Bills Digest 48 1996-97 Bounty Legislation Amendment 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 25 October 1996.

CONTENTS

Passage History

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.

Purpose

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.

Background

As there is no central theme to the Bill, the background to the various measures will be discussed below.

Main Provisions

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.

Endnotes

  1. Industry Commission, Book Printing, Draft Report, August 1996, pp. ix to xiii.
  2. Ibid., p. xxi.
  3. Industry Commission, Computer Hardware, Software and Related Service Industries, Report No. 46, 30 June 1995, p. 30.
  4. Australian Financial Review, 30 September 1996, The Age, 22 August 1996.

Contact Officer and Copyright Details

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

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: 28 October 1996

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