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Tuesday, 26 November 1985
Page: 2246

Senator GRIMES (Minister for Community Services)(4.11) —I move:

That the Bill be now read a second time.

I seek leave to incorporate the second reading speech in Hansard.

Leave granted.

The speech read as follows-

This Bill, which is part of a package of revised assistance arrangements for the commercial motor vehicle industry in Australia, proposes the phasing out over a three-year period commencing on 1 January 1986 of the bounty assistance on certain components used in the assembly of general purpose heavy commercial vehicles.

The bounty, which was introduced in 1978, had been due to terminate on 30 June 1985. However in order to avoid any disruption to the industry pending a final decision by the Government on the future assistance arrangements for the industry, it was extended by the Government until 31 December 1985.

New assistance arrangements for this industry were announced by the Government on 6 August 1985 and will have the effect of ensuring that the level of assistance currently provided by the bounty will be maintained through an equivalent level of tariff assistance on most components presently covered by the bounty scheme. Thus while the form of assistance will change from a bounty on local production to a tariff on imported components, the level of assistance will generally be maintained.

Proposed section 14D of the Bill proposes that during the three-year phasing period the bounty will be reduced from its current level of 20 per cent to nil by 1 January 1989.

At the same time it is proposed that the relevant tariff assistance be progressively increased from nil to 25 per cent by 1 January 1989. The appropriate customs tariff alterations will be contained in a Customs Tariff Amendment Bill to be introduced later in this sitting.

In developing the new assistance package the Government took into account the comments made by the Industries Assistance Commission-IAC-in its 1984 report on heavy commercial vehicles parts and accessories.

The Commission's preferred option was for the existing bounty and by-law arrangements on components to be phased out over five years with duty rates on completely built up vehicles to be increased to 25 per cent. The Commission proposed that at the end of the phasing period components which currently attract by-law would be dutiable at the general rate of 25 per cent.

The Government accepted the finding of the IAC that the level of assistance accorded vehicle assembly was too high and had resulted in an unacceptable level of fragmentation in the industry. However it was hard to see any benefits in the IAC's preferred package since it involved both a contraction in industry activity and increased prices to consumers. The IAC proposal aimed at a massive reduction in assistance levels to assembly. The reduction envisaged was in fact more substantial than that set for the passenger motor vehicle sector under the Government's current policy. If assistance levels were to be reduced on the scale proposed by the commission, a very substantial contraction in both local assembly and component production would be inevitable.

Similar views were expressed by the majority of the industry.

In developing the new assistance package the Government also took into consideration submissions from industry which noted that the bounty had not been successful in encouraging the use of local components in the assembly of heavy commercial vehicles. Rockwell Standard of Australia Limited for instance, once the largest manufacturers of bountiable components, was unable to sustain its manufacturing activities in spite of the relatively high level of assistance accorded by the bounty and has since moved to an import-assembly operation. A number of manufacturers of bountiable components requested that bounty assistance be replaced by a tariff, generally at the rate of 25 per cent.

As a consequence of criticism of the existing arrangements the Government is concerned to simplify the current assistance which involves a mix of tariff and bounty assistance on a small range of components. The new arrangements will place by 1 January 1989 assistance on a tariff only basis, generally at a uniform rate of 25 per cent.

I mentioned earlier that this Bill only covers the bounty part of the Government's new assistance package.

It may be helpful if I were to outline briefly the other aspects of the Government's package which are not covered by the Bill.

The other main elements of the package are:

(1) There will be a reduction in the general tariff rate for general purpose heavy commercial vehicles and most special purpose vehicles from the present rates of 22.5 per cent and 25 per cent respectively to 20 per cent. Crane lorries which are currently dutiable at 35 per cent on the crane section and 25 per cent on the lorry will attract a single rate of 30 per cent;

(2) duty at the existing rates for non-bountiable components, except those for fire engines less than 2.72 tonnes GVM which will increase from 2 per cent to 25 per cent, which be maintained. The reason for the increase on these fire engine components is that most components for fire engines under 2.72 tonnes GVM are indistinguishable from components for other vehicles;

(3) by-law entry is to be restricted to components for use in the assembly of the cab-chassis only of general purpose vehicles and driveable chassis only in the case of buses. This is designed to remove an anomaly whereby assemblers of general purpose vehicles could import body components duty free whereas body builders were denied similar access. To amend the by-law to enable body-builders and others to obtain access to duty free componentry would result in a substantial reduction in assistance to producers of components for truck and bus bodies;

(4) a tariff of 25 per cent is to apply to bodies and trailers when imported separately. When imported with or as part of a completely built-up vehicle, these components attract the same duty rate as the vehicles. This is being done to avoid the situation whereby two different rates could apply to a complete vehicle, for example 20 per cent on the cab-chassis and 25 per cent on the body. Such split rates cause administrative complexities for exporters, importers and the Australian Customs Service and the Government feel they should be avoided wherever possible; and

(5) a uniform tariff of 25 per cent is to apply to filters other than filters from New Zealand which will remain dutiable at existing rates. Filters are currently dutiable at rates ranging from 2 per cent to 35 per cent, with about 80 per cent of imports being dutiable at 25 per cent. Many filters which are dutiable at 2 per cent are exactly the same as others dutiable at 25 per cent and this has created difficulties in the past for Customs administration. This decision removes that anomaly and a uniform rate of 25 per cent will apply. New Zealand rates on oil filters have to remain at current levels under the provisions of the Australia-New Zealand closer economic relations trade agreement.

The advice of the automotive industry authority is being sought on what additional components if any would be competitive with imports at the general rate of 25 per cent. Further announcements will be made on this aspect in due course.

The new arrangements I have just outlined seek a more moderate reduction in assistance to assembly activity than that suggested by the IAC.

The Government expects that they wil lead to a reduction in prices to consumers and to a much healthier and competitive local industry.

The majority of the provisions in the Bill, notably provisions in Parts 2, 3 and 4, relate to changes to modernise the administrative provisions in the existing Act. The new provisions are similar to provisions incorporated in other bounty legislation since 1984.

Financial Impact Statement

It is estimated that the cost of bounty assistance during the phase-out period will be $1.25m for the period 1 January 1986 to 30 June 1986; $2m in fiscal year 1986-87; $1.4m in 1987-88; and $0.6m from 1 July 1988 to 31 December 1988. All values are at current prices.

I commend the Bill to the Senate.

Debate (on motion by Senator Sheil) adjourned.