Bills Digest no. 9 2009–10
ACIS Administration Amendment Bill 2009
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date introduced: 24 June 2009
House: House of Representatives
Portfolio: Innovation, Industry, Science and Research
Commencement: Sections 1 to 3: the day the Act receives Royal Assent.
Schedule
1: At the same time as section 3 of the Automotive Transformation Scheme Act
2009 commences.
Links: The relevant links to the Bill,
Explanatory Memorandum and second reading speech can be accessed via BillsNet,
which is at http://www.aph.gov.au/bills/. When Bills have been passed they can
be found at ComLaw, which is at http://www.comlaw.gov.au/.
The Bill
amends the ACIS Administration Act 1999 to implement changes to the
Automotive Competitiveness and Investment Scheme (ACIS) that were announced in
the Government’s A New Car Plan for a Greener Future by repealing ACIS
Stage 3 which was scheduled to run to 31 December 2015.
Together with the Automotive Transformation Scheme Bill 2009
the Bill implements the $3.4 billion Automotive Transformation Scheme which
will replace ACIS as the major support program for the Australian automotive
industry.
Automotive Competitiveness and Investment Scheme
(ACIS)
ACIS 2001–2005
The
ACIS scheme commenced on 1 January 2001 and was initially scheduled to end on
31 December 2005. The scheme replaced the duty free entitlement and longstanding
Export Facilitation Scheme (EFS).[1] ACIS was intended to provide transitional assistance and encourage competitive
investment in the context of trade liberalisation. As stated in the Explanatory Memorandum to the ACIS Administration Bill 1999:
The purpose of ACIS
is to provide transitional assistance to encourage competitive investment and
innovation in the Australian automotive industry in order to achieve
sustainable growth, both in the Australian market and internationally, in the
context of trade liberalisation.
Although ACIS was intended as a
transitional program to assist the industry during the tariff pause (2000-2005)[2] it was structured in a way to deliver the same level of assistance as the scheme
it replaced. As an industry support program, the EFS was vulnerable to
challenge under the WTO rules because it provided a production subsidy for automotive
exports. In its annual national trade estimate reports on foreign trade barriers,
the Office of US Trade Representative identified the EFS as an export subsidy.[3]
ACIS provided tradeable import
duty credits for the automotive industry in two separate packages for motor
vehicle manufacturers (Ford, GMH, Toyota and Mitsubishi Motors) and automotive
component manufacturers, toolmakers, design and engineering firms. The import duty
credits were based on three categories of activities: production, investment
and R&D.
ACIS provided around $2.8 billion
in assistance over five years. This amount was drawn from two ‘pools’. One was
capped at $2 billion and an uncapped pool, which was estimated to cost $840
million. Much of the assistance to the industry was drawn from the capped pool
and necessitated ‘modulation’ (or rationing) each year with average payout
rates being about three-quarters of the maximum rate.
It should be noted that the level
of assistance under ACIS exceeded that of any assistance program provided to an
Australian industry – the corresponding Strategic Investment Program, the
transitional program available to textiles, clothing and footwear industry was capped
at $700 million over five years.
There are no figures publicly available as to the quantum of assistance
received by the four motor vehicle producers, although estimates range from $80
million to $120 million per annum for each of the motor vehicle producers. It
was estimated that Mitsubishi received more than $200 million over the
five-year life of the ACIS scheme.[4]
ACIS 2005–2015
On 13 December 2002, the Minister for Industry, Tourism and Resources announced that ACIS would be extended for a
further ten years until 2015. During the 2006-2010 period, ACIS capped
incentives were limited to $2 billion. From the period 2011 to 2015, ACIS
capped payments were limited to $1 billion subject to phasing arrangements to
progressively reduce assistance over this period.[5] Uncapped assistance was estimated at $1.2 billion over ten years.
Under the extended ACIS scheme,
tariffs were set to fall to 10 per cent on 1 January 2005 and remain at 10 per
cent until 1 January 2010, when they would be reduced to 5 per cent and remain
at that level until 2015. In announcing an extension of the ACIS scheme, the
Minister stated:
The new look package goes far
beyond what was recommended by the Productivity Commission Review, adding an
extra 50% of $1.4 billion over the 10 year continuation of the scheme. The
package is also aimed squarely at innovation, it has a greater emphasis on
R&D, rather than production subsidies.
Similar to its predecessor, the
post-2005 Automotive Competitiveness and Investment Scheme will be a
transitional scheme that will encourage competitive investments by firms in the
automotive industry in order to achieve sustainable growth.[6]
The Government also announced that
it would establish, from the motor vehicle producer’s portion of ACIS, a $150
million R&D fund to operate over the period 2006-08 to support key
automotive technologies.
The table on the following page,
which is reproduced from the Productivity Commission’s Trade &
Assistance Review 2007-08, shows the quantum of assistance to the industry under
the extended ACIS scheme.
The
Bracks Review
Following the 2007 Federal
Election the Minister for Innovation, Industry, Science and Research announced
a review of the automotive industry headed by the former Victorian Premier, the
Hon Steve Bracks. The terms of reference of the review included an evaluation
of the ACIS scheme.[7]
The review concluded that ACIS had
been effective in encouraging additional production, investment and R&D
than would otherwise have occurred.[8] However, there was no quantitative assessment of the effects of ACIS funded
assistance on production, R&D and plant and equipment by motor vehicle
producers and component manufacturers. In an earlier review of the automotive
industry, the Productivity Commission noted that some ‘additionality’ effects due
to ACIS were expected given the large rate of subsidy.[9]
The review recommended further extension of the
transitional assistance through to 2020 and proposed replacing ACIS with a new
program – the Global Automotive Transition Scheme (GATS) which would commence
in 2010 rather than proceed with ACIS through to 2015. The review recommended
funding be increased to $1.5 billion from $1.0 billion under ACIS over the
period 2010 to 2015 and that a further $1.0 billion be provided over the period
2016 to 2020.
Under GATS, automotive production would continue to earn
assistance similar to that under ACIS but the review did not recommend a rate
of subsidy.
Table:
Australian Government budgetary assistance to the automotive industry, 2001-02
to 2007-08 ($ million)
Source:
Productivity Commission, Trade & Assistance Review 2007-08, Table
A.6, p.164.
Green Car Innovation Fund (GCIF)
Prior to the Bracks Review the
Government announced the introduction of a $500 million Green Car Innovation
Fund (GCIF) which would commence in 2011. In June 2008, the Government
announced a $35 million grant from the GCIF to Toyota to assist the manufacture
of a hybrid petrol-electric Toyota Camry in Australia. The GCIF was later
doubled under the Government’s A New Car Plan for a Greener Future.
A New Car Plan for a Greener Future
In
November 2008, the Government announced a $6.2 billion assistance package for
the motor vehicle industry over the period 2009 to 2021: A New Car Plan for
a Greener Future.[10] The announcement made new commitments of $3.4 billion over and above the $3
billion earmarked for the remaining stages of ACIS. The package included
additional funding of $80 million to assist the transition from ACIS to the
Automotive Transformation Scheme.
According to the Explanatory
Memorandum to the Bill, the estimated savings of the early termination of the
ACIS scheme is $1.135 billion. The estimated cost of additional ACIS assistance
in 2010 is $79.6 million.
The Main Provisions reflect the repeal of ACIS Stage 3 which
was to run from 1 January 2011 to 31 December 2015 and changes to the formula
for calculating unmodulated capped and uncapped production credits which will provide
increased assistance to motor vehicle manufacturers in 2010 to coincide with
the scheduled tariff cut from 10 per cent to 5 per cent on 1 January 2010. The
formula has been amended to correct an anomaly where there were different
levels of assistance for vehicles sold in Australia versus vehicles sold for
export.
Schedule 1
ACIS Administration Act 1999
Item
6, subsection 4(2A) omits “ACIS Stages 2 and 3” and substitutes “ACIS Stage 2”.
Item 8 and 9, subsection 6(1)
(definition of ACIS year) omit “1 January 2016” and substitutes “1 January
2011” by repealing ACIS Stage 3 which was scheduled to run to
31 December 2015.
Item 12, subsection 42(1)
(formula) repeals the formula for working out unmodulated uncapped production
credits under ACIS and substitutes the formula 
Item 13, subsection 42(1)
(definition of B) repeals the definition and substitutes: B is 7.5%. The increased rate of
subsidy under the unmodulated uncapped production credits is achieved by the
addition of second component of the formula (C x B x 15%) and increase in the
tariff rate to 7.5% from the applicable tariff rate of 5%.
Item 14,
subsection 42(1) inserts the following:
C is
the production value of MVP production by that MVP in the quarter concerned
(other than passenger motor vehicles, and specified load‑carrying
vehicles, that are sold in the Australian or New Zealand markets).
Item 15, subsection 42(2)
(formula) repeals the formula for working out unmodulated capped production
credits and substitutes:
Concluding comments
The automotive industry faces acute market pressures in
Australia as new vehicle sales decline. While sales data for the month of June
2009 showed a 36 per cent rise in new vehicles sold over the previous month,
the volume of sales remains well below long-term trends. The rise in sales was
due in large part to the Government’s fiscal stimulus package and temporary 150
per cent tax break for small business.[11]
These support measures helped drive business demand for new vehicles which rose
by 40 per cent in June. Further assistance to motor vehicle producers is
provided for under changes to the formula for calculating production credits in
2010 at a cost of $79.6 million.
Members, Senators and
Parliamentary staff can obtain further information from the Parliamentary
Library on (02) 6277 .
Michael Priestley
10 August 2009
Bills Digest Service
Parliamentary Library
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