The purpose of the Textile, Clothing and Footwear Strategic Investment Program Amendment (Post 2005 scheme) Bill 2004 is to extend the Textile, Clothing and Footwear (TCF) Strategic Investment Program (SIP) for another ten years and to establish the TCF Small Business Program.

The Strategic Investment Program is the centrepiece of the Government's strategy for the TCF industry for the next decade. As announced on 27 November 2003, the Government proposes generous long-term assistance for the industry worth $747 million. The Government's package includes:

By setting policy in place for a decade, the Government has given the industry long-term certainty to encourage investment and innovation.

A gradual reduction of TCF tariffs is integral to this package. As tariffs impose substantial costs on Australian families, and are ineffective as protection for local industry, the Government will lower tariffs in two steps over ten years. Two 5 year tariffs pauses are contained in the Customs Tariff Amendment (TCF Post-2005 Arrangements) Bill 2004.

The Government's policy was developed after 12 months of consultation. This consultation confirmed the Government's view that support must be focused on activities which will make a lasting difference and weighted towards firms in the sector facing the greatest adjustment.

The package is supported by peak bodies, such as Textiles and Fashion Industries Australia and the Carpet Institute of Australia, and leading companies.

The new Strategic Investment Program will be broadened and simplified. The current five grants will be reduced to two. New activities, such as brand support and non-production information technology, will be supported. With these changes, more firms can be expected to use SIP. Firms receiving support already account for 75 per cent of industry value-add and 63 per cent of jobs.

The subsidies offered in the new program are the most generous available to any industry. For the first five years, funding for SIP will continue at the current level of expenditure, that is about $100 million a year. Funding after 2010 will be limited to those firms still to face a tariff adjustment, namely firms manufacturing clothing and certain finished textile products. $100 million will be available to this section of the industry after 2010.

For small TCF firms which may not meet the $200,000 threshold for SIP claims, a new $25 million TCF Small Business Program will be available.

The Government will introduce a Product Diversification Scheme as an incentive for firms to increase their local production as well as to diversify their product range.

The Government has already extended for 5 years the Expanded Overseas Assembly Provisions scheme.

As clothing and certain finished textile manufacturers will face a tariff reduction in 2015, the Government will provide a $20 million Supply Chain Program to support major capital investments strengthening the local supply chain. The program will be open to manufacturers of clothing and certain finished textile products (and their related textile suppliers) who would otherwise not receive benefits under the Post-2005 SIP.

In all, by the time the Government's plan expires in 2015, the sector will have received about $1.3 billion in direct assistance (and about $13 billion indirectly through tariff protection).

It is essential to recognise that TCF tariffs cost the community up to $1 billion a year, disproportionately affecting low income households. The 2.1 million Australians living in households earning less than $301 per week spend twice as much of their income on clothing as other families.

For its part, the industry is clear that firms benefit far more from direct financial support for innovation and investment than through tariffs. Tariffs do not make uncompetitive firms viable. Tariffs do not assist companies to invest or innovate. Tariffs provide just a flimsy margin of protection which can be easily erased by movements in the exchange rate.

For these reasons, the Government believes that TCF tariffs should be reduced to the general manufacturing rate. Consistent with the Government's 1998 decision, tariff reductions will be staggered to allow industry time to adjust. TCF tariffs will be paused at their 2005 rates for 5 years, and then the majority of TCF tariffs will be reduced to 5 per cent on 1 January 2010. The exceptions to this rule will be clothing and certain finished textile articles which will be reduced to 10 per cent on 1 January 2010, held at this level for 5 years and then reduced to 5 per cent on 1 January 2015.

To ease the impact of restructuring in the industry, the Government will establish a $50 million Structural Adjustment program. The program will assist retrenched TCF employees find new employment, assist TCF firms to consolidate into more viable businesses and, where necessary, support communities adjusting to the loss of employment in the sector.

The Government has taken a balanced approach in developing its policy. The policy assists firms to become more competitive by providing incentives to invest, innovate and diverse their product range; it reduces tariffs in a measured way which the industry can absorb; it will reduce the price of TCF goods over the long term; and it assists employees who might be affected by restructuring.

The Government's TCF plan is backed by ample funding. By any benchmark, $747 million is a significant amount of taxpayers' money. With the sole exception of the much larger automotive industry, the TCF sector receives far more assistance than any other part of the manufacturing sector and this support will continue for the next decade.

The Customs Tariff Amendment (Textile, Clothing and Footwear Post-2005 Arrangements) Bill 2004 contains amendments to the Customs Tariff Act 1995.

Those amendments are complementary to the amendments contained in theTextile, Clothing and Footwear Strategic Investment Program Amendment

(Post- 2005 scheme) Bill 2004. Together, these Bills extend the provisions of the Textile, Clothing and Footwear Strategic Investment Program for another ten years.

The Customs Tariff Amendment (Textile, Clothing and Footwear Post-2005 Arrangements) Bill 2004 will reduce customs duty rates applicable to clothing and certain finished textiles to 10% from 1 January 2010 and to 5% from 1 January 2015. The Bill also reduces customs duty rates applicable to other textile, clothing and footwear goods to 5% from 1 January 2010.

The enactment of the post-2005 duty rates at this time provides transparency and certainty for textile, clothing and footwear manufacturers, enabling sufficient time for planning prior to the reductions in 2010 and 2015.