Speech
13 May
Export Market Development Grants Amendment Bill 2008
During the last federal election, the Rudd government made a commitment to review, and reform, Australia’s approach to international trade.
Our reasons for making that commitment could not be clearer.
Instead of capitalising on the once in a lifetime opportunity presented by the commodities boom, the Howard government presided over trade policies and programs that went bust.
In the last six years of the Howard government, total export revenues grew at an average annual rate of only 5.8 per cent. Compare that with the 10.7 per cent growth in the 18 years following the float of the dollar by the Hawke government in 1983.
Services exports have grown at around one third of their long term average, despite being a major component of the domestic economy. Goods exports have grown at an average annual rate of 6.4 per cent compared with average growth of 10.3 percent since 1983. The manufacturing sector has collapsed.
One could charitably describe these trade performance indicators as disappointing.
The truth is that Australia’s trade performance over the past decade has been dreadful.
The Howard government has bequeathed Australia, and the Rudd government, 72 consecutive monthly trade deficits. The trade deficit for the December quarter, 2007 – the last quarter the Howard government left us with – was $6.9 billion. For a government that would so often, and so arrogantly, spruik its economic credentials – these are damning figures.
A government seeking to secure Australia’s economic future beyond the resources boom must offer more than mere rhetoric. It must engage in areas of opportunity.
The need to renew our focus on trade performance takes on a heightened sense of importance in light of the fact that, over the past five years, world trade has grown at twice the rate of world output.
Australia must do better on the trade front.
Australia must take advantage of the global opportunities presented to it.
Clearly, the Howard government failed to see the opportunities, failed to take advantage of the opportunities and dropped the ball on trade.
Far from being responsible managers of the economy, the Howard government presided over an environment where net exports made a positive contribution to economic growth in only two of the twelve years that they were in power. This, despite world trade growing at twice the rate of world output.
The failure of the previous government to integrate trade and economic policy has contributed to one of Australia’s worst trade performances in history.
It goes without saying that fresh ideas, and a new direction in trade policy, are long overdue in Australia. Australia has to get back to a position where net exports are making a positive contribution to growth. It won’t be easy, but the Rudd government won’t be content with leaving its head in the sand like the government before it.
Rather than belatedly reacting to challenges, the Rudd government is committed to proactive reform. There are serious problems that deserve a serious commitment to find solutions.
The introduction of the Export Market Development Grants Amendment Bill 2008 is a down payment on the government’s commitment to find solutions to the soaring trade deficit.
The commitment does not end there.
The Minister for Trade, the Hon. Simon Crean, has hit the ground running on a range of policy responses – and it would be prudent to outline some of those in order to put this bill into context.
The Minister has already recalibrated Australia’s approach to trade negotiations by boldly trying to breath new life into the Doha round. He is right to say that trade opportunities would be endless if the Doha round were actually concluded, particularly given world trade has already been double the growth of world output - even without a successful Doha outcome.
Rather than having an unflinching obsession with free trade agreements that undermine - rather than strengthen - multilateral outcomes, the Rudd government recognises that the best opportunities are presented through the Doha round.
Bilateral agreements should no longer be seen in isolation, but must be compatible with - and enhance - multilateral decision making.
However, there is little point pursuing improved market access globally if Australian companies are not productive or competitive enough to take up the new opportunities.
Australia has lacked a whole of government approach to increasing export levels and has failed dismally to invest in the drivers of economic growth – such as skills, innovation, information technology and infrastructure.
It has only been months, but as we’ve seen in the budget, the Rudd government is proactively addressing some of the productivity reasons underpinning Australia’s poor export performance.
That’s why we’ve committed to Infrastructure Australia, to a National Broadband Network, an Education Revolution, to Skilling Australia and to a $200 million Enterprise Connect innovation and research system.
In clear contrast to the previous government, the Rudd government will take a ‘twin pillar’ approach to trade policy for sustainable economic growth – multilateral trade liberalisation will be pursued at the border while economic, trade and structural reforms will take place behind the border.
The Minister has put great emphasis on getting Australia’s trade strategy right in the future, commissioning the Mortimer review to examine all current trade policies and programs.
One of the programs under review is the Export Market Development Grants (EMDG) Scheme, which this bill seeks to amend.
Given the sick state of the scheme following 12 years of Howard government neglect, the Rudd government is not waiting for the Mortimer review to be completed before acting.
Like other economic policies and programs that were designed to assist Australia’s exporters, the EMDG scheme is yet another that was deserted under the Howard government’s watch.
Since its inception by a Labor government, the EMDG scheme has been an important component in getting businesses export ready and helping them access new markets.
Notwithstanding the significant support of the scheme by businesses, particularly mum and dad exporters, the scheme had been cut in half in real terms since 1995-96. The scheme had been cut in half by the Howard government in real terms despite studies demonstrating the EMDG scheme returned an additional $12 of exports for every $1 outlay by the government. The scheme had been cut in half by the Howard government in real terms despite the significant assistance provided to thousands of small businesses.
Of 4,200 applicants under the scheme, 75 percent employ fewer that 20 people and 81 percent have a turnover of $5 million or less. About a third of these businesses are new to export.
It is not hard to see why small businesses are so dependent on the scheme – they are often businesses that do not have an export culture, need to be mentored to become export ready and need the contacts in overseas markets.
Whenever there is a case of the former Howard government’s neglect of small business, I am constantly reminded of the document published in 2004 titled Committed to small business.
In that document, the former Prime Minister extolled the virtues of small businesses and their importance to the Australian economy. He said:
“The government’s commitment to small business in undiminished. That is why we remain attuned to their needs and why we continue to respond to their concerns with practical measures”
It would seem one practical measure was the former Trade Minister, Mark Vaile’s “ambitious goal of doubling the number of exporters”.
Remarkably, the former government felt it could ‘remain attuned to small business’ needs’ and ‘double the number of exporters’ in Australia - by halving a scheme that helps small businesses export. It is little wonder the vast majority of Australians viewed the Howard government as out of touch.
It is thus not surprising that the previous government failed to meet their target of doubling exporters by almost 50 percent.
Surely a scheme that encourages firms to spend their own money to seek out and develop overseas markets, as well as facilitating access to these markets, is a scheme worth supporting. Surely firms that have the desire and capacity to export - are firms that a worth investing in.
Research has shown that firms that export pay higher wages, provide stronger growth in employment and are more profitable.
The EMDG scheme is clearly an investment in our future. It is an investment for the future that the Rudd government is willing to make. This bill is a down payment on that investment.
The bill increases the maximum grant under the EMDG scheme by $50,000 to $200,000 - increasing the amount of reimbursement that exporters may claim. It is an explicit acknowledgment that exporters are facing increased marketing costs in international markets.
The bill also lifts the maximum turnover limit from $30 million to $50 million. To date, medium sized businesses have been punished for continuing to take advantage of new export opportunities and developing those export markets.
We should be rewarding businesses that are making a real contribution to our balance of payments – not punishing them.
This amendment will help ensure that government support is not being cut off just as businesses start to develop sustainable export markets.
As well as addressing the legitimate needs of medium sized exporters, it is important to be mindful of the importance of this scheme to small businesses – and the concerns those businesses have.
I have had the benefit of visiting many Austrade offices around Australia, and the privilege of meeting many small businesses that have benefited from the EMDG scheme and doing all they can to life our export performance.
One common comment has been the onerous expenditure threshold that must be met by some businesses before they can receive a grant from the government. The Act currently provides for a $15,000 minimum expenses threshold.
I have conveyed those concerns to the Minister, and the Minister has listened to those businesses.
This bill reduces the minimum expenditure threshold by $5,000 to $10,000 – allowing new exporters early access to critical Austrade support when taking their first steps towards exporting.
Australia’s export revenues remain biased towards a few major companies, with the top 10 percent of exporters earning 90 percent of export revenues. Small businesses earn only 0.9 percent of export revenues.
Early access to critical Austrade support cannot come soon enough for many small businesses.
Greater Austrade support cannot come soon enough for the services sector either. As I’ve mentioned, the current growth rate for services exports is only one third of the long term average.
With services making up 80 percent of the economy, we have to more to make the most of our competitive advantages globally.
This bill is a step in the right direction.
This bill will make the EMDG scheme more accessible for service exporters. It will replace the current list of eligible internal and external services with a new non-tourism services category that makes all services, supplied to foreign residents, eligible for funding – unless specified in the EMDG Act regulations.
Simply, this bill will replace a narrow positive list of eligible services with a negative list – making all services eligible for assistance unless otherwise specified.
This sensible change will help ensure large parts of the services sector no longer have difficulty meeting eligibility criteria originally designed for exporters of goods.
It is time for Australia’s ‘new economy’ to take to the world stage - with the assistance of a good EMDG scheme.
As with any good scheme, good governance measures are essential.
It is essential to ensure this scheme does not become a pot of gold for those that are unwilling, or unable for that matter, to put in the effort to become successful exporters.
Taxpayers, quite rightly, expect a return on their investment.
Exporters will remain accountable to taxpayers by having to meet a new ‘net benefit to Australia’ test. Applicants claiming their third and later EMDG grants will be required to pass this test.
The test is fair, and balanced, and provides new exporters with ample time to answer the question of whether, after a number of grants, they have in fact begun to export.
A good EMDG scheme, coupled with good accountability measures, will deliver good outcomes for Australia.
I have no doubt that the amendments in this bill will deliver.
Before concluding, it is worth observing the changes contained within this bill are fully funded. This is in stark contrast to changes made to the EMDG scheme by the previous government two years ago.
The previous coalition government had the temerity to respond to concerns about the scheme by tinkering with some legislative changes - without adding one single cent to the budget to ensure EMDG recipients could actually benefit from those changes.
A press release dated 21 April 2008, from the Shadow Minister for Trade, makes for fascinating reading. In it, the Shadow Minister states:
“The Coalition Government was committed to ensuring the EMDG scheme delivered on its maximum potential and was responsive to the changing needs of exporters, making alterations to the program as needed”.
The previous government made alterations alright. What they won’t tell you is that they did not drop an extra cent into the scheme to ensure those alterations were worth more than the paper they were written on.
I quote again from the Shadow Minister’s press release:
“it was always the intention of the Coalition to seek extra funds from Cabinet should the scheme, which is demand-driven, become oversubscribed”.
It is easy to be this disingenuous when you are no longer in government. The previous coalition government has never been a friend of the EMDG scheme, nor has it ever been a friend of Austrade. The previous coalition always knew that its changes two years ago would leave exporters short-changed this year.
How do we know this?
In a newspaper recently, the Shadow Minister and the Leader of the Nationals said they were hammering the previous government to put more funds into the scheme. The previous government always knew more funds were needed – two of its senior ministers have admitted this – yet the Howard government never delivered. The calls for more funding to meet the short-fall fell on deaf ears.
The Shadow Minister’s excuses are dishonest and disingenuous. Unlike the former government, we will be funding the changes that we make to the scheme.
The changes in this bill will be worth more than the paper they are written on. The EMDG scheme will have a $50 million increase in funding in 2009-2010. Unlike the previous government’s amendments, we will actually be backing our amendments with money. Those on the other side would do well to take note of this salient fact.