Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Bounty Legislation Amendment Bill (No. 2) 1990



Download PDFDownload PDF

House: House of Representatives

Portfolio: Industry, Technology and Commerce

Purpose

To extend the life of the computer bounty scheme to 31 December 1995. The Bill also provides for the rate of bounty to be phased down from 20% to 9% of factory costs.

Background

In 1987, the Australian information technology industry (this includes computers and ancillary industries and services) had sales of $7 939 million 1. The composition of Australian information technology industry sales in 1987, along with the annual growth rates for the period 1984 to 1987 is presented in Table 1 below.

Table 1: Revenue composition of the Australian Information Technology Industry, 1987 4

Revenue $M Average Growth %p.a. 1984-1987 Hardware (incl. office equipment) 4028 25.5 Software and services 1377 29.8 Engineering/maintenance 725 12.5 Supplies 762 12.2

In 1989, the top 50 information technology companies in Australia are reported as having had sales of $8.85 billion, out of an estimated industry total of $10.3 billion, and employed 36 855 people 2. Australian owned information technology companies form a minor part of the industry and had sales of approximately $1.8 billion in 1989, although this was up 25% over 1988. The top echelon of the 50 information technology companies are all multi-national corporations. In terms of sales revenue, IBM Australia was the top information technology company in 1989 with $1.4 billion in sales (IBM Australia's revenue accounts for approximately 10% of the entire domestic information technology industry). Telecom ranked second with an estimated $450 million in sales mainly from data communications and other value-added services. Alcatel-STC ranked third, with sales in 1989 of $407 million. The top three Australian owned companies in 1989 were: Telecom; Computer Power Group, with sales of $328 million; and Imagineering, with sales of $315 million. In 1989, the top 50 information technology companies export revenue increased by 45% from $247.3 million to $360 million. IBM Australia heads the rankings of Australian information technology exporter's with overseas sales of $170 million. Second in ranking is the Paxus Corporation with overseas sales of $90.3 million. Third is the Computer Power Group with overseas sales estimated at $48.5 million. Less than half of the top 50 Australian information technology companies export information technology 3.

Bounty assistance has been available to the Australian computer industry since 1977. The current computer bounty scheme replaced a 1977 scheme known as the Automatic Data Processing Equipment Bounty scheme. That scheme assisted the local production of certain computer hardware through a bounty on a reducing scale basis - the first 3 years with a bounty of 20% of value added, the subsequent 2 years at 15% of value added and the last year at 7.5% of value added.

The current computer bounty scheme commenced on 6 July 1984 and ended on 5 July 1990. The introduction of the 1984 scheme followed a Industries Assistance Commission (IAC) report on

Computer Hardware and Software. The current computer bounty scheme covers the following types of items:

*computers;

*microprocessor based controllers/regulators;

*modems and multiplexors;

*systems software associated with eligible items;

*integrated circuitry; and

*hybrid circuits.

The bounty is administered by the Australian Customs Service and is paid at the rate of 20% of value added. For the purposes of the bounty, value added is defined as factory costs, which include: RD expenditure; wage costs; rents and interest; and insurance. Factory costs is also defined not to include certain costs, such as the cost of components and raw materials used in the production of bountiable items and sales and service activities conducted on the registered premises. Table 2 (see below) provides a summary of the number of bounty claimants and amount of bounty payments made since the 1984 scheme commenced.

Table 2 5

1984/85 1985/86 1986/87 1987/88 1988/89 Number of Claimants 11 100 132 153 179 Total bounty paid ($'000) 1 532 13 219 19 416 25 739 31 088 Growth in number of claimants (change on previous year) - 809% 32% 16% 17% Growth in total payments (change on previous year) - 763% 47% 33% 21%

In July 1989, the Bureau of Industry Economics (BIE) was asked by the Department of Industry Technology and Commerce to evaluate the effectiveness of the computer bounty and to make recommendations for future assistance. The BIE concluded that under the bounty scheme the Australian information technology industry has developed considerably, averaging approximately 25% sales growth over the period in which the scheme has operated. The BIE, while not prepared to attribute industry growth solely to the bounty, was prepared to suggest that the bounty has been influential in encouraging industry growth and that `...there is no doubt that if the bounty had been set a zero the industry would be much smaller and less vibrant than it has been over the past few years' 6. The BIE also concluded that the payment of bounty on exported production has assisted firms in gaining exports and the availability of the bounty may have boosted RD activity 7. However, with the concentration of non-Australian owned firms in the computer industry, the net benefit of the bounty to Australia, other than in terms of employment, is difficult to judge.

The BIEs recommendations included that:

*a bounty scheme similar to the 1984 scheme should continue to operate from 6 July 1990;

*the rates of bounty should be set at 17% for 1990-91, 15% for 1991-92 and 13% for 1992-93; and

*if significant changes are made to tariffs on imported components, then the bounty rate should be adjusted to restore the relationship between the effective rate of assistance for the information technology sector and that for the rest of the manufacturing sector 8.

In considering the recommendations, the Government decided to extend the scheme to 31 December 1995 with a continuing phased reduction in assistance. In the Explanatory Memorandum to the Bill the total cost of extending the bounty scheme to 31 December 1995 is estimated at $202 million.

Main Provisions

Amendments to the Bounty (Computers) Act 1984

The proposed rates of assistance payable under the computer bounty scheme will be as follows:

*20% of factory costs incurred between 20 August 1986 and 5 July 1990;

*17% of factory costs incurred between 6 July 1990 and 31 June 1991;

*15% of factory costs incurred between 1 July 1991 and 31 June 1992;

*13% of factory costs incurred between 1 July 1992 and 31 June 1993;

*11% of factory costs incurred between 1 July 1993 and 31 June 1994; and

*9% of factory costs incurred between 1 July 1994 and 31 December 1995 (clause 3).

References

1. Bureau of Industry Economics, Globalisation: Implications for the Australian Information Technology Industry, November 1989, p. 66.

2. Business Review Weekly, 20 April 1990, p. 98.

3. Ibid., at p. 108.

4. Bureau of Industry Economics, Globalisation: Implications for the Australian Information Technology Industry, November 1989, p. 66.

5. Bureau of Industry Economics, The Computer Bounty Scheme, February 1990, p. 9.

6. Ibid., at p. 58.

7. Ibid., at pp. 56 and 59.

8. Ibid., at pp. 60-64.

Bills Digest Service

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1990.