Bills Digest 95 1995-96 Export Market Development Grants Amendment Bill (No. 1) 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 4 June 1996

CONTENTS

Passage History

Date Introduced: 21 May 1996
House: Senate
Portfolio: Trade
Commencement: The amendments outlined in this Digest commence on Royal Assent

Purpose

The amendments proposed by this Bill relate to the Export Market Development Grants Scheme (the EMDG Scheme). The major amendments:

  • reduce from $250 000 to $200 000 the maximum grant payable under the EMDG Scheme to a person other than an approved trading house;
  • provide for a limitation on the number of joint ventures and consortiums of which a person may be a member;
  • reduce the amount of grant payable where details of unclaimed expenditure are submitted after a claim is lodged;
  • make non-claimable expenditure relating to illegal activities;
  • disallow certain claims prepared by disqualified persons; and
  • prevent claimants claiming grants for their own domestic employee's

Background

(a) Outline of EMDG Scheme

The Export Market Development Grants Act 1974 (the Principal Act) contains provisions which govern the method of application and eligibility for grants, a list of claimable export oriented expenditure, and mechanisms for review of decisions, recovery of overpayments, and termination of grant entitlements.

The Export Market Development Grants Scheme (EMDG Scheme), which is administered by the Australian Trade Commission (Austrade) under the Principal Act, provides cash grants of up to $250 000 per annum for approved small to medium sized business and is based primarily on expenditure incurred by an Australian person or company seeking to create or expand exports of their products in overseas markets.

Provided a person has incurred at least $30 000 of eligible expenditure in a grant year and has export revenue of less than $25 million, they will be entitled to a grant. A grant is calculated at 50% of eligible expenditure after the first $15 000. Claimants who have received eight or more grants are not allowed to receive further grants, and claimants who have received at least two prior grants are subject to a performance test which is assessed against costs such as travel expenses, special promotional literature and overseas representation. Austrade considers the main benefits of the scheme to include:

  • grant funding is guaranteed by legislation;
  • the grant is cash in hand; and
  • the grant directly supports the majority of expenditure categories likely to be incurred by the exporter.

In 1994-95 there were 3 497 Export Market Development Grant claims processed, valued at $197.6 million.(1) In 1993-94, Export Market Development Grants to the value of $195 million were paid to 3 277 claimants. This compares with 2 473 claims with a value of $181 million in 1992-93.

Of the 3 497 claimants in 1994-95, 97% targeted a market in South East Asia compared with 50%-60% for North America, South America, East Asia and Europe. Approximately 43% of claimants were exporters of services.(2)

(b) Recent Major Reviews

In 1993-94 the Auditor-General conducted a review the effectiveness, efficiency and strategic planning of the EMDG Scheme.

Major findings and recommendations of the audit included:

  • While there appeared to be widespread support for the scheme (especially from the business community/the recipients of grants) the nature of the scheme had made direct measurement of effectiveness elusive.
  • Austrade's responsiveness to its clients (both private and public) was impeded by the structure and wording of the Act and regulations.
  • The scheme presented Austrade with opportunities to add value to Australia's exporting effort (in addition to grants) by promoting other Austrade services.
  • Management monitoring, review and control of the scheme's administration was impeded by the incorporation of the EMDG Unit administration budget with the general administrative budget of Austrade, and narrowly defined work flow performance indicators.
  • More information on the focus, use and effectiveness of the EMDG scheme be reported to Parliament.
  • Performance measures be defined whenever a grant scheme is established in the future.
  • A system be developed to monitor the quality of risk assessment.
  • The overall approach of Austrade to misuse and fraud control could be improved.(3)

In 1994, Austrade conducted an internal evaluation of the EMDG Scheme. Key findings and recommendations of the evaluation included:

  • the EMDG Scheme is achieving its objective of encouraging firms to seek out and develop export markets;
  • revenues from taxes on grant receipts and profits on additions exports were estimated to return 42% of the cost of the scheme to the Commonwealth;
  • most of the growth in the EMDG Scheme has come from the services sector;
  • the minimum level of qualifying expenditure, the grant rate, number of grants and performance test are largely appropriate;
  • the number of firms claiming grants and then dropping out of the EMDG Scheme is not ideal;
  • the EMDG Scheme should be extended to all claimants in the tourism sector; and
  • the EMDG Scheme should be extended for a further five years.(4)

(c) Liberal and National Parties' Industry and Commerce Policy and Recent Developments

As noted in the Second Reading Speech, and Senator Kemp's (Parliamentary Secretary to the Minister for Social Security) statement of reasons to the Senate seeking that this Bill be considered during this sittings(5), this Bill is substantially the same as the Export Market Development Grants Amendment Bill (No. 2) 1995 introduced on 22 November 1995 by the Keating Government. That Bill lapsed with the dissolution of Parliament for the 1996 election.

The major amendments proposed by the Export Market Development Grants Amendment Bill (No. 2) 1995 were as follows:

  • reduce the maximum yearly grant available to claimants from $250 000 to $200 000;
  • limit the number of joint venture and consortium of which a person may be a member; and
  • introduce registration and grants entry testing of first time claimants.

The amendments proposed by the Export Market Development Grants Amendment Bill (No. 2) 1995 stemmed from two sources, that is, the 1995-96 Budget and Audit Report No. 33 of 1993-94, the major findings and recommendations of which are outlined in paragraph (b) above.

In the 1995-96 Budget the Keating Government announced that:

The efficiency of the Scheme will be improved by an enhanced focus on firms that are export-ready. In addition, the maximum yearly grant available to claimants will be lowered from $250 000 to $200 000.(6)

During the 1996 election campaign, the Liberal and National Parties gave a number of commitments in relation to the EMDG Scheme:

The Federal Coalition believes that action has to be taken, as a matter of priority, to address Australia's poor trade performance in manufacturing and services. To this end an incoming Coalition Government will:

Develop a sharper strategic focus for AUSTRADE in the delivery of export assistance programs. In particular, we will establish a number of broadly based 'industry panels' to advise the AUSTRADE Board on strategies for export promotion in particular industry sectors, including the engagement of business associations with links overseas.

Maintain the existing range of general export assistance programs including Export Market Development Grants (EMDG) and the International Trade Enhancement Scheme (ITES) and Export Access. We will also continue to support sectoral programs of export assistance such as the Export Facilitation Scheme (automotive) and the Imports Credit Scheme (textiles, footwear and clothing).(7)

It is reported in The Australian Financial Review of 19 April 1996 that the Government has a plan to abolish the EMDG Scheme. It is reported that the abolition plan is contained in a Department of Finance minute endorsed by the Expenditure Review Committee.

The alleged abolition of the EMDG Scheme has met with strong resistance from the Australian Chamber of Manufactures. Mr Allan Handberg, the chamber's national chief executive, said

... business assistance programs [such as the EMDG Scheme] had been particularly useful to the small and medium enterprises that made up 80% of the chamber's 6,000 member businesses.

Export market development grants assisted small businesses to search and consolidate foreign markets while the business networks initiative brought small businesses together in their exporting strategies.

The taxpayer has every right to believe that if a program is not working, it should be gotten rid of. But a taxpayer would also expect that if a program is good for business and good for the country, that it would be retained.(8)

(d) Rationale for Introduction of Bill

The rationale given by the Government in the Second Reading Speech to the Bill for the introduction of this Bill is that

The previous governments bill introduced a number of measures which would result in significant savings over the next three years (ie. approx $32 million between 1996-1999). These savings have already been incorporated in the forward estimates.

It should be noted that the Government in the Second Reading Speech emphasises that the introduction of this Bill does not signal a commitment to support or remove the EMDG Scheme in the future. The Government states that

... this step [introduction of the Bill] does not provide any indication about what may or may not be the subject of ongoing budget discussions. The results of these discussions will be made public at a later time, and will not be influenced by our decision to introduce this Bill now.

Main Provisions

Schedule 1 Amendments - Grant Ceiling

The effect of item 1 is to reduce from $250 000 to $200 000 the maximum grant payable to a person other than an approved trading house. The reduction applies to balance-year and full-year claims for 1995-96 and for all claims in subsequent years (item 2).

Comment: The terms 'balance-year claim' and 'full-year claim' are defined in section 13A of the Export Market Development Grants Act 1974. A 'balance-year claim' is a reference to a claim made in a grant year where the claimant has already made a claim for the first six months of the grant year. Claims made in other circumstances are referred to as 'full- year' claims.

Schedule 2 Amendments - Disclosure of Eligible Expenditure After Claim Submitted

Proposed section 12A, which is inserted in the Export Market Development Grants Act 1974 by item 1, provides:

  • where a claim for a grant is made;
  • Austrade has not determined eligibility; and
  • the claimant subsequently submits undisclosed eligible expenditure;

the submission of the unclaimed expenditure cannot increase the claimant's grant by more than 110% of the grant that would have been determined if no unclaimed expenditure had been disclosed. Proposed section 12A applies to balance-year and full-year claims for 1995-96 and for all claims in subsequent years (item 4).

Schedule 3 - Limit on Membership of Multiple Approved Joint Ventures and Consortia

A new section 40BH is inserted in the Export Market Development Grants Act 1974 by item 3 that provides the Minister, subject to disallowance by Parliament, with power to specify the maximum number of approved joint ventures and consortia a person may be a member of. Austrade is not to approve a group of persons as an approved joint venture or consortium or vary a group's approval if the approval or variation would result in a person breaching the maximum set by the Minister.

Schedule 4 - Conditions of Approval of Joint Ventures and Consortia

The effect of item 1 is make expenditure of an approved joint venture or consortium non-claimable to the extent (if any) it is incurred in breach of joint venture or consortium approval.

Item 2 makes Austrade decisions specifying conditions to which a group's approval as an approved joint venture or consortium subject to review by the Administrative Appeals Tribunal.

Item 4 provides Austrade with power to specify the conditions (if any) to which a group's approval as an approved joint venture or consortium is subject to.

Schedule 5 - Claims Prepared by Disqualified Individuals

The amendments proposed by Schedule 5 are fraud minimisation measures. The major amendments provide:

  • Where a claim for a grant is prepared for a claimant by or on behalf of an export market development grants consultant, it must name all those who helped in its preparation in an eligible capacity [item 2 - proposed subsection 13(2AB)].
  • A person will be taken to have assisted in the preparation of a claim in an eligible capacity if they work on the preparation of the claim and that work involves forming an a legal opinion on a matter dealt with by the claim, or the person directly or indirectly manages or supervises work such work, and the work, management or supervision, is performed by or on behalf of an export market development grants consultant (item 3 - proposed section 13B).
  • A claim for a grant will be taken to be invalid where: it is submitted to Austrade; was prepared by or on behalf of an export market development grants consultant; a person helped in the preparation of the claim in an eligible capacity; and the person assisting in the preparation is disqualified at any time between when the claim is made and determined from the time the claim was lodged to the time Austrade determines whether the claimant is entitled to a grant (item 3 - proposed section 13C).
  • A person will be taken to be disqualified where they have been convicted of an offence against a law involving fraud or dishonesty punishable by a maximum period of imprisonment of two years, or an offence under section 39 (eg. knowingly obtaining or attempting to obtain a grant that is not payable). A person is disqualified for the duration of the disqualification period, which is the period commencing from conviction and ending: if they are not sentenced to imprisonment - five years after conviction; or if they were sentenced to imprisonment - five years after their release from prison. (item 3 - proposed section 13F)
  • Where a claimant neither knew of, nor had reasonable grounds to suspect the existence of an individuals conviction and disqualification they may submit a new claim for a grant (item 3 - proposed section 13E).

The amendments proposed by Schedule 5 will apply to a claim made on or after the day this Bill receives the Royal Assent or 1 July 1996, whichever is the later (item 4).

Schedule 6 - Expenditure Relating to Illegal Activities

A new section 11YB is inserted in the Export Market Development Grants Act 1974 by item 1 which will make non-claimable expenditure, which in Austrade's opinion is:

  • incurred in, or in connection with, carrying out an illegal activity; or
  • promotes or is intended to promote, aids or encourages an illegal activity;

The term illegal activity is defined to mean an offence against a Commonwealth, State or Territory law, or any other law.

Proposed section 11YB applies to balance-year and full-year claims for 1995-96 and for all claims in subsequent years (item 2).

Schedule 7 - Extended Meaning of Ordinarily Employed

A new definition of ordinarily employed is inserted in the Export Market Development Grants Act 1974 by item 2. The proposed insertion is a fraud control measure aimed at preventing claimants claiming a grant for their own domestic employees, double dipping in other words. Basically, the proposed definition sets out the circumstances which Austrade will consider in making a determination as to whether a person is ordinarily employed by a claimant. These include:

  • whether the person performs work at the premises of the claimant;
  • the extent to which the claimant exercises control over the work performed by the person;
  • whether the claimant is the only person for whose benefit the individual performs work;
  • whether it may reasonably be concluded that the relationship between the claimant and the other person was entered into or maintained for the sole or main reason of getting a grant; or
  • any other relevant matters.

The proposed definition applies to balance-year and full-year claims for 1995-96 and for all claims in subsequent years (item 5).

Endnotes

(1) Australian Trade Commission, Annual Report 1994-95, p. 46.

(2) Ibid., at pp. 45 and 46.

(3) The Auditor-General, Audit Report No. 33 1993-94.

(4) Australian Trade Commission, Helping To Meet The Export Challenge - An Evaluation of the Export Market Development Grants Scheme and the International Trade Enhancement Scheme, April 1994.

(5) Current Senate Hansard, 20 May 1996, p. 727.

(6) Budget Statements 1995-96, Budget Paper No. 1, p. 3-168.

(7) Hon. John Moore MP, Federal Liberal/National Coalition Industry and Commerce Policy, February 1996.

(8) The Australian Financial Review, 23 April 1996.

Contact Officer and Copyright Details

Ian Ireland Ph. 06 277 2438
29 May 1996
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: 5 June 1996

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