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Financial assistance to industries



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Ian McLachlan

x Shadow 1iruster for ^adus ^_____-___w.. try and Commerce

15 February 1993

FIbOXCIAL ASSISTANCE TO INDUSTRIES

The argument that sugar producers should not receive financial assistance in relation to structural adjustment should take account of the fact that other industries have received financial •assistance packages. For instance, the car industry received assistance of $700 million in 1989 through the export

facilitation Scheme and duty free imports.

For further information - 070/311 300

r- COMMONWEALTH PARLIAMENTARY LIBRARY MICAH

EMBARGOED UNTIL 3 PM E.S.T 15 FEBRUARY 1993

)IEDIA RACKGROUNDER

Sugar Industry Statement

Following the removal of the embargo on sugar imports in 1989, the sugar industry has been protected by way of tariffs on imported raw and refined sugar. The tariff is currently $55 per tonne but the effective rate is $40 per tonne because

imports from countries having the Developing Country (DC) Preference are the competition. Imports from DC sources have a 5 per cent preference margin ($15 per tonne on the current price of $300 per tonne).

The Coalition has a new policy for the Australian Sugar industry in line with its policy of negligible rates of protection for all industry by the year 2000.

The Coalition's proposal for the sugar industry has two main thrusts which are as follows:

A. Tariff Capitalisation Grants Scheme

1. The tariff will remain set at $55 per tonne ($40/t DC) for the 1993 and 1994 sugar seasons.

2. On I July 1995 all sugar tariffs, DC and otherwise, be frozen at $15 per tonne to the year 2000. This would bring forward the benefit of lower tariffs and lower sugar prices to Australian industrial users and consumers

and save them some $34 million a year.

3. A Tariff Capitalisation Grant will be made available to sugar growers and millers which is based on the reducing tariff benefit they would otherwise have obtained as tariffs were reduced to negligible rates in the year 2000.

• 4. The Tariff Capitalisation Grarit will be disbursed as five annual lump sum payments (totalling $84 million).

5. The tariff Capitalisation grants would be made to Queensland growers and millers and to NSW growers (who own their own mills) on the following basis:

end 1995 season $22 million end 1996 season $22 million end 1997 season $18 million end 1998 season $14 million end 1999 season $ 8 million.

Whilst these reducing payments will now be made by the Australian taxpayer, and not by Australian sugar using manufacturers and consumers, the benefit in the end to Australia as a whole in reducing industry costs should be

manifest.

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B. Number 1 Pool Asset Compensation Grant in Queensland

In Queensland, growers and millers are divided into two groups. Those who have been allocated or purchased 'peak' are entitled to the returns from what is called the No.1 Pool. New growers and existing growers who expand production are only entitled to share in the No. 2 Pool. In 1989 a 12 per cent price differential was imposed between the Pools. In the

1991 season, for example, Pool 1 paid $303 per tonne and Pool

2 paid $271 per tonne.

The pooling differential is a tax on all new and expanding growers and means they receive less than world price for their production. There is a system of cane growing controls called 'assignment' which determines the amount of land which can be planted with cane. That system is being freed up and the pooling system has become the major constraint on industry expansion.

The Interim Report of the Sugar Industry Taskforce accepted that:

the 12% differential between the prices for No. 1 and No. 2 Pools in Queensland is an impediment to the growth of the industry and investment as it establishes a lower price for new entrants to the

industry and a lower marginal return to growers and millers who seek to expand" (p. 13).

"Growers and millers believe that removal of the differential between No. 1 and No. 2 Pool prices would see a more rapid expansion of sugar production in Queensland." (p. 16)

No. I Pool entitlements were originally based on old holdings but are now leased and sold and are used as collateral in financing arrangements. The Canegrowers argue that these

entitlements are therefore an asset and if the 12 per Cent differential were to be eliminated over the 1993 to 1996 seasons inclusive, growers holding No. 1 Pool entitlements should receive $52 million in compensation in 1993. Millers

estimated their compensation at $13 million.

As part of the sugar package announced by the Government on 2 February 1993, the industry and the Queensland Government agreed to reduce the differential which stood at 12 per cent in 1992 to 10 per cent in 1993, 8 per cent in 1994 and 6 per cent in both 1995 and 1996 and to review the pooling differential in 1996.

In effect, our proposal is to abolish Labor's pricing differential in 1993 with an upfront, and therefore discounted, lump sum payment.

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Proposal:

Abolish the pooling price differential by the payment before the end of calendar year 1993 (as early as possible, but most certainly well before new seasons plantings start) of compensation to holders of No. 1 Pool

entitlements for the decline in asset values that would result from the abolition of the 10/8/6/6 price differential arrangements already agreed to by the industry and governments.

The discounted asset compensation payment would be:

$33 million for Queensland growers having No. 1 Pool entitlements

$8.5 million for mills not expected to be able to take advantage of increased production following the removal of the pricing differential.

All parties agree that this proposal will result in an expanded planting of sugar, greater through put in a number of mils, a larger export crop, incentive for free and open entry into cane growing and a much needed fillip for Queensland's

sugar towns and communities.

Other Provisions in the Package

Infrastructure

The Coalition agrees to provide $20 million over 4 years for infrastructure projects associated with the further development of the sugar industry. We would expect the Queensland Government to match that proposal. We will provide

$3 million in infrastructure funds for the NSW sugar industry.

Proposal:

Provide $20 million for infrastructure projects in Queensland on a matching basis with the Queensland Government.

Provide $3 million for infrastructure projects in NSW. The Leader of the Opposition will announce the details in Lismore on Wednesday.

Acquisition and Single Seller Arrangements in Queensland

Acquisition and single seller arrangements for domestic and export markets will continue to be controlled by Queensland State legislation.

Bulk Terminals

The Coalition supports the transfer of bulk terminals to industry ownership in line with the Sugar Industry Taskforce Interim Report.

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Division of Monies

The Coalition recognises progress made in this area by the Queensland Sugar Corporation and supports a speedy resolution of this issue by consultation at the State level.

Assignment System

It has been agreed that the expanding assignment system will remain in place and will : not in any way be used to constrain growth in the industry.

The Coalition's reforms to taxes on business inputs, the new depreciation allowances and its absolute commitment to industrial relations and structural reforms will also deliver significant benefits to the sugar industry.

On top of all this, the analysis recently released by the Canegrowers of the benefits of Fightbacki indicates an additional annual cost saving of $2100 (or 2.2%) for a typical cane farm. The obvious benefits from the farm gate onwards have not yet been analysed.

The Coalition has reached agreement with Canegrowers and the millers of Queensland, and the canegrowers of New South Wales, who have said that as some of the above package will require agreement by the Queensland Government, and should the

Coalition win the Federal Election, Canegrowers will encourage the Queensland Government to give effect to the above package.

The one-off No. I Pool Asset Compensation Grant will be funded out of the Coalition's asset sales, the infrastructure expenditure outlined above will be funded from the Rebuild Australia Fund and the Tariff Capitalisation Grants- funded

from the ongoing improvement in the budget balance position as detailed in Fightback!

The benefits of this package will be an expanding canegrowing and sugar milling industry, greater opportunities for young and innovative growers, the removal of impediments to sugar industry development and lower costs for users and consumers of Australian sugar.

The Tariff Capitalisation Grants, the No. I Pool Asset Compensation Grant and the funds for infrastructure will help those now in the industry to restructure and expand.