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Wednesday, 3 May 1989
Page: 1643

Senator ROBERT RAY (Minister for Immigration, Local Government and Ethnic Affairs)(10.08) —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 proposes new legislation, the Bounty (Ships) Act 1989, to provide bounty assistance to Australian shipbuilders from 1 July 1989 to 30 June 1995.

The Bill incorporates changes in policy announced by the Government in November 1988 following the Government's consideration of the Industries Assistance Commission's (IAC) report ``Ships, Boats and Other Vessels'' dated 29 June 1988.

The current legislation, the Bounty (Ships) Act 1980, provides for a cash limited bounty assistance scheme to shipbuilders who commence construction of vessels prior to 30 June 1989. The proposed Bill will continue this form of assistance, at rates which will be phased down until June 1995, when the bounty assistance is proposed to cease. The continued assistance for that period is considered essential so that this industry can continue to build on the significant gains in efficiency and competitiveness it has achieved over the last few years.

The Government's 1984 decision to extend bounty payments to include those built for export and to tighten registration regulations for bounty purposes has led to an export orientation on an unprecedented scale. Currently export orders amount to $300 million. Recent orders include two unique high speed catamaran car and passenger ferries for the Irish Sea.

Ten fishing trawlers are being built for an Indonesian company and two luxury motor yachts worth more than twenty million dollars left Australia in February for the United States.

This is a significant reorientation for the industry. Over half the vessels completed in the first half of this year have been for export whereas in 1984-85 only one ship was exported from Australia.

This success has only been achieved by the industry investing heavily in marketing, capital equipment, new technology and training. However, although the need for bounty assistance for the shipbuilding industry is reducing as the industry becomes more vibrant, withdrawal of assistance at this stage would be premature as the cost of entry into the international market has resulted in trading losses for many firms in their initial years.

Accordingly, the government favours a continued period of assistance and believes that a bounty is the most appropriate form of assistance considering the impact that a tariff would have on ship users' costs and the contraction in local demand for ships. The IAC has also concluded that a bounty was its preferred form of assistance.

The government therefore proposes in this Bill to introduce a new bounty scheme with the following elements:

To be eligible to receive bounty under this bounty scheme, clause 4 provides that a vessel will have to be between 150 and 10,000 gross construction tons, and be both self propelled and navigable. Other floating structures, such as floating hotels, Sydney Harbour tunnel sections and other non self propelled floating structures, will not be bountiable. There is no special provision for commercial fishing vessels in this bounty scheme such as exists in the 1980 Act, as this was originally introduced to coincide with a manning level which is now no longer relevant.

Clause 5 of the Bill provides that bounty will be paid on the costs incurred by a shipbuilder in producing a bountiable vessel at the rate applicable when the costs are incurred rather than paying bounty on the cost of the vessel at the rate applicable when the vessel is commenced, as occurs under the existing bounty scheme.

Bounty will be paid on the production of ships regardless of whether they are for export or domestic use. Such a bounty, unlike specific export subsidies, is not proscribed by Australia's obligations under the GATT treaty; indeed the proposal to phase out the shipbuilding bounty is in accordance with the spirit of the GATT to remove all production subsidies for manufactured goods. The only exception is that in accordance with the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), Subclause 9(1) of the Bill has been included to exclude from eligibility for bounty vessels exported to New Zealand after June 1990.

Clause 10 of the Bill proposes the phased bounty rates to provide bounty assistance in the following manner:

For bountiable costs incurred between 1 July 1989 and 30 June 1991: 15% of the eligible costs of constructing or modifying the vessel (plus 20% for overheads) will be paid as bounty to the shipbuilder completing the construction or modification of the bountiable vessel;

For costs incurred between 1 July 1991 and 30 June 1993: 10% of the eligible costs (plus 20%) will be paid as bounty;

For costs incurred between 1 July 1993 and 30 June 1995: 5% of the eligible costs (plus 20%) will be paid.

No bounty will be paid on any vessel completed after June 1995.

To be eligible to receive bounty, shipbuilders must meet the clearly defined registration criteria proposed in Clause 17 of the Bill. These criteria have been introduced so that assistance is channelled towards those shipbuilders who have the potential to be world competitive. We have valuable empirical evidence of the effects of a laissez-faire approach to manufacturers' ability to seek shipbuilding bounty-this system operated during the 1980 to 1984 period and the net result was a moribund and severely fragmented group of 91 part-time shipbuilders who were primarily engineering ``jobbing'' shops and fishermen or ferry operators seeking to minimise the capital replacement costs via bounty.

In 1984 the Government targeted the assistance to shipbuilders with a long-term commitment to their particular industry. The aim then, as it is now, was to create a world competitive industry capable of exporting and capable of long-term survival with lowering levels of subsidy.

A number of changes have also been made to administrative provisions of this Bill, to further streamline the scheme's operation. For example, the method of overhead allocation has been significantly simplified. No longer is it appropriate to base assistance around protection as was done in the 1980 Act. This Bill positively encourages higher utilisation of overheads whilst recognising the need for a sound core of what may be loosely termed indirect costs or overheads before a shipyard can genuinely become a world competitor. The criteria requiring applicants to employ 40 persons arises from our analysis of these aspects. Evidence shows that firms with fewer employees simply do not have the capacity to meet the aims of this package.

Analysis of data on the position relating to new entrants to the industry since the introduction of registration criteria is also revealing. More than 40 firms have been registered since 1984 while at any one time there are normally around 20 active builders. Many of today's success stories emanate from firms new to this industry over the last five years.

This Bill is designed to maintain the momentum achieved by this industry, while finally reaching a point where direct assistance is no longer required.

Financial Impact Statement

It is anticipated that the cost of this bounty will be $145 million over the life of the scheme, based on November 1988 dollar values.

The initial outlay for 1989/90 will be $24 million rising to $33 million in 1990/91. Thereafter it will gradually decline.

I commend the Bill to the Senate, and present the explanatory memorandum to the Bill.

Debate (on motion by Senator Reid) adjourned.