $22.6 million for two new ships, four supplementary payments and seven ship modification payments. The lower figure reflects the relatively low capital value of the one new ship introduced in 1994 and the timing of new ship purchases by shipowners.

As with the repeal of the IS Act, the decision to terminate the Capital Grants scheme from 1 July 1996 was not detailed in the Liberal and National Partys' Transport Policy document released prior to the 1996 General Election.

The explanatory memorandum to the Bill estimates that the early termination of the Capital Grants scheme will save approximately $12 million.

The measures contained in the Bill have been opposed by both industry and unions. It is reported that BHP and two other Australian shipping operators (reported to be Shell and CSR) are opposed to the termination of the Capital Grants scheme due to the additional cost of new ships. The MUA is reported to be considering industrial action over the measures contained in the Bill and other proposed changes to shipping and the waterfront. The ACTU has argued that the repeal of the IS Act will increase costs for Australian international shipping by 20% and would force Australian operators to cease international shipping. It has also been reported that the executive director of the Australian Ship Owners' Association has condemned the legislation. (4)

Main provisions

Item 1 of Schedule 1 of the Bill will repeal the IS Act.

Item 2 provides that the Act will continue to apply to entitlements in respect of employment accrued before the date of repeal (ie 1 July 1996 - clause 2).

Item 3 of the Schedule will amend the Capital Grants Act to exclude activity (ie the purchase or modification of eligible ships) after 30 June 1996 from the grants.

Endnotes

(1) Australian Shipowners Association, Industry Report 1995, p.1.

(2) Department of Transport, 1994-95 Annual Report, p. 49.

(3) Ibid, p. 50.

(4) See: The Sydney Morning Herald, 4 May 1996 and The Australian Financial Review, 9 May 1996.

Contact Officer and Copyright Details

Chris Field Ph. 06 277 2439
Bills Digest Service
Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9032
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 10 May 1996

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