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Monday, 18 June 2012
Page: 3316


Senator FARRELL (South AustraliaParliamentary Secretary for Sustainability and Urban Water) (10:04): I table five revised explanatory memoranda relating to the bills and I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

SHIPPING REFORM (TAX INCENTIVES) ACT 2012

The tax reforms are a major component of the government's Stronger Shipping for a Stronger Economy legislative reforms to revitalise the Australian shipping industry.

The purpose of the government's tax reforms is to encourage and support capital investment.

Changes made in 1996 by the previous government have meant a lack of investment in Australia's fleet.

A consequence of this lack of investment, in addition to the slow decline in the number of registered vessels, is that our ships are getting older.

The average age of the Australian fleet now sits at almost 20 years which is around eight years older than those in the world fleet.

Ironically, this imbalance exists despite Australia being a country that prides itself on the safety and environmental outcomes of our shipping.

In addition to being a brake on improving the productivity of our domestic shipping industry; newer vessels are safer, more energy efficient and better meet the needs of modern shipping.

Encouraging new investment is critical if we are to revitalise the industry.

The tax reforms I am introducing today provide a platform for this investment.

The tax reforms comprise two bills:

This bill which provides the first step for companies seeking to access the various taxation concessions.

The Tax Laws Amendment (Shipping Reform) Bill 2012, which will give effect to the five tax concessions.

This bill provides for the issue of certificates after the end of the financial year to companies who meet the requirements of the tax concession regime.

It also provides companies applying for these concessions for the first time the opportunity to obtain a 'notice' during the first year of entry.

This will give companies a degree of certainty that their proposed arrangements will meet the requirements of the Shipping Reform (Tax Incentives) Bill 2012.

Additional requirements will apply to companies accessing the income tax exemption.

Companies will need to demonstrate that they have a substantial proportion of commercial, technical or strategic operations as well as crew management based in Australia.

Companies will also be required to comply with a mandatory training requirement.

The details of this training requirement, which are currently being finalised by the Maritime Workforce Development Forum, will be contained in regulations.

These provisions are aimed at ensuring beneficiaries of this best-in-class tax concessions have a tangible connection to Australia and are committed to building the local maritime industry.

The bill also provides the power to collect and collate data in relation to these reforms.

Powers to review decision are also provided for.

SHIPPING REGISTRATION AMENDMENT (AUSTRALIAN INTERNATIONAL SHIPPING REGISTER) BILL 2012

Australia's burgeoning commodity trade provides us with a once in a generation opportunity to become part of the international shipping trade.

This bill, the Shipping Registration Amendment (Australian International Shipping Register) Bill 2012, will provide the vehicle to achieve this.

Currently, we have only four Australian flagged vessels participating solely in the international trade.

We need to move up the value chain - not only do we want to mine the iron ore for the world; we should be transporting it to the world as well.

Over the last 20 years, international registers have been embraced by many advanced countries, which, like Australia, have seen a large portion of their fleet register off shore.

International registers offer some of the benefits of open registers, such as the ability to use crew of different nationalities, while ensuring that the ship owner maintains a strong link to the country of registration.

These are not flags of convenience.

All companies with vessels on the international register will need to demonstrate strong links to Australia, ensuring that our maritime safety regulator, Australian Maritime Safety Authority (AMSA) has the regulatory reach to ensure compliance with our high safety, environmental and occupational health and safety standards.

Consistent with this, the primary objectives of this reform are to:

facilitate Australian participation in international trade;

provide an internationally competitive register to facilitate the long term growth of the Australian shipping industry; and

promote the enhancement and viability of the Australian maritime skills base and the Australian shipping industry.

The bill establishes two shipping registers—the general and international registers.

Unlike the general register, AMSA will have the discretion to register a vessel on the international register and will have the power to cancel registration.

The bill sets out a range of matters that the registrar may have regard to when making a decision to register a vessel.

This decision is reviewable.

This discretion is important to ensure that we maintain a quality flag.

The crewing and labour provisions are a key element of this bill and go to the core of its competitiveness.

Before I outline these provisions, I would like to thank those in the labour movement who have worked with us on these provisions.

This reform package is not pro-union, it is not pro-business; it is pro-Australian.

Both employers and unions alike have worked constructively with the government to ensure that these reforms are world's best practice and offer the industry the best chance to compete on a level playing field with international shipping.

Mixed Crewing

The bill provides for mixed crews on Australian international register vessels.

However, international register vessels will be required to employ a minimum of two Australian crew members; preferably the master and the chief engineer.

One of the benefits of mixed crewing will be the employment opportunities for seafarers in the Pacific region and I know that the MUA is working hard on these regional partnerships.

Employment Conditions

To ensure that the international register is competitive, crews will be employed on international terms and conditions while engaged in international trading.

These employment conditions are in accordance with the Maritime Labour Convention (MLC).

Minimum wages and a number of conditions are set out in the bill.

Unless specifically amended in this bill, the provisions of chapter 2 in the Navigation Act 1912 will also apply to these seafarers.

This creates a safety net.

The bill provides for collective agreements to be negotiated through a seafarers' bargaining unit (SBU).

A collective agreement agreed with the SBU will be required for registration in the international register.

The bill also ensures that seafarers who suffer long term injury or death are adequately compensated.

The bill requires that ship owners hold insurance cover that provides for the level of compensation set out in the International Transport Workers' Federation Uniform Total Crew Cost Collective Agreement.

AMSA will have additional powers to ensure vessels comply with the working, living and crewing condition provisions contained in this bill.

A civil penalty and infringement notice regime is also established under the bill.

These measures are important to ensure there is no derogation of standards.

Participation in the Coastal Trade

Greater involvement by Australian companies in international trade will provide the catalyst to reinvigorate our domestic trades.

Consistent with this, vessels registered in the international register will have limited access to the coastal trade.

Operating under temporary licences, these vessels can compete with foreign flagged vessels in the coastal trade.

As I have already made clear, the Fair Work Act 2009 will apply to vessels operating under temporary licences.

To ensure our ships are on a level playing field with foreign flagged vessels, the Seafarers Rehabilitation and Compensation Act 1992 will not apply to international register vessels.

I know there is some concern that some coastal trading vessels may seek to avoid their legal responsibilities by joining the international register.

This will not happen.

The bill includes a requirement that vessels must be predominantly engaged in international trading.

Registration can be cancelled if this requirement ceases to be met.

COASTAL TRADING (REVITALISING AUSTRALIAN SHIPPING) BILL 2012

It is with great pride that I introduce the Coastal Trading (Revitalising Australian Shipping) Bill 2012.

We are in the middle of a once in a generation resources boom.

Yet only one half of one per cent of that trade is carried by Australian flagged vessels.

In the past decade the Australian fleet has gone from 55 ships to 21 with only four operating on international routes.

Our ports manage ten per cent of the world's entire sea trade.

$200 billion worth of cargo is moved annually.

In a country where 99.9 per cent of our trade is moved by ships, there will soon be no fleet to revitalise.

We need to act now or we won't have an industry left at all.

This is the first of five bills that comprise the government's Stronger Shipping for a Stronger Economy legislative reforms to revitalise the Australian shipping industry.

This package is an integrated suite of reforms which address fiscal, regulatory and workforce aspects of our nation's shipping industry.

This is the most far reaching overhaul of the Australian shipping industry since 1912.

These reforms level the playing field and provide the industry with a stable fiscal and regulatory regime to encourage investment and promote our international competitiveness.

Like many industries, Australian shipping is at a critical juncture in its ability to continue to be viable.

The irony of the industry's situation is that it is set against the backdrop of major global change, of which Australia is a major beneficiary.

The double digit growth of China and India, as well as other developing economies has driven demand for our resources.

The lack of an Australian shipping industry that can compete in the international marketplace is a lost national opportunity.

There are a number of reasons why Australian shipping has been declining; most of them have directly resulted from policy decisions made by the previous government.

Due to being so far behind our international competitors in terms of fiscal incentives the last decade or more has seen almost no investment in Australian ships.

One of the consequences of this lack of investment is that the average age of the Australian fleet now sits at almost 20 years against the global average of 12 years.

The age of our fleet has implications for the industry's productivity and environmental performance.

Modern vessels incorporate new technology delivering greater efficiencies.

Without new investment in the fleet, Australian shipping will continue to lag behind world standards.

Falling productivity when compared to other modes has seen shipping's participation in the domestic freight task continue to decline.

But it is not just the age of the fleet that is holding us back.

Like many industries, the maritime sector is also feeling the pressures of an ageing workforce.

We must attract new recruits; but we also need to have enough ships so that cadets can gain the required sea time to obtain their qualifications.

In the absence of a domestic shipping capacity we will be unable to train our own seafarers and will be reliant on the international market place to provide us with our maritime safety and environmental regulators.

This government believes that there are compelling economic, environmental and national security reasons to support revitalisation of the Australian shipping industry.

This belief is at the heart of the Gillard government's Stronger Shipping for a Stronger Economy vision.

Let me turn now to the main elements of the Coastal Trading (Revitalisation of Australian Shipping) Bill 2012.

The bill aims to:

Promote a viable shipping industry that contributes to the broader Australian economy;

Facilitate the long term growth of the Australian shipping industry;

Enhance the efficiency and reliability of the Australian shipping as part of the national transport system; and

Maximise the use of vessels registered in the Australian General Shipping Register

I previously stated that this bill is the most significant overhaul of our coastal trading arrangements since they were introduced early last century.

Back in 1912 when those provisions were debated in the House the role of British-owned shipping companies in the Australian coastal trade was the subject of much discussion.

100 years later, the debate has moved on.

We have one of the most liberal coastal trading regimes in the world.

Unlike America, Canada or various EU countries, Australia recognises that there is a legitimate role for foreign flagged vessels in our domestic shipping industry.

Under the provisions of this bill this will not change.

Nothing in this package of bills closes our coast.

However, we are making transparent the decision making processes, which determine a foreign vessel's participation in Australian domestic shipping.

In support of this, a new three tier licensing system will replace the antiquated system of licences and permits:

General licence holders, who will be Australian flagged will have unrestricted access to the coastal trade. These vessels will also have access to the tax incentives, including the income tax exemption. This will address the cost disadvantages that Australian vessels experience when competing against subsidised foreign vessels.

Temporary licence holders, who may be foreign flagged or registered in the Australian International Shipping Register will have restricted access to the coastal trade. This access will be provided through an open process, which enables general licensed operators and transitional general licence holders to nominate to carry this trade if they are able to meet the criteria. Third party comments will be accepted as part of the decision making process.

Emergency licences will provide restricted access to the coastal trade in terms of major emergencies and natural disasters.

In creating a temporary licence we are moving away from the current system where companies apply on a permit by permit basis

However, we have maintained the flexibility provided by the permit system, through the creation of a licence variation process.

Temporary licence holders will be able to vary their licence to increase the number of voyages that will be undertaken or to vary the details of those voyages that have already been authorised.

General licence holders will have the opportunity to nominate for these voyages.

Again, this will be an open and transparent decision making process.

The bill provides for enhanced merits review of decisions, including recourse to the Administrative Appeals Tribunal on a range of matters.

It also provides enhanced penalty provisions that modernise and provide greater scope for action if there are attempts to undermine the objectives of the system.

Transparency is a cornerstone of this new model and the bill provides for strengthened reporting and publishing arrangements, to enable all industry participants to better understand the shipping market and to support more informed decision making.

Commercially sensitive information will not be released.

There has been some debate regarding the industrial arrangements for vessels engaged in the domestic coastal trade.

This government made the decision in 2009 that vessels operating in the coastal trade will be subject to the provisions of the Fair Work Act.

This was implemented through the Fair Work Act Regulations 2010.

It is this government's policy that this scope of coverage will not change.

These vessels are operating in the domestic economy and these seafarers are entitled to be paid Australian wages.

This bill is the key to the regulatory framework - a framework that supports Australian coastal shipping, while allowing for the participation of foreign vessels.

It is a framework that will enhance our participation in international trade and underpin the Australian industry with generous tax concessions that level the playing field between Australian shipping and its international competitors.

However, a ship is only as good as its crew.

That is why a key element of the government's reform package is workforce development.

We must attract, train and retain a skilled seafaring workforce.

There will be no incentive to invest without the right people in the right jobs.

There are challenges of an ageing workforce, costly and complicated training systems and the consequent erosion of skills.

This was strongly identified by the parliamentary inquiry into coastal shipping.

The government has already been doing its bit in this area and I believe industry must also ramp up its efforts in resolving the skills lag.

To encourage this on 1 January 2012 I established the Maritime Workforce Development Forum with experienced people from industry, unions and the training sector.

It is chaired by the former Public Service Commissioner Ms Lynelle Briggs.

The forum is addressing areas that are fundamental to building our skills base.

These will include a workforce plan for the medium term to address issues including the ageing workforce and the most immediate skills gaps.

The forum will be in place for no more than five years and I will review its effectiveness within two years.

The final element of the reform package is labour productivity.

We are committed to aligning Australian productivity practices with the best in the world.

To do this, we will need a compact between industry and unions.

This compact must include changes to work practices, a review of safe manning levels and the use of riding gangs on coastal vessels.

This compact is essential to the reform agenda.

Negotiations between industry and the unions are progressing.

Before I close, I would like to thank those in the industry who share our vision for a revitalised Australian shipping industry - the ship owners, unions and shippers who have worked constructively with the government since 2007 to develop this package.

This package of legislation is the product of a long and thorough process of consultation and review.

Starting first with a comprehensive review by the House of Representatives committee, who delivered a bipartisan report recommending a policy framework to revitalise the shipping industry.

In 2009, I convened the Shipping Policy Advisory Group comprising shippers, industry and unions to advise me on how best to implement these recommendations.

In 2010, fulfilling our election commitment a discussion paper was released seeking public comment on the proposed reforms.

In 2011, I established three industry reference groups to work through the detail of the reforms. Again, these groups comprised a cross-section of industry.

We involved representatives from across government, with Treasury chairing the fiscal group.

Exposure drafts of all the bills were released for public comment and a further roundtable was held in February to enable industry to work through the details with officials.

I thank those officials for their leadership and assistance in shaping the final tax package that is being introduced today.

The commitment and cooperation demonstrated by those who participated in this process is a credit to the industry and I thank them for their efforts.

COASTAL TRADING (REVITALISING AUSTRALIAN SHIPPING) (CONSEQUENTIAL AMENDMENTS AND TRANSITIONAL PROVISIONS) BILL 2012

The Coastal Trading (Revitalising Australian Shipping) (Consequential Amendments and Transitional Provisions) Bill 2012 will ensure that there is a smooth transition from the current coastal trading arrangements to the new regulatory regime.

I would like to turn first to the proposed transitional general licence, which has been the subject of some public commentary.

Transitional General Licen c e

Under this bill, a transitional general licence will be created to enable foreign flagged vessels currently operating in the Australian coastal trade under a licence, to continue their operations.

These vessels are currently licensed under part VI of the Navigation Act 1912.

This provision recognises that operators of foreign flagged vessels may not be able to immediately transfer to the Australian register.

This may be due to a range of financial, legal or other commercial constraints.

These vessels are performing an important function in the domestic shipping industry.

A transitional general licence will be valid for up to five years and may be renewed once for an additional five years.

Inclusion of this power for an additional renewal was in response to stakeholder feedback that indicated that a number of these vessels are locked into commercial agreements that go beyond the initial five years and cannot be re-negotiated without considerable financial penalty.

Proof of these commercial arrangements will be required to support an application for renewal of a transitional general licence.

In the long term, if these operators wish to continue to have unrestricted access to the Australian coast, they have to register their vessels in the Australian General Shipping Register.

Vessels operating under a transitional general licence will be required to pay wages consistent with the current obligations under the Fair Work Act for vessels operating under licences issued under the Navigation Act.

There will be no increase in the wages payable.

Foreign flagged vessels currently operating under permits will not be allowed to apply for transitional general licences.

Four month transition period

To minimise disruption as we move from the old to the new system, this bill provides that permits or licences, which are valid immediately before commencement of this bill will continue to be in force until their expiry date or up to four months after 1 July 2012.

Any application submitted on or before 30 June, which was not decided by 1 July 2012, will be assessed in accordance with the Navigation Act requirements.

These will be valid for up to a maximum of three months.

These arrangements will provide industry with a level of certainty as we move to the new system.

Occupational Health and Safety and Workers' Compensation

Consistent with current arrangements, the Occupational Health and Safety (Maritime Industry) Act 1993 will continue to apply to vessels operating under a general licence and foreign vessels operating under a transitional general licence.

This act will also apply to all vessels registered in the Australian International Shipping Register (AISR) irrespective of where these vessels are located.

This is to ensure that AISR vessels maintain high standards of safety.

The Seafarers Rehabilitation and Compensation Act 1992 will not apply to vessels registered in the Australian International Shipping Register when these vessels are operating under a temporary licence.

This will enable AISR vessels to operate on a competitive footing with foreign flagged vessels while engaging in the coastal trade.

A number of consequential amendments are required to existing Commonwealth laws to prevent any potential gaps in these laws as we repeal certain parts of the Navigation Act.

Minor amendments will also be made to the Australian Maritime Safety Act 1990 to ensure that AMSA is able to share information with Department of Infrastructure and Transport for the administration and enforcement of the requirements of the new legislation on coastal trading.

TAX LAWS AMENDMENT (SHIPPING REFORM) BILL 2012

The purpose of the government's tax reforms is to encourage and support capital investment.

The Tax Laws Amendment (Shipping Reform) Bill 2012 delivers a best-in-class internationally competitive tax reform package.

The tax concessions contained in this bill aim to address the cost disadvantages faced by Australian ship owners and encourage renewal of the ageing Australian fleet.

The bill provides:

a zero tax rate for Australian shipping companies;

provision for accelerated depreciation of vessels via a cap of 10 years to the effective life of those vessels;

rollover relief from income tax on the sale of a vessel;

an employer refundable tax offset in relation to seafarers; and

an exemption from royalty withholding tax for payments made for the lease of shipping vessels.

These concessions are available to companies that satisfy the qualifying conditions and hold a valid certificate, as set out in the Shipping Reform (Tax Incentives) Bill 2012.

Turning to each of these concessions:

Exemption from income tax for ship operators

International experience in Europe, Asia and South America shows that the introduction of financial support—usually in the form of a tonnage tax and personal tax breaks for seafarers working in the international trade—has had substantial and very positive effects.

The bill I introduce today goes a step further—the government is not introducing a new tax in the form of a tonnage tax—instead it exempts qualifying income from shipping from taxation.

The effect of this provision is that Australian resident companies with vessels registered in Australia, including those on the international register, will not pay company tax.

Furthermore, a generous approach is taken to defining these activities that generate eligible shipping income.

Accelerated depreciation

This bill provides ship owners with an accelerated rate of depreciation for their ships.

When introducing the previous bill, I mentioned before Australia has an old fleet compared to international standards.

This is in part due to our depreciation rate for vessels being set at 20 years.

This bill cuts that rate in half.

The new depreciation rate will be 10 years.

This provision has multiple effects.

An economic benefit—the cost of operating a 20 year old large bulk carrier is at least 40 percent more than for a five year old ship.

A safety and environmental benefit—newer vessels incorporate new technology making them safer and more environmentally friendly.

An employment benefit as ship building is encouraged.

Roll over relief

The rollover relief concession provides that if a ship is disposed of, ship owners will be able to defer tax due on a balancing adjustment amount by two years.

If a replacement ship is purchased by the end of the two years, the balancing adjustment will be rolled over.

Combined with the accelerated depreciation concession, ship owners will have a greater incentive to invest in more modern and efficient ships.

Refundable Tax Offset

It makes no sense that an Australian seafarer working on a ship in the Port of London should pay Australian income tax while an Australian working as a bartender in a pub in London does not.

This creates a disincentive for hiring Australian seafarers.

Consequently, the bill provides for a refundable tax offset for employers of Australian resident seafarers.

The seafarer tax offset provides an incentive for a company to employ Australian seafarers on overseas voyages.

This will also provide Australian seafarers with the opportunity to develop their maritime skills on ships operating in international trade.

For an employer to qualify for the offset, the seafarer must have served on overseas voyages for at least 91 days in the income year on an eligible vessel.

Royalty Withholding Tax

Finally, payments made for the lease of shipping vessels from foreign resident lessors will be exempt from royalty withholding tax.

This exemption applies to payments made by Australian resident companies for the lease, on a bareboat basis, of qualifying vessels that are used commercially to ship cargo or passengers.

This element is aimed at reducing the costs for Australian shipping operators of securing vessels from overseas.

Together, these tax arrangements ensure investment in Australian shipping will continue.