Bills Digest No. 16 2003-04
ACIS
Administration Amendment Bill 2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
ACIS
Administration Amendment Bill 2003
Date Introduced:
25 June 2003
House: House of Representatives
Portfolio: Industry, Tourism and
Resources
Commencement:
The substantive amendments
in Schedule 1 commence on a day to be fixed by Proclamation. If a
Proclamation is not made within 6 months of the date of Royal
Assent, the Act commences on the first day after that six month
period.
The purpose of the Bill is to extend the
Automotive Competitiveness and Investment Scheme (ACIS) until 2015.
The scheme provides assistance to the Australian automotive
industry.
Background
In 1998, following an Industry Commission
review, the Government announced a framework for post-2000
automotive policy. The main elements of the policy are:
- continued tariff reform by way of a pause in the tariff at 15
per cent from 2000 to 2004 followed by a reduction to 10 per cent
in 2005
- an 'Automotive Market Access and Development Strategy' aimed at
opening and developing key export and investment markets for the
industry, and
- ACIS, a transitional assistance scheme providing import credit
benefits to eligible companies over the period 2001 2005.
ACIS commenced on 1 January 2001 and was
scheduled to lapse on 31 December 2005.
The Government's policy commitment beyond 2005
for the Australian automotive industry was announced in December
2002. Central to that commitment is the continuation of ACIS.
As noted above, initially, ACIS was a
transitional assistance scheme over the five years 2001 to 2005.
ACIS provides import credits to eligible companies to offset
customs liabilities on vehicles and certain components. Credits may
also be sold to other businesses for their use. ACIS credits for
motor vehicle producers (MVPs) are related to production and
investment. Credits are also available for automotive components
producers and service providers to the industry. ACIS has two
separate funding pools. The capped incentives pool is available to
all participants. The uncapped pool is only available to MVPs and
these credits are tied to the tariff applying to passenger motor
vehicles (PMVs) and related components.
On 13 December 2002, the Minister for
Industry, Tourism and Resources, the Hon Ian Macfarlane MP, issued
a media release in which it was announced that ACIS would continue
beyond 2005 to 2015. The Government's announced policy is:
Post-2005 ACIS
Similar to its predecessor, the post-2005
Automotive Competitiveness and Investment Scheme will be a
transitional assistance scheme that will encourage competitive
investments by firms in the automotive industry in order to achieve
sustainable growth. The Scheme has been announced well before its
implementation date of 1 January 2006 to provide certainty for the
industry in its planning for the next decade. It will run for ten
years with all industry specific support ceasing on 31 December
2015.
ACIS capped incentives
During the 2006-2010 period, ACIS capped
incentives will be limited to $2 billion. Over 2011 to 2015, ACIS
capped payments will be limited to $1 billion, with assistance
declining progressively over this period.
From the first quarter of 2003, capped payments
will be divided into two funding pools in a ratio of 55:45, one for
MVPs and one for the supply chain respectively.
ACIS uncapped production
credits
MVP uncapped production credits will continue as
at present, but will conclude in 2015. They will continue to be
tied to the tariff applying to PMVs and related components.
R&D fund for car
producers
A $150 million R&D Fund will be created to
encourage vehicle producers to invest in high-end R&D
activities. The Fund will be conducted on a competitive grants
basis with three annual rounds of applications to be held over
2006, 2007 and 2008. Up to $50 million will be allocated for each
round, with unallocated funds returned to the MVP funding pool.
Automotive tariffs
From 1 January 2005, the tariff for passenger
motor vehicles (PMVs) and automotive components will be 10%. From 1
January 2010, it will be 5%.(1)
The ACIS scheme aims to encourage the
development of internationally competitive firms in the Australian
automotive industry. As noted above, eligible production, strategic
investment and research and development activities earn incentives
in the form of duty credits. These credits can be used to offset
customs duty on eligible automotive imports, or can be sold for use
by another party.
On 30 August 2002, the Productivity Commission
issued its Review of Automotive Assistance
report.(2) The Government sought advice from the
Productivity Commission on options for assistance to the automotive
industry after 2005 i.e. after the current ACIS scheme is due to
lapse. The goal for the Australian automotive industry is to have a
viable internationally competitive industry combined with
competitively priced and quality manufactured vehicles available
for Australian consumers. Some of the key points identified in the
Productivity Commission's report were:
- in recent
years, the Australian automotive industry has transformed itself to
become a major exporter and innovator
- this transformation has been influenced by reductions in
tariffs
- ACIS support and a lower $A have both been important in helping
the industry adjust to lower tariffs
- a serious
weakness is the adversarial workplace culture that continues to be
evident in some parts of the industry; better communication and
greater cooperation between firms, their employees and unions is
the key to improved workplace and industrial relations outcomes,
and
- to meet the
twin objective of establishing a clear path to lower assistance and
giving the industry time to adjust, a decade of policy certainty is
desirable.(3)
The Productivity Commission advised that there
would be advantages in providing a tariff pause at 10% from 2005
then a reduction to 5% in January 2010 until 2015. The Productivity
Commission supported the retention of the ACIS scheme as a
transition mechanism, largely in its current form, until the end of
2010.(4)
The Australian National Audit Office (ANAO)
issued its performance audit report on ACIS on 30 June
2003.(5)
Overall, ANAO found that the administration of
ACIS to date by the Department of Industry, Tourism and Resources
(DITR) was timely in delivering credits to participants and that
DITR provided good client service. ANAO made some recommendations
for improvements to the administration of the scheme, including the
introduction of performance measures to assess the effectiveness of
ACIS and the introduction of a comprehensive risk management
plan.(6)
ANAO also reported on a need to enhance the
auditing of the ACIS program due to the identification by
AusIndustry (within the DITR portfolio) of inappropriate claims
identified in the audits conducted so far. The Australian National
Audit Office (ANAO) had reported on the self assessment nature of
ACIS by participants in the scheme and stated:
As at April 2003, 114 out of 208 participants had
been audited. These audits, undertaken by AusIndustry, have
resulted in the identification of some $100 million in
inappropriate claims. Audits have also identified a number of
issues for broader program administration. These have been
appropriately addressed by AusIndustry.
However, the ANAO found that auditing was not
undertaken in accordance with legislative requirements. Officers
undertaking audits were not formally authorised to audit under the
Act, nor issued with identity cards, as required.(7)
DITR has agreed with the ANAO recommendation
and noted that AusIndustry is recruiting additional staff with
auditing expertise.(8)
In a media release dated 27 June 2002, the then
Shadow Minister for Innovation, Industry, Trade and Tourism, Mr
Craig Emerson MP, said:
Labor shares the Commission's optimism about the
industry's future and supports the retention of ACIS as a sound
investment in the industry's expansi
Labor also welcomes the Productivity Commission's
support for a roundtable of employer and employee representatives
designed to achieve industrial harmony in the
industry.(9)
On 1 July 2003, Mr Emerson issued a media
release noting that the Auditor General's report on ACIS included
the finding, mentioned above, that $100 million in inappropriate
claims had been made under the scheme.(10)
Senator Aden Ridgeway, the Australian
Democrats Industry, Small Business and Tourism spokesperson issued
a media release on 14 May 2003 commenting on Budget 2003 04,
welcoming 'the ongoing and additional funding for the continuation
of the Automotive Competitive Scheme (ACIS).'(11)
An editorial in the Australian Financial
Review on 16 December 2002 under the heading 'Tariff cuts good
for car industry' stated:
The present Australian Competitiveness and
Investment Scheme will pour $2.8 billion into the industry over the
five years to 2005, when the tariff will fall from 15 per cent to
10 per cent.
Contrary to the doom and gloom merchants, the
tariff cuts have been the making of the industry. It now exports
nearly a third of its output, worth $5 billion; the foreign parents
are pouring billions of dollars into new plants and new models; and
they all face the future with confidence.(12)
The Victorian Attorney-General and Minister
for the Manufacturing Industry, the Hon Rob Hulls MLA, is reported
in the Herald Sun of 3 October 2002 as arguing for the
retention of ACIS and a 10% tariff. Mr Hull's comments were
directed, at that time, at suggestions that the ACIS scheme might
be axed. He noted that Victoria has three of the four major
manufacturers and around 150 automotive component
makers.(13)
Criticism of the tariff freeze at 10 per cent
and further industry assistance has, however, been described as 'an
unfair advantage' to local producers in Australia by the South
Korean Trade Minister Mr Doo Yun Hwang.(14)
Toni O'Loughlin in the Sydney Morning
Herald has commented on 28 June 2002:
Consumers and businesses will keep paying
thousands of dollars more for new vehicles if the Government adopts
a Productivity Commission report arguing for it to prop up the car
industry for another 10 years.
If the Government adopts the findings it will be
the second time since 1997 that it has extended assistance to
Australia's four car makers, Mitsubishi, Toyota, Holden and
Ford.(15)
The recent surge in the value of the
Australian currency will, however, be a cause for concern for motor
vehicle-related exports. Ian Porter in the Age commented
on 28 July 2003 that, if the Australian dollar holds around US66
cents for 12 months, the value of exports could plunge by more than
$1 billion.(16)
A failure to pass the Bill would see the
assistance provided to the automotive industry under the ACIS
scheme lapse in December 2005.
Items 2 and
3 insert provisions in the Overview of the
Act at section 4 of the ACIS Administration Act 1999
(the Act) to identify that ACIS will have three stages and three
caps on the value of certain duty credits. These are:
- Stage 1 the current scheme up to 31 December 2005 (a financial
cap of $2 billion);
- Stage 2 the period 1 January 2006 to 31 December 2010 (a
financial cap of $2 billion); and
- Stage 3 the period 1 January 2011 to 31 December 2015 (a
financial cap of $1 billion).
The ACIS scheme also has other uncapped
assistance estimated at $1.2 billion and administration costs
estimated at $0.1 million in 2002 03, increasing to $2.4 million in
2015 16.(17)
The abbreviation 'MVP' used in the wording of
Item 3 means a person registered as a motor
vehicle producer under the Act. An 'unmodulated type J investment
credit' is a new form of credit available for MVPs who undertake
research and development and it is outlined at Item
43 as a new Part 5A Research and development
scheme to be inserted in the Act.
The June 2003 report Administration of the
Automotive Competitiveness and Investment Scheme by ANAO explains
modulation as:
The limiting of credits in the capped pool is
achieved through a process called modulation. This involves
assessing whether total 'unmodulated' claims are likely to exceed
the cap of $2 billion over the five year life of the scheme; and,
calculating a factor by which future claims should be modulated
(reduced) to keep total credits within the cap.(18)
'Modulation' in the context of the ACIS scheme
means 'to adjust'.
Items 7 to
10 insert definitions into section 6 of the Act to
define ACIS as having three stages (the stages are outlined above
in Items 2 and 3).
Item 11 extends the ACIS
scheme to the 'year before the year 2016'.
Item 13 inserts a definition
for 'expires'. It relates to the use and expiry of duty credits
under the ACIS scheme and should be read in connection with
Items 64 and 65 (below).
Items 15 to
21 further clarify terminology associated with
'modulation' (see explanation above) used in the current ACIS
scheme. Items 17 and
18 insert references to the new type of assistance
available (referred to as type J investment credits for the
Research and Development scheme see also Item
25).
Item 28 sets out the funding
caps in each of the new three stages of the ACIS scheme with their
respective financial 'stage cap' (see outline, above). A new type J
investment credit for the Research and Development Scheme can only
be issued in Stage 2.
Items 32 to
38 amend the Act to require the Minister to issue
modulation guidelines under the proposed revised ACIS scheme with
its additional stages and expanded categories of participants.
These Ministerial guidelines are disallowable instruments
(subsection 55(3) of the Act).
Item 43 inserts a new
Part 5A Research and Development Scheme which is
associated with the proposed new type J investment credits
available in Stage 2 of ACIS. Under proposed new section
60B, the new R&D scheme may be varied but not
revoked pursuant to subsection 33(3) of the Acts
Interpretation Act 1901 which states:
(3)
Where an Act confers a power to make, grant or issue any instrument
(including rules, regulations or by‑laws) the power shall,
unless the contrary intention appears, be construed as including a
power exercisable in the like manner and subject to the like
conditions (if any) to repeal, rescind, revoke, amend, or vary any
such instrument.
Item 56 inserts additional
subsections in existing 'section 66 Circumstances in which the
Secretary must amend the ledger' (i.e. the ACIS ledger that records
credits in respect of participants). At present, a person may
notify the Secretary under section 68 of the Act that they believe
that there is an error in the ACIS ledger (see also Items
57 to 59) and the Secretary may determine
that an error has occurred in relation to that person. The
additional subsections to section 66 will clarify that the
Secretary must, when adjusting the ledger, have regard to the
overall stage caps and the participant's personal limit under the
ACIS scheme. In addition, if the error requires a decrease in a
person's credit, then the Secretary must amend the ledger to fix
the error.
Item 61 fixes a 6 month
period after the end of each of the three stages when the
Secretary can amend the ACIS ledger.
Items 64 and
65 insert a new Division 1A Use and expiry
of duty credits to recognise that ACIS will have three
stages and to set a time limit of 1 year after the end of each of
the three stages in which duty credits are issued, as the period
that ACIS duty credits are deemed to expire (see also Items
80 and 84).
The existing Act prevents a court decision
awarding additional ACIS funding where ACIS funding has already
been allocated up to the overall financial cap and where the
person's individual limit under the scheme has been reached (see
section 112 of the Act). Item 80 amends section
112 of the Act to recognise the three stages and that the period of
adjustment after each stage is limited to 1 year after the end of
each stage, respectively (see also the saving provision at
Item 90 for proceedings (if any) already
commenced). A 'mirror' provision is also inserted in relation to
review of decisions by the Administrative Appeals Tribunal
(Item 84).
Item 87 inserts a new
section 115A which enables the Minister to publicise
whether a person was a participant in the ACIS scheme and the
amount of duty credit entered in the ACIS ledger in respect of the
person. The new provision will be prospective in effect (see also
the transitional provision at Item 91). The
Explanatory Memorandum (page 28) to the Bill states that
the policy behind this provision is to inform the public how public
monies are expended.
Items 88 to
91 are transitional and saving provisions, some of
which are mentioned, above.
The identification by ANAO of the
program audits by AusIndustry which revealed some $100 million in
inappropriate claims made under the ACIS scheme is a matter of
concern, even in what is a very large overall program of assistance
to the automotive industry.
Given that the freeze in tariff means
that Australian consumers will pay more for imported
vehicles(19) than might otherwise be the case if tariff
were lowered more quickly it is hoped that the improvements in
auditing will at least increase the efficiency of this otherwise
useful assistance program.
- The Hon Ian Macfarlane MP, Minister for
Industry, Tourism and Resources, Media Release, CMR02 319,
13 December 2002.
- Productivity Commission, Review of
Automotive Assistance, Inquiry Report No. 25, Canberra, 30
August 2002.
- ibid: p.xii.
- ibid.
- Australian National Audit Office,
Administration of the Automotive Competitiveness and Investment
Scheme, Audit Report No. 63 2002 2003, Performance Audit, 30
June 2003.
- ibid: p.20.
- ibid: p.19.
- ibid: p.24.
- Mr Craig Emerson MP, Shadow Minister for
Innovation, Industry, Trade and Tourism, 'Labor welcomes
Productivity Commission position paper on automotive assistance',
Media Release, 27 June 2002.
- Mr Craig Emerson MP, Shadow Minister for
Innovation, Industry, Trade and Tourism, 'Government negligence
allows auto scheme rorting', Media Release, 1 July
2003.
- Senator Aden Ridgeway, Australian Democrats
Industry, Small Business and Tourism spokesperson, 'Small Business
in the Budget Shadow of Big Business', Media Release,
03/330, 14 May 2003.
- 'Tariff cuts good for car industry',
Editorial, Australian Financial Review, 16 December
2002,
- Rob Hulls, 'Scuttle this car plan now',
Herald Sun, 3 October 2003.
- Sid Marris, 'Korea icy on Canberra car tariff
plan', Australian, 17 September 2002, p. 19.
- Toni O'Loughlin, 'Keep up the car payments:
report', Sydney Morning Herald, 28 June 2002.
- Ian Porter, 'As protection falls, currency
surge threatens $1bn in car exports', Age, 28 July 2003,
p. 1.
- Explanatory Memorandum, ACIS
Administration Amendment Bill 2003, p.3.
- Australian National Audit Office,
Administration of the Automotive Competitiveness and Investment
Scheme, Audit Report No. 63 2002 2003, Performance Audit, 30
June 2003, p.16.
- See Toni O'Loughlin, 'Keep up the car
payments: report', Sydney Morning Herald, 28 June
2002.
Brendan Bailey
19 August 2003
Bills Digest Service
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ISSN 1328-8091
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