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Thursday, 25 November 1999
Page: 12761


Mr ALLAN MORRIS (10:43 AM) —Like the member for Blaxland I am bemused by the shift of these instruments from the ones that were brought in in June to the ones we now have before us. I can actually give an explanation for one change. I read in clause 21(6) of the major bill, the Tradex Scheme Bill 1999 (No. 2):

. . . consumed or used means consumed or used otherwise than as permitted by regulations made for the purposes of this section.

That is actually a variation from the original legislation. In the original bill that was put forward there was an ambiguity about what was meant by `consumed' or `used', which could have been to do with components and consumables.

In a manufacturing process some things are totally used up such as grinding media, lubricants and materials like solder. Yet in another context, some components become part of a new product. Transistors become part of a computer, for example. The legislation that came to the House in June left quite ambiguous what was meant by that terminology. It could have meant that every single thing that went into a zone was treated identically because of the lack of clarification. This amendment does address that question and allows the regulations to better define what is meant by `used' and `consumed'. That may need to be varied for individual products. There is at least one change between the original legislation and that which is with us now. This is as a result of discussions that took place between some of us and the departmental representatives.

It is hard to know where to start with this stuff because there was a massive gestation and huge heralding and trumpeting of change in `Investing in Growth' in December 1997. This was all announced two years ago. What we have now is a bit of a runt in development. In my view, this is not the thing that was trumpeted and gave some expectation to the community at large. That is not to say it is not an improvement.

The drawback schemes and Texcos certainly are cumbersome and poorly used, partly because they are so bureaucratic. They are of an age when tariffs were very high and, therefore, you could afford to spend a fair bit of money on all the paperwork and red tape that went with that. With tariffs getting lower and lower, the actual processing costs and the on-costs are now quite prohibitive. While the concepts were developed at a time of higher tariffs, the applications are coming in during a lower tariff regime. I will explain that a bit more.

This system would work well if companies had separate corporations for exports and domestic. Take, for example, a computer company that was making computers in Australia, of which three-quarters were exported and one-quarter was used here. Try and work out for that company how they would handle that within this Tradex scheme or the current system or Manufacturing in Bond. The fact is that it would be incredibly complicated because they import thousands of components. They do not streamline those to separate productions and sales. They then make computers, some of which go offshore and some of which come onshore. Amongst all that are questions about warranties, re-issue and repairs for things that go defunct. There are also things about marketing, demonstration models and samples. A whole range of issues like that come into it.

Trade is effectively about exports because, if you put them back into the domestic market and sell them into Australia, then all the dues are applicable. You have to be able to account for them all. The stock control systems, the accounting systems and the paperwork for a company that has that natural spread of its business interests are going to be really quite complicated. It will be difficult for small companies to use this scheme unless they are exporting only. That will force an artificial line for companies to create a subsidiary which is only doing one kind of business. That is not natural. It is not good legislation. Government procedures create artificial corporate structures which this would logically do. What is not in here is the other big no-no, the processing charges.

The fact is that the Australian government requires importers to advise us of what is brought into the country. Those entries are charged on a per entry basis and, after nine lines, so much per line. There is a charge for people bringing in large amounts of components and materials to be used in manufacturing to tell the government what they are doing with them. There will also be a charge when they export them because that processing charge is still applicable to Tradex. This is where a lot of the confusion comes in.

So we have got two splits. We have got the product split going in domestic and export, where they are treated differently. We have got the processing charges where, if they are split, they are charged differently. Whether that processing charge is then charged on the original line entries or on the new line entries is confusing and uncertain as is whether they can recompile their entries. The other point is that the duty when applied to the domestic economy will still be on the components. This legislation suffers from the same kinds of problems that Manufacturing in Bond legislation suffers from. There are currently amendments before the Senate. Quite frankly, this government is pathetic—it really is pathetic. We are now being punished. We now have legislation being taken off the business paper because the government wants to insist that a product is not a product but a bundle of components.

What is happening right now in this building is that there is legislation in the Senate and the Senate is trying to move an amendment to it, a very simple amendment which does not in any way disadvantage the government and is to do with the imposing of duties on manufactured goods. The MiB proposals and the scheme announced two years ago are still not functioning properly in any shape or form. In terms of government embarrassment, this is a monumental embarrassment. This was going to be one of their great initiatives that was going to help attract manufacturing. It has done nothing at all two years later.

The current proposals in the parliament, which are the second or third lot of amendments since the stuff was first brought in, say that if people import, for example, components to make a computer, those components are dutiable; if they export the goods, there is no duty charged. Fine. However, for those computers that come into Australia, the duty is then payable—but not the duty on the computer, the duty on components. In other words, the computer is not a computer, it is a bundle of components, a bucket of components. On the other hand, if you are an Australian importer importing a computer into this country there is no duty. So the manufacturer is paying duty on his components; the importer of a manufactured good is paying no duty. We are actually giving an advantage to importers to import fully made-up products. And it is not just computers—this covers a range of products.

The amendments in the Senate at the moment are proposing that, rather than legislation deciding that is how the duty is paid, we do it by regulation, in a way which is flexible, which allows the government, the department and the manufacturers to make judgments then and there about particular products. We are talking about, two years after these announcements, the stuff not even being finalised for the parliament yet. So the amendments are saying, simply: determine how the duty is paid, whether it is on finished product or on components, by regulation. That gives the government all the flexibility it needs and all the control it needs. The government is saying, `No, we will not do that. We want it in legislation. We want to make it rock solid. We do not want there to be any question, any doubt, any flexibility, any attempt to actually think about it. It is going to be in the law.' It has never been in the law before, as far as I can find. I have asked the government to provide me with the details of where it was previously in legislation, and that is still not forthcoming.

What was in the law before, just a few years ago, was that it would apply to components or finished product, whichever was cheaper. That is being wiped out. The government wants to legislate that duty will be paid on components even when they are transformed into a finished product. For a manufacturer to keep track of all that stuff, all those components, and then pay the duty and, of course, the processing charge as well, which I presume would be on the original lines, imposes a cost which is prohibitive. If you wonder why it is not working, it is because why would you bother—why would you bother investing in manufacturing computers when your opposition gets a tax break? That is what they get. Right now, it is cheaper. There is no tax payable on imported computers, there is tax on computers made in Australia—not on the computer but on the components.

We are offering the government a logical, sensible solution. It is saying no. And what it is doing right now is saying, `It is off the paper.' It is now killed for another four or five months, out of spite. This is petulant, it is stupid. It is cutting off its nose to spite businesses' face. This is a government talking about investing in growth; it is investing in petulance and pettiness. I just cannot believe the rhetoric from those in government who are supposed to be trying to develop manufacturing industries and who are acting in a way which is clearly against that. That particular amendment went to a Senate committee. The committee actually agreed that the legislation was unwise—that was not the word they used but it was to that effect if it imposed the duty. This Tradex legislation will do the same thing. It is the same mind-set.

The fact is the government is stuck back in about 1983 or 1984. It has not actually moved on from there. The world has changed quite dramatically, particularly in the last five years. It has changed in two ways: firstly, modern manufacturing is about assembly, not about a factory producing every component right through to a finished product. That stopped back in the early 1980s. Modern manufacturing is about assembling components from all over the world, all over a country, into finished product. It involves a lot of transport, complex logistics and sophisticated stock control and computer controlled systems where people do not have large stockholdings. They use just-in-time manufacturing techniques, where stuff arrives in the morning and is out in the product the next day. You do not keep large piles of things. You choose countries to locate your assembly facilities which are economically strategic. The locations are not necessarily low wage countries because you are looking for high skill and high quality products and a high quality output.

Modern manufacturing also looks at transport costs. The government may not be aware of this, but the cost of shipping stock from Sydney to Hong Kong is probably half the price of shipping from Bangkok to Hong Kong. Singapore-Hong Kong is probably twice the price of Sydney to Hong Kong. Why? We are a major importer from those countries. We send aeroplanes back to Asia empty. So Australia's freight charges to Asia are much cheaper than Asia to Asia. Therefore it is to people's advantage to locate their final assembly in Australia because the cost of exporting back to the marketplace is, in fact, lower.

Secondly, we are the second biggest domestic economy in Asia after Japan—it is Japan, then us. What the government is doing is making it difficult for an Australian manufacturer to import into Australia. One of the reasons for locating here is that we are a big economy. There is a big market there to sell into, much bigger than Indonesia, Malaysia, Singapore, China or any of those other markets. A logical reason to locate in Australia is that there is a big market. The government then says, `If you want to export only, that is terrific, we will make it easy. There will be no duty and we will waive processing charges. But mind you, if you sell to Australia, then we will penalise you even more. We will make it even nastier.'

When I talk about the government being back in 1985 or 1986 that is because in those days there were businesses that were for export only. There may still be those businesses in the future, but most businesses now are international. They actually make for the world, not only for export.

For a business in Australia that wants to use Tradex or MiB there is a massive disadvantage if you sell into Australia. Why would you locate here, in your second biggest marketplace, and pay a penalty? It is much easier to locate in Singapore or Batan Island, Malaysia or Thailand where there is no penalty for importing into Australia, where you are on a level playing field with other importers. This legislation gives a lie to all the rhetoric and it also shows the stark contrast. This is the tragedy of it. Intending investors will look at our systems now because they are being promulgated now. The big announcements in investment in growth—all those big, new things about how we were going to get with it; we were going to attract world investment—were all trumpeted and heralded from the rooftops of new government.

People looking at it say, `What does it actually mean?' Do you know what it means? It means you are penalised if you invest here unless you export only. If you invest here for the Australian marketplace, you are punished. We are not getting the benefit. Two years later it is not working.

MiB was brought in last year—it is not happening. Why? The government is insistent that it knows how it all works, that it is the expert, that tariffs are just an issue under review. What they are saying to me is, `We have the Productivity Commission doing a review, it is going to rethink all tariffs and all this stuff will come up there. We will deal with it all in that review. If you can wait, three, four or five years, fine.'

But you do not need to. This is not rocket science. This is not something very complex. This is actually very simple. The government then says, `Listen, we cannot review. We cannot change tariff policy or duty policy as part of customs legislation. You have got to do it properly. You have got to do it through proper policy process.'

That's funny, because the Prime Minister announced in `Investing for Growth' a great change in policy. They then say, `Yes, but that was only a small scheme. That was just for a small part of the area.' The Prime Minister did not say that. He did not say this was Mickey Mouse. He did not say this was trivial. He heralded it as a major initiative by government, as a package of issues that was going to change our investment profile and attract new investment in modern manufacturing. That was the impression he gave. Why bother making such a speech if that was not the intent, if it was going to be limited to a very small part?

I have pursued this issue up hill and down dale for two years. I cannot believe that I am still getting the same message now that I was getting two years ago. No-one can fault the logic, no-one can deny the accuracy of what I am saying, but they are all saying, `We know you are right but we will not do it anyhow because it does not fit government policy. What's more, we will pull it off the business paper.' It has now been cancelled in the Senate. The companies that are trying to say to the government that there is a better way are effectively being told, `It is off the agenda. You are being punished because you are being too difficult. And you talk to the opposition and to the Democrats. Go jump, you will get nothing at all. Now there will be nothing at all.'

This is the height of petulance. I actually thought a couple of years ago the government was serious about this rhetoric. I thought it was serious about new initiatives. Over the years, many of us have followed industry policy in detail. We have adapted to the world. As the world has changed we have tried to move with it. We are always a few years behind. We are always some time behind because the world is moving quickly and in different ways in different parts of the world.

It is difficult for governments at national levels to adapt quickly and accurately. But, in good faith, a lot of people have invested a lot of effort into those issues over a long time, not just in parliament but outside as well. What we are seeing in this stuff is a petty, petulant exercise with the government saying, `We did not think of it. Therefore, we will not do it.'

Tradex is an improvement on Texcos and duty drawbacks. There is no question of that. The failure of those systems is shown by the lack of take-up. The government admits half of it is not used. In other words, people are paying $100 million duty more than they should at the moment. That is what the government is saying. This legislation is not about new industry, it is about the people who are already in there actually getting their duty back. Why are they drawing it back now? They are doing that because it is too damn complicated. There is too much red tape, it is too confusing. That's why.

Simplification is good. It will help the people out there now who are paying duty but who should not be paying duty. In itself it will not necessarily attract one new investor. It is simply cleaning out the stables now. That is not good enough. The government was talking about expanding investment. `Investing for Growth' was about expanding investment, not about tidying up the mess that is there now, not about making it easier to get back the money that people should not be paying.

Just look at that $100 million being paid by businesses now. Despite all the rhetoric we have had about the effect of the wholesale sales tax on business, the government has known all the time about the $100 million duty being paid that should not be paid. It knows that, and it has known that for some years. It has taken years to get to this stage. This is simply a tidying up exercise. This is not about investing in new industries, this is about helping those that are already in there to get their money back.

That is not good enough. We actually have to go forward. We have to get ahead of the game. We cannot always be five and 10 years behind. This stuff here is probably at least 10 years behind the world. The Asian foreign trade zones are way ahead of us with this stuff, miles ahead. The tragedy is that we have got a window of opportunity now for perhaps the next two or three years with the new investment phase and we are well positioned to capture a lot of that investment. If we are not ready now it will go elsewhere, and then it will be another missed opportunity. The warning is there and government members should pick it up and look at what is involved with this. This is not about politics, this is about simple, logical policy. (Time expired)