WARNING:
This Digest is prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments.
This Digest was available from 25 October 1996.
CONTENTS
Bounty Legislation Amendment Bill 1996
Date Introduced: 19 September 1996
House: House of Representatives
Portfolio: Industry, Science and Tourism
Commencement: The operative provisions of the Bill
commence from 7.30 pm on 20 August 1996 (ie. the time of the Budget
announcement). Also refer to the Main Provisions section for
details of when the various schemes terminate and transitional
provisions.
To terminate bounty schemes relating to books, computers,
machine tools and robots and ships. The measures also contain
various phasing-out provisions relating to claims.
As there is no central theme to the Bill, the background to the
various measures will be discussed below.
Bounty (Books) Act 1986
The book bounty has existed since 1969 and was introduced to
protect the local printing industry. The bounty has been as high as
33.3% of printing costs, although in recent years the bounty has
declined. For example, in 1985-86 the rate was 25%, fell to 20% in
the next year and has declined at a generally steady rate since
then. The rate has declined from 13.5% in 1992 to 7.2% in 1996 and
is scheduled to decline to 4.5% on 1 January 1997. This rate is
approximately equal to the general rate of tariff assistance
available.
The bounty was introduced at a time when overseas printers were
considerably cheaper than their Australian counterparts. This was
due to a combination of cheaper labour cost and more modern
equipment. It should be noted that at the time that the measures
were introduced the printing industry was labour intensive and the
equipment used was largely similar to that that had been used for
decades and that there was very little technology involved in the
printing process.
The bounty was examined by the Industry Commission (IC) in 1992.
The IC found that much of the advantage of Australian printers was
based on factors such as short delivery times and specialised work.
The IC noted general improvements in productivity in the printing
industry, and recommended that the rate of bounty continue to be
reduced until it reached 4.5% by 1 January 1997. It recommended
that the bounty continue until 31 December 1997. The printing
industry and the bounty were further examined by the IC in the
lead-up to the proposed abolition of the bounty, and it's Draft
Report was issued in August 1996. Findings of the Draft Report
include:
- Production of bountiable books in 1995-96 totalled
approximately $270 million, an increase of over 50% in real terms
since 1992;
- The bounty was claimed by approximately 700 printers in
1994-95, who received approximately $23.3 million. However, only 41
printers received more than $100 000 in bounty and 2 printing
groups accounted for just under 40% of bounty payments;
- In 1994, Australian publishers spent approximately $210 million
printing books, of which approximately two thirds, or $143 million
was spent in Australia;
- Since the last IC report in 1992, major Asian competitors had
become more expensive, which makes Australian printing more
competitive, and emerging Asian printing sources lacked reputations
for quality and reliability;
- There has been a trend away from multi-colour books, in which
Australian printing is less competitive, towards mono-colour
printing in which Australia printers are more competitive;
- Changes in technology in recent years has changed the face of
the industry, with it becoming much more capital intensive with the
elimination of various stages of the printing process, such as the
preparation of plates and typesetting, and their replacement with
computerised equipment;
- While off-set printing is still has a cost advantage for medium
to long print runs, the increased use of technology will see a
decline in the relative importance of labour costs, thus making
Australia more internationally competitive;
- The value of book exports has fluctuated around approximately
$100 million between 1991-92 and 1995-96, although the value for
1995-96 was approximately 10% below that for 1991-92 and
1994-95;
- The value of imported books has declined steadily since
1991-92, when they amounted to approximately $450 million, and
stood at approximately $300 million in 1995-96; and
- While compliance costs for bounty claimants are uncertain,
estimates range from between $150 000 and $420 000, while the
administrative costs for the Australian Customs Service are,
including overheads, approximately $420 000 per year.(1)
The IC examined these matters, the effect of compliance costs as
the value of the bounty reduces and possible alternative measures
of assistance, and recommended that the bounty not be continued
beyond 31 December 1997 and not be replaced by another form of
assistance.(2)
It was announced in the 1996 Budget that the books bounty would
be terminated from 20 August 1996, subject to some transitional
provisions (see below). It is estimated in the explanatory
memorandum to the Bill that the measure will result in savings of
$4 million in 1996-97, $7.322 million in 1997-98 and $800 000 in
1998-99.
Section 4 of this Act defines the 'bounty period', ie. the time
during which the bounty will be paid, as ending on 31 December
1997. Item 1 of Schedule 1 of the Bill will substitute a new
definition of bounty period which is:
- if a production process (ie. a step in the production of a book
from typesetting to packaging) commenced before the Budget
announcement on 20 August 1996, or a contract had been entered into
for a book's production specifying its title, the bounty will be
applicable until 20 February 1997; or
- 20 August 1996.
Other amendments to the Act relate to cut off times for making
claims and reflect the new terminated dates referred to above.
Bounty (Computers) Act 1984
The computer bounty was introduced in 1984 on domestic
production of eligible hardware, principally microprocessor based
electronic equipment. The introduction of the bounty followed
changes to the tariff assistance available to the industry with the
result that computer hardware was cheaper due to the reduction in
tariff assistance while local manufacturers continued to receive
assistance through the bounty. The rate of bounty was originally
fixed at 25%, which reflected the high rate of tariff assistance
previously available. Since its introduction the rate of bounty has
decreased generally in line with the reduction in general tariff
assistance. For the period 1 July 1994 to 1 January 1996, the rate
of bounty was 8%.
It was originally intended that the bounty would cease to be
available from 31 December 1995. However, this was extended to 31
December 2000 and the rate of bounty between 1 January 1996 and 31
December 1996 is 8% while the rate for 1 January 1997 to 31
December 2000 is 5%.
The bounty on computer hardware, software and related services
was examined by the IC in 1995. Major findings of the IC
included:
- Arguments for the bounty have been substantially reduced by the
general reduction in tariffs, changes in industry policy and
developments in the industry which has changed significantly since
the introduction of the bounty;
- The bounty is only available on computer hardware, while
software accounts for over 80% of information technology
production;
- The design of the bounty has made it available to a select
range of companies; and
- The merging of various technologies such as computing,
telecommunications and broadcasting have made the definition of
equipment subject to bounty subject to disputes and have increased
the administrative costs of the scheme.
The IC recommended that the bounty be allowed to lapse at the
end of 1995.(3)
On 23 November 1995, the then Minister announced that the bounty
would be extended until 31 December 2000. The main reasons given
for the extension of the bounty were:
The computer bounty plays an
important role in facilitating investment and value-added
production in Australia - including the manufacture of essential
hardware, fundamental to the information age.
And it is clear that a healthy and broad based hardware
manufacturing capability underpins innovative software and services
development. </ ul>
The extension of the bounty was estimated to cost approximately
$240 million.
It was announced in the 1996-97 Budget that the bounty would be
terminated from 1 July 1997. It was also announced that an
Information Industries Taskforce (IIT) would be established to
advise on ways to manage the information, technology and
telecommunication industries. In a Press Release dated 22 August
1996, the Minister confirmed that IIT would be asked to examine
whether there should be some other form of industry assistance. It
was estimated that IIT should complete its work by the end of April
1997.
The explanatory memorandum to the Bill estimates the savings
through the abolition of the bounty to be $20 million in 1997-98;
$44.7 million in 1998-99; $46.4 million in 1999-2000; and $31.2
million thereafter.
The changes to this Act are substantially the same in form as
those described above. The definition of 'bounty period', which
currently ends on 31 December 2000, will be amended so that the
period will end on 1 July 1997.
Bounty (Machine Tools and Robots) Act
1985
Bounty assistance for metal working machine tools was introduced
in 1972, with the current scheme being introduced in 1985. The
scheme was reviewed by the Bureau of Industry Economics in 1990 and
in 1991 the scheme was extended, with some modification, until 30
June 1997. The scheme originally provided for assistance at a rate
of 35%, or 25% depending on the nature of the machinery (the higher
rate was available for 'high-tech' equipment such as robots and
other computer controlled goods), with the rate of assistance
falling to 8% for both categories from 1 July 1995 and to 5% by 1
July 1996 (ie the equal to the general rate of tariff).
It was announced in the 1996-97 Budget that the scheme would be
terminated from 20 August 1996 with phasing-out arrangements for
claims under the scheme. In a Press Release dated 20 August 1996,
the Minister announced that the IC had recently found that the
scheme did not promote the production, development or export of
machine tools and robots and that the IC recommended that the
scheme cease when it was due to end on 30 June 1997.
The explanatory memorandum to the Bill estimates the savings
from this measure to be $1.322 million in 1996-97 and $1.382
million in 1997-98.
This Act will be amended to bring the time on which the scheme
will end within the definition of bounty period (it is currently
referred to as the terminating day). The scheme will currently end
on 30 June 1997. The new definition of bounty period will generally
end on 20 August 1996 or, if a contract had been entered into
before this time for the manufacture or modification of bountiable
equipment, 20 February 1997.
Section 21 of the Act currently provides that a claim for a
bounty may be made within 12 months of becoming eligible for the
bounty. This requirement will be altered so that claims must be
made before 21 May 1997.
Bounty (Ships) Act 1989
Australia has a long history of assistance to the shipbuilding
industry, reflecting the importance of shipping to the country.
Prior to 1940, assistance was provided by import duties. A bounty
scheme was introduced in 1940, although no claims were made and the
scheme lapsed in 1943. From 1947 until 1975 assistance to the
industry was provided by a bounty which aimed to make shipbuilding
costs in Australia the same, after the bounty, as in the United
Kingdom. Assistance was ensured by a prohibition on the importation
of new and second-hand vessels. From 1975 to 1980, assistance was
provided by a bounty based on the selling price of the vessel. From
1980 until 1989, assistance was provided by a bounty based on cost
of the vessel, with eligibility being restricted to certain classes
of ships. The eligibility criteria which determined if the bounty
was payable changed a number of times during this period.
From 1989 the current scheme has operated and provides a bounty
on the contract cost of vessels between 150 and 20 000 gross
construction tonnes. The rate of bounty was originally set at 15%
until 1991, and then reducing by 5% every two years until it was
proposed to be phased out by 1 July 1995. The bounty is available
in respect of both the construction and modification of eligible
vessels. In 1993, the scheme was extended until 30 June 1997 and
the rate of bounty would be 9% from 1 July 1993 to 30 June 1994; 8%
between 1 July 1994 and 30 June 1995; 7% between 1 July 1995 and 30
June 1996; and 5% between 1 July 1996 and 30 June 1997.
Much of the success in Australia's shipbuilding industry in
recent years has been concentrated in the construction and export
of high speed aluminium catamaran ferries. With the industry
concentrated in Western Australia and Hobart, a number of export
orders have been secured, to countries such as Italy, Germany,
Turkey and China. Examples of the vessels exported include a ferry
for operations in the Baltic Sea that is capable of carrying 600
passengers, 175 cars and 100 busses and will complete its journey
in less than half of the current time and a vessel built for China
that is capable of carrying 450 passengers and 90 cars at up to 50
knots. The construction of such vessels is also a significant
factor in employment, with, for example, Incat in Hobart employing
over 1 000 people, making it the largest private employer in
Tasmania.
An area of contention is the assistance available to overseas
shipbuilders. It has been reported that when the Australian bounty
is abolished European competitors will still be receiving a subsidy
of approximately 9%, and it is expected that while the European
assistance will be abolished, there will be a period of
approximately 18 months when Australian shipbuilders receive no
bounty while their European counterparts continue to receive the
subsidy.
The bounty scheme was examined by the Bureau of Industry
Economics in 1995 which found that while the bounty had contributed
to the change in the Australian shipbuilding industry from a
domestic to export oriented industry, it should not be continued
beyond its phasing out date. As with other bounties, this would
equate with the general rate of tariffs available after that
time.
It was announced in the 1996-97 Budget that the bounty would be
removed from 20 August 1996 and that transitional provisions would
apply were contracts had been exchanged before this date or where
work would be completed before this date but the bounty not
claimed.
In response to the Budget announcement, major builders of
catamaran ferries, including Incat, WaveMaster and Austral,
announced that they would consider taking all or part of their
operations overseas.(4)
It is estimated in the explanatory memorandum to the Bill that
the measures will save $3.22 million in 1996-97 and $6.09 million
in 1997-98.
Section 8 of this Act provides that the bounty will be payable
for activity during the period to which the Act applies. This is
defined in the Act to end on 30 June 1997. The definition will be
amended to provide that the bounty will generally cease to be
available for the construction or modification of ships commenced
after Budget time on 20 August 1996. If the construction or
modification occurred after this time under a contract entered into
before that time and the contract required the activity to be
completed by 30 June 1997, the bounty will still be payable.
- Industry Commission, Book Printing, Draft Report, August 1996,
pp. ix to xiii.
- Ibid., p. xxi.
- Industry Commission, Computer Hardware, Software and Related
Service Industries, Report No. 46, 30 June 1995, p. 30.
- Australian Financial Review, 30 September 1996,
The Age, 22 August 1996.
Chris Field Ph. 06 277 2439
23 October 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
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Published by the Department of the Parliamentary Library,
1996.
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Last updated: 28 October 1996
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