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Thursday, 27 November 2014
Page: 9515

Senator FIFIELD (VictoriaManager of Government Business in the Senate and Assistant Minister for Social Services) (12:28): I move:

That this bill be now read a second time.

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

Leave granted.

The speech read as follows—

I am delighted to be able to introduce this bill today, because it is an important part of our package of RED TAPE reduction on repeal day, contributing to a reduction in business compliance costs, especially for small- and medium-sized businesses.

The Export Finance and Insurance Corporation, or Efic, plays an important role in maximising Australia's trade potential. It helps ensure that Australian small- and medium-sized businesses have access to the finance they need to grow their business overseas and in turn, support our economy.

In recognition of Efic's valuable role and to restore funds removed by the previous government, the Coalition has provided Efic with a capital injection of $200 million in the 2014-15 budget. At the same time, we have renewed Efic's focus to the provision of support to SMEs, which combined with the capital injection will provide the flexibility to ensure Efic's products and its operations can respond effectively and efficiently to the evolving needs of our economy.

The Abbott government recognises the importance of finance as the oxygen of enterprise to small business and is refocusing Efic to increase its capacity to finance small- and medium-sized businesses seeking to capitalise on global trade opportunities. The vast majority of Australia's exporters are small- and medium-sized enterprises, but traditionally they find it more difficult to secure export finance through banks, particularly when exporting to emerging markets.

Efic plays an important role in supplementing the provision of credit for exporters and we are repositioning it to best support exporters into the future.

Australian Bureau of Statistics data shows that only five per cent of Australian goods exports are capital goods. And yet, under the current Efic Act, Efic can lend directly in support of capital goods but not all goods. This means Efic cannot lend for exports of many of the products in which Australia excels, like pharmaceuticals, or consumer goods like food and wine. For example, this means Efic can support the export of cows, but not milk.

The government has, therefore, decided to enhance Efic's capacity to support small- and medium-sized businesses by allowing it to lend for the other 95 per cent of exports, thus improving the export potential of Australian small- and medium-sized businesses. To implement this measure, this Efic Amendment Bill is required to delete the word capital from the definition of an eligible export transaction in the Efic Act.

This amendment will also support the government's deregulation agenda and benefit exporters by reducing the time and paperwork required to access Efic support. The new direct lending arrangements will remove the need for exporters of non-capital goods to obtain a guarantee from Efic before they can secure funds from a bank, which doubles the due diligence processing time and requires two sets of documentation and legal fees.

This has a real impact on business.

For example, consider the case of the South Australian family-owned paint manufacturer Astec Paints. In recent years, Astec Paints has experienced increasing demand in Japan for its innovative paint products.

The company's elastometric paints, which are designed and manufactured in Adelaide, meet Japan's strict earthquake-resistant building codes, giving them a competitive edge in the market. Thanks to the elimination of all tariffs on paint products under the Japan-Australia Economic Partnership Agreement, the company anticipates that strong growth in the Japanese market will continue.

To meet this demand, Astec required additional working capital to scale-up production. Although Astec's bank was supportive of their growth plans, it was unable assist without additional security. Efic stepped in to provide a $600,000 Export Working Capital Guarantee to Astec's bank. This allowed the bank to provide the funds Astec required.

However, under the current arrangements, Astec had to make two separate applications-one to Efic and another to their bank. As a result, they had to pay two sets of lender fees and charges.

Another Efic client, PCT Global, manufactures EnduroShield, an easy-clean surface treatment. The product was recently used to coat the spire of the new World Trade Centre building in New York. PCT also produces Home Do-It-Yourself (DIY) kits, which it distributes domestically through Bunnings Warehouse.

The DIY product was recently featured as one of Time magazine's top 10 most compelling products. Building on this success, PCT secured a multimillion dollar supply agreement with Home Depot in the United States - the world's largest home improvement retailer.

PCT needed additional working capital to expand production, but their bank was unable to provide further assistance. In response, Efic worked with PCT's bank to provide a US$650,000 working capital guarantee facility, which enabled PCT to meet the increased demand from this business-changing contract. However, without the benefits of the proposed deregulatory measures, PCT faced additional fees, interest charges and administrative costs to secure the guarantee facility.

These are just a couple of examples of how these changes will assist Australian SMEs and why this is such an important amendment to Efic's direct lending arrangements.

However, to ensure these changes do not bring Efic into direct competition with private sector financiers, the government has decided to apply competitive neutrality principles. This also implements the recommendation on competitive neutrality in the 2012 Productivity Commission Report on Australia's export credit arrangements. To achieve this change, the bill provides for Efic to pay a debt neutrality charge and a tax equivalent payment.

This will allow Efic to help commercially viable exporters overcome financial barriers without discouraging private sector participation in the market.

In conclusion, the amendments in this bill will be of particular benefit to small- and medium-sized businesses, the engine room of our economy, while at the same time aligning with the government's commitment to reduce business compliance costs by $1 billion per annum.