Additional Comments from the Chair

Introduction

1.1First, I would like to acknowledge the extensive work of the committee secretariat and my fellow committee members throughout this inquiry and in producing this final report.

1.2The Senate committee process seeks views, experiences and potential solutions on issues and legislation that impact Australians. In this specific inquiry, perspectives were sought from businesses, agencies and stakeholders about the Tasmanian Freight Equalisation Scheme(TFES).

1.3We tried to gain a deeper understanding of the scheme’s history, its development over almost five decades, how it has been used by businesses - both large and small - and areas where it could be more fit for purpose for those it was created to help. The TFES was established in 1976 to compensate Tasmanian businesses because they don’t have access to the national road highway and rail networks and so have to rely onshipping.[1]

1.4Chairing this inquiry has been an amazing experience, which has afforded me an opportunity to talk to Tasmanians about their businesses and how they think things could be better. The point made more than any other is that this scheme does not work as intended.[2] It’s a scheme designed for the sole purpose of helping Tasmanian businesses and it is, in fact, not helping them. It has been interesting to watch as the eyes of my fellow committee members have opened up when hearing and reading thisevidence.

1.5But, equally, this process has been frustrating. Despite all the evidence we read, saw and heard during this inquiry, it is clear that any change to the TFES will be incremental, and there is bipartisan preference towards further reviews, rather than making the big changes needed to keep the scheme true to itsoriginalaims.

1.6The findings from this inquiry are fine. In all probability, they will improve the TFES. But they are a product of the goal of consensus, rather than reform. Ambition has given way to tinkering around the edges to make positive, but minor, adjustments. This is the price of entry: to bring the major parties with you, you must go slowly, timidly, stepping as lightly as possible, upsetting as few interests as possible. Major parties would call this sensible, grown-up government. Perhaps that is true. Certainly, as an independent, I am not required to consider the same factors. I will never form government; I am free to make recommendations based only on what I think will improve things, free from the responsibility of ever having to implement them.

1.7But, in such freedom, there is also a degree of creative liberty that is not available to the major parties. I am certainly not the first to observe that good ideas become paperweights when met with the immovable objects of entrenched, well-resourced self-interest. It would be naive to suggest that only the best ideas become law. I cannot think of any instance where an idea, mediocre at its conception, became more excellent via the process of government involvement. Surely what must be taken from that is, if you know the tea’s going to be watered down, make it extra strong to begin with.

1.8So, this is my attempt to go further than what the conditions of consensus would allow. I offer these ideas for how I see the system could be improved as an independent, rather than as a chair of an inquiry that seeks to find a common path that all parties of government may embark. It is my hope these ideas are pilfered shamelessly. If that’s what it takes for reform to occur, then it’s a small price topay.

1.9The department tasked with administering the TFES - the Department of Infrastructure, Transport, Regional Development, Communications and the Arts - is different to the agency that delivers the scheme - Services Australia, which adds an extra and unnecessary level of red tape. I found it extraordinary and revealing that we did not receive any evidence from anybody within the public service that suggested this was in any way inefficient, duplicative or unnecessarilycomplex.

1.10But there are systemic, structural disadvantages to having split responsibilities for the scheme between multiple departments. Having one department take responsibility wholly and solely avoids the diffusion of responsibility that allows for decision-making to grind to an almost-halt. It makes change more difficult, as the stakeholders that must be consulted are internal as wellasexternal.

1.11For users, it makes the navigation of the scheme more complicated than it needs to be. Income earners would be aghast if their tax returns were submitted to one government department, processed by another department, the paperwork returned by a third government department, and chased up by a fourth. We would view this as a costly and bureaucratic exercise in paperwork shuffling. There is no compelling reason why the attitude should differ with respect totheTFES.

1.12Further, the department reviews the TFES via the Bureau of Infrastructure, and Transport, Research Economics(BITRE) when, arguably, an independent evaluation would provide more balance. It is clear that if we’re going to simplify the TFES process for Tasmanian businesses, the scheme should only run through a single department or provider.

1.13In keeping with the idea of making the scheme more applicable for Tasmanian interests, I think there should also be dedicated TFES officers on the ground in Tasmania to assist businesses with their claims. Rebates are administered and processed by people outside the state it was designed to support. If the scheme is truly to ensure Tasmanian businesses aren’t adversely impacted for setting up in Tasmania, it makes sense that there would be people based in Tasmania to administerthescheme.

Incentives

1.14There is a structural misalignment of incentives with respect to the TFES between users and government, which routinely results in an adversarial relationship between claimants and service deliveryagents.

1.15The government, by allocating a fixed pool of funding for the TFES, makes payments by drawing down from the TFES fixed pool as they are approved. Every payment, then, is less money on the federal government's balancesheet.

1.16Every claimant wants their payment administered quickly. Governments are not in the habit of rewarding public servants for the expeditious distribution of taxpayer money! However, these incentives could be aligned - both sides of the interaction want the same outcome. By having both sides work to a mutually-preferred outcome it opens up enormous scope to improve the administration of the scheme and unlock potential improvements that could be identified on the public-service side of theledger.

1.17One way to align this incentive is to pilot an annual standard rebate amount for claimants with the full amount allocated at the beginning of the year. Each claim is drawn from the remaining amount and then reconciled annually (like a tax return), with the extra rebate amount paid to claimants and overpayments billedtoclaimants.

Ease

1.18Submissions to the inquiry were unanimous in calling for a simplification of the claims process.[3] The process is cumbersome for users; this should be sufficient cause for it to bechanged.

1.19There appears to be an overarching fear of overpaying individual claimants that has resulted in casting the claiming party with the full burden of making the claim, and the servicing party the full burden of reviewing it. Any solution that reduces the burden on users of the system cannot be achieved without a change to the system’soperation.

1.20Thankfully, the opportunity to reduce the burden of administering the process and the burden of complying with itisenormous:

Digital transformation: shipping manifests should be relied upon to determine the identity of shipped goods. These goods could be automatically categorised and reviewed by a human, rather than requiring a human to categorise them against a complex system(that only increases in complexity for mixed cargo). The cargo being shipped is already being documented, logged and stored; why are we asking the user to dothisagain?

1.21In order for shipping manifests to be integrated into the claims process, the digital infrastructure needs to integrate with the APIs of shipping providers. The advantage of such a system is that no information is required to pass from the Commonwealth to the shipper, there is no risk of a data breach as no information is exposed, it integrates with existing technology rather than requiring new technology and reduces the time and cost of administering the system for both users and serviceproviders.

1.22Prepayment: regular shippers with regular shipments, where the specific nature of the shipped goods and the volume being shipped is largely static, display predictable behaviour: they will make their claim at a point that is largely consistent with the time they last made their claim. This level of paperwork does not help either the claimant, the freight providers, or Services Australia. It does not improve the integrity of the system, but there are other options that could reduce this administrativeburden:

(a)Allowing for prepayment based on the volume of the previous period, for the category of goods of the previous payment, means the user would not be left out of pocket while they await the processing of their claim;

(b)Any overpayment or underpayment that results from paying based on a historical value, rather than the realised actual amount, could be reconciled once the final nature and volume of the shipped goods is known; and

(c)An account-based scheme would allow for the storing of shipper’s information, which is not anywhere near as dynamic as things like shipping volumes, reducing the time it takes to complete paperwork, and even allowing for it to be pre-filled. The responsibility to update the Government when account details change would still fall on theshipper.

Competition

1.23One risk inherent to a subsidy scheme is that it ends up subsidising the middle-man, not the target user. When you give the user more money to pay for a service via a subsidy, you cannot be surprised when the company that charges for that service puts its prices up to an offsettingamount.

1.24If that occurs, then the target user (the consumer) does not actually have any additional buying power (or if they do, it is modest). The subsidy is, in effect, to the person they are buying the service from.

1.25The only remedy to this is competition.

1.26The scheme has baked into it an anti-competitive restriction that sees value being directed at one mode of transport and not at any other that might be able to deliver the equivalent service at an equivalent price, or cheaper. It artificially suppresses competition along subsidised routes and reduces downward pressure on prices that would result from that competition.

1.27The inclusion of air freight in the TFES would markedly enhance Tasmania's capacity to export high-value, time-sensitive products to mainland and international markets. Perishable goods such as seafood, cut flowers and premium fresh produce currently face substantial cost disadvantages when air freighting to markets, undermining Tasmania's competitive position in these lucrative sectors. While valuable, the existing sea freight subsidies do not adequately address the needs of producers whose products require rapid transport to maintain quality and command premiumprices.[4]

1.28The economic benefits would extend beyond direct transport cost reductions. Expanding TFES to air freight would enable Tasmanian producers to better participate in just-in-time supply chains and access premium market segments that demand rapid delivery. This could transform Tasmania's export profile toward higher-value products, creating more skilled jobs and encouraging investment in value-added processing, with particularly significant multiplier effects in regional areas where many premium agricultural and aquaculture producers arebased.

1.29Critics rightly note that expanding TFES to air freight would represent a significant cost to the federal budget. While this is true, the scheme's purpose has always been to address Tasmania's fundamental geographic disadvantage - a policy objective that applies equally to air freight as it does to sea freight. Similarly, concerns that benefits would flow disproportionately to large producers overlook that the current sea freight scheme already operates this way — over the last number of years, a handful of companies have accounted for around 40 per cent of all claims by value. The system as it operates today is tilted towards the largest providers: this is in part because only companies with sufficient operating revenue to wait months to be credited their payments are likely to take the time and effort to complete thepaperwork.

1.30The priority should be lowering costs across the board - an approach that benefits both large and small players is preferable to maintaining high costs that only large operators cansustain.

1.31Environmental concerns about shifting away from sea freight overlook that air freight is primarily relevant for high-value, low-volume products where sea freight is simply not viable due to perishability. The environmental impact should be weighed against the economic benefits of enabling sustainable regional industries that provide long-term employment and investment inruralcommunities.

1.32The introduction of subsidised air freight would create healthy competitive pressure on sea freight operators, who currently hold a relatively captive market. This intermodal competition could drive efficiency improvements and price reductions across both transport modes, particularly for intermediate products valuable enough to potentially use air freight but not so time-critical that they require it. Sea freight operators might introduce premium fast-transit services or improved cold chain management to retain temperature-sensitive cargo, while businesses could strategically use both modes depending on market conditions and customerrequirements.

1.33Global market trends increasingly emphasise speed to market and product freshness, particularly in key Asian export destinations. Tasmania's geographic isolation places it at a distinct disadvantage compared to mainland producers who can more readily access air freight hubs, with cost differentials exceeding 40% for similar routes.[5] The expansion of TFES to include air freight would align the scheme with modern logistics requirements and international best practice, as demonstrated by successful programs like Canada's Air Cargo Security Program for remote regions.[6] Through proper scheme design, any administrative complexity or compliance concerns could be readily managed through the existing TFES framework and modern digital trackingsystems.

Legal basis of the scheme

1.34As it stands, the TFES operates under ministerial direction. Ministers change for multiple reasons - change of government, change of portfolio or the parliamentarian leaving the portfolio - which instils a level of uncertainty. This lack of certainty is not desirable. Ministerial direction does, however, provide a flexibility that would enable the government to implement many of the recommendations the committee made much more swiftly than through legislative reform. For this, and other reasons, I consider that the current scheme arrangements may be preferable on balance for scheme recipients. However, I consider that the recipients of the scheme, and indeed all Tasmanians are entitled to receive an assurance from the government of its commitment to continue, and to improve, the scheme.

1.35For this reason, I call the Australian Government to commit to ensuring that no Tasmanians, or Tasmanian business, or current recipients of the scheme are worse off following any reviews of the scheme.

Conclusion

1.36When considered in conjunction with the committee’s existing recommendations, I believe these additional comments outline clear solutions that make the TFES fit for purpose and something that goes further in equalising the cost of doing business in Tasmania.

Footnotes

[1]Department of Infrastructure, Transport, Regional Development, Communications and the Arts, Tasmanian Freight Equalisation Scheme (accessed18December2024).

[2]See, for example; Lion, Submission 31; Ashgrove Cheese; King Island Regional Development Organisation; King Island ShippingGroup.

[3]See, for example; King Island Council, Submission 14; Flinders Council, Submission 26; Ashgrove Cheese; Flinders Island Business Inc, Submission 25; King Island Chamber of Commerce,Submission24.

[4]See, for example; Ashgrove Cheese, Proof Hansard, 14 November 2024; The Nursery & Florist-King Island Seafoods, Submission29.

[5]Department of Agriculture, Water and the Environment, Sea and air freight snapshot, May 2022 (accessed18December2024).

[6]Transport Canada, Air Cargo Security Program, July 2024 (accessed 18 December2024).