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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