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Monday, 11 October 1999
Page: 9410

Senator CONROY (8:40 PM) —The opposition is supportive of the ACIS Administration Bill 1999 and the two related bills. I note that, as with most other matters that have come before the Senate relating to the industry policy area in the last 12 months, this is not an initiative of the current Minister for Industry, Science and Resources. It is an overhang from an initiative announced by the former minister in response to a very long and active campaign by the industry with the active support of the opposition, led in particular by the then shadow minister for industry, the member for Hotham. It is not surprising then that the broad direction of these bills is consistent with the view of the opposition in regard to tariff reduction and helping improve Australian industry competitiveness in the global marketplace.

The automotive industry and the textile, clothing and footwear sector struggle to meet the challenges involved in the progress towards freer trade. Combine this with the potential risk of losing high levels of employment and revenue from the industry and it becomes important that prudent steps are taken to ensure that the transition does not result in the fracturing of the industry, leading to significant job losses.

What are these bills offering? The bills put a pause on tariff reductions as they apply to the automotive industry and put in place the Automotive Competitiveness and Investment Scheme, or ACIS, which is essentially an assistance scheme for the industry during the transitional period prior to the implementation of a lower tariff rate. From 1 January 2000 the tariff applying to passenger motor vehicles and original equipment components will be frozen at 15 per cent until 1 January 2005, when it will then be reduced to 10 per cent. The transitional scheme will operate for five years, beginning 1 January 2001. This transitional scheme will confer on participants the benefits of duty credits from the production of motor vehicles and engines, from investments in improved plant and equipment, and, in some circumstances, from research and development. The scheme encourages the industry to remain competitive despite the change in the environment within which it operates. We are therefore supportive of the scheme. We also acknowledge the reason behind the scheme's limited lifetime.

What does not make sense in this package is the proposed timing of a review. The government intends to conduct a review of the scheme and the effect of the tariff level on the automotive industry in 2005. Why 2005? Why do a review so late in the process, just before the industry is about to face a new, harsher tariff environment? The timing is totally inappropriate. You could mount an argument on the tariff point that the government is committed to going to 10 per cent and the review will be about what happens afterwards. The 10 per cent is a major move, which must eventually take place unless the whole world trade scene so unravels that we are in some unforeseen crisis. Nevertheless, you would expect the nature and timing of such a change to follow the review, not to proceed it. What is the rational basis for saying that the transitional arrangements will expire? We will have a hiatus in which we conduct a review, and then we might do something to fill the void. Not one person has explained why that is a sensible thing to do. The government has just announced it and defended it in its stoic enthusiasm to defend the indefensible. By the end of the operation of the scheme, the government will not be able to tell what is going to happen to the automotive industry or what opportunities will be open to the industry. There will, in effect, be a period of uncertainty and policy vacuum in this area while the review is being undertaken.

The review will be undertaken during a period in which the automotive industry has to contend with an adverse environment—a significantly lower rate of tariff. This government will be putting at risk the viability of the industry and the benefits that the Australian economy derives from it by pushing the industry off the cliff without first determining if it is ready to fly. We therefore believe it prudent that the review should be scheduled much earlier, perhaps sometime in the year 2003, to ensure that the industry is capable one way or another of facing the new regime. Since the government asserts that a review will inevitably take place, I hope the government will be prudent in seeing the merits in our argument. The opposition will be moving amendments so that the proposed review will be undertaken in 2003 at the latest. The government is simply being pig-headed if it does not support our amendments in this regard.

Having said that, I emphasise again that we are not opposed to the direction in which the government has proposed to take the customs tariff on this industry. It is consistent with the broad policy position that the Labor Party outlined in government, and it is consistent with the position we outlined in the last term in opposition and again in the Leader of the Opposition's recent speech about trade. But we are opposed to making decisions about where we are going before we have conducted an analysis of where we are. These two industries which are having a most difficult transition to a free trade environment, TCF and autos, are being treated very poorly through the way in which the government is treating the review proposal. Not one person has put forward a logical explanation as to why the government's proposal to have the review after the scheme concludes and after the tariff cut takes effect is more rational than having one before. As I have said, we will act on these criticisms by moving an appropriate amendment.

I want to note, however, that these are not our only criticisms of this bill. For example, we are not so enthusiastic about the production bounty approach which this bill implements. It would be better, if we are going to spend large amounts of taxpayers' money assisting industry in transition, for us to look for something a little closer to what a previous Labor shadow minister in this portfolio used to talk about as being the reciprocal or mutual obligation on companies receiving government assistance. This government has been very big on reciprocal obligation. It likes to talk about it when it comes to welfare payments. It likes to talk about it when it talks about Work for the Dole. It likes to talk about it in relation to the mooted huge review of social security that quickly vanished without trace once people began to realise what the government actually meant. What we are suggesting is that there are some obligations that the industry must be involved in as well as just taking the government funds. There are areas to do with investment and research and development that continue to be below the levels that this country needs to survive.

The government says that the logic behind this bill is that we want a high skill, high wage future for this country. We want jobs in this country that are based on high skill and high wage outcomes. That means that we need to be looking at where the automobile industry and component part design centres are and where the R&D is being conducted. The production bounty approach does not provide that incentive. Of course, some of our manufacturers will still go in that direction because of Australia's natural strengths in that part of the industry—our educational strengths and traditional strengths in some of those research and development and engineering sectors. But there is no incentive in either the way the government is approaching the issue of education or the way it is providing assistance to this industry for more of that to happen.

In large measure, the scheme would have been better had there been greater emphasis on credit claims based on the value of their new investment in plant and equipment and in R&D. That would be a smart way to be taking this industry. That would be a way that would encourage jobs and exports and all the benefits that come from a cleverly targeted scheme, not just a blunt tossing of money at a problem—something the government is often lecturing the Labor Party and sometimes the Democrats on in this parliament. If we are giving assistance of this magnitude, those are the sorts of incentives we should be providing.

I am disappointed that it does not have an element related to design, unless we are very liberal in our definition of research and development and allow some of the design aspects to be included. I think it is unlikely to be a prevailing interpretation, and for it to be done through the back door as implied R&D is probably not the right way to go about providing that sort of incentive. But perhaps in this industry, where design is such an important part of development, it can fit in. However, I would very much like to see incentives for more and more of Australia's design skills, to provide assistance to component producers. I support the position that, where motor vehicle producers themselves produce automotive components, tooling or services for a third party, which many of them now do, they too can access these elements of the scheme, the 25 per cent investment allowance and in particular the 45 per cent R&D allowance.

A second area where some criticism can be levelled is in the decision to apply a fiscal cap of $2 billion to all benefits paid over the five years of the scheme except for that uncapped production credit relating to Australia and New Zealand. The idea of a fiscal cap always has pluses and minuses. I understand why the Minister for Finance and Administration would want it. I am sure that strong submissions were made to that effect in the cabinet and that that is what led to this capping. In terms of good fiscal planning it has some logic, but the problem is that, when you have a demand driven scheme with a cap, you do find management difficulties about fitting the demand driven scheme into the cap. It is not as though we say that we will give a certain amount each year and distribute it in proportion to people's performance against these criteria. Then, of course, you would have a comfortable cap. This is a demand driven scheme based on how much investment you do, how much R&D you do and how much production you do, and then there is a cap for which you will be retrofitted.

I think that towards the latter years of the scheme there is the potential for this to cause some administrative difficulties both for the industry and for the government of the day. But the government is determined to have that cap and it is, for fiscal reasons, a not irrational thing to do. I just point out the fact that I can see how it may cause some problems down the track.

A final area in which we also have some criticisms is in relation to the so-called aftermarket. The problem arises because automo tive components producers, in order to gain access to this scheme, must meet an eligibility requirement that they produce annually either $500,000 worth of original equipment for use in at least 30,000 new motor vehicles or engines, or $500,000 worth of original equipment which represents at least 50 per cent of total production value by the participant.

It is the group of ACPs that do not meet this eligibility requirement who are now raising their voices. These are the people who produce parts for the aftermarket for subsequent replacement and repair rather than for use in new vehicles or motors. They say the scheme will cause unfair competition because most ACPs produce components for both new cars and the aftermarkets—a set of shock absorbers is the same regardless of whether it is produced for a new car or as a replacement part.

Clearly, those ACPs whose substantial business is the supply of components to new motor vehicle manufacturers will get a government subsidy, yet those whose substantial business is supply to the aftermarket will not. Yet these ACPs directly compete. This is a scheme that is designed to disadvantage companies that may be into exporting spare parts to other countries. You are actually setting up a system that says, `If you can comply with some arbitrary rule designed by a minister or a department that allows government subsidies to go to one section of the market, and if you are in direct competition but do not fit neatly into this arbitrary criterion, you are going to be at a competitive disadvantage.'

The government as a rule—supported by the Labor Party—has always tried to have as much neutrality in these issues as it can. But what we see today is a bill that will actually disadvantage one group of manufacturers as opposed to another group of manufacturers, and the end target of the component is what determines whether you are in the scheme and get the subsidy or not. There must be a way, hopefully with the goodwill of the chamber, for us to find a solution for the groups of manufacturers in these situations.

Their other complaint is that they were previously able to participate in the Export Facilitation Scheme, which is being replaced by ACIS, yet they will not be able to participate in ACIS. The government's response to this apparent unfairness—and this has been provided by the department—is that the policy focus of ACIS is `on the production of new vehicles and engines, and therefore on the supply chain leading to this production'. In the explanatory memorandum—see page 13—this was put in a somewhat different way, saying that the eligibility rules `will identify those firms with a long-term commitment to the industry in Australia'.

There are two obvious responses to these suggestions: one, there is no reason why ACPs substantially supplying the aftermarket are not equally committed to the industry in Australia; and, two, it is unfair to exclude the ACPs simply on the basis of which particular supply chain they belong to and to what extent. In terms of the actual activities of the ACPs, that is actually an arbitrary matter. The government also says in the EM that most of the current participants in the Export Facilitation Scheme will be eligible to apply for registration under ACIS. There is one obvious response to this: unfortunately, not all will be eligible.

This then is an issue which we would like the government to address. In this I can only hope that we will have more success than on another issue in the auto sector about which we have been pressing this minister: concerns about the inadequacy of the transitional arrangements for the tax package which has now been legislated. There are serious concerns now that there will be a feared buyers' strike—and indeed that it has well and truly begun—as a consequence of the change in new car prices for car buyers. I remind the minister of these facts that were put to him in question time today. Ford has already stood down 3,500 workers and is planning further stand-downs in the next three weeks. Sales of passenger vehicles slumped by 9.7 per cent last month, the fifth consecutive monthly decline. New vehicle registrations are at their lowest level since September 1997. I remind the minister that one senior executive of an Australian car company has stated:

Unless the government is prepared to act, we are looking down the barrel of plant closures at least at Ford, Toyota and Mitsubishi.

I urge the minister to act now on this issue to provide some certainty for this industry and to move on the question of transitional arrangements for the GST. We see today that the Democrats are clearly beginning to realise the true implications of what they have actually done to the Australian community with their support for the GST and the ANTS package. There was an article in the Age by Senator Murray, saying, `Look, charities are doing it pretty tough and we've got to try and find some way to help them out of this situation.'

The answer really is they would not need hand-outs if you had not voted for it—they would not have had this impost of a GST—and the same applies in this area. We say to the government and to the Democrats: there must be a way in which you can work through the situation for the automotive industries. They are starting to suffer. Ordinary Australian workers are being stood down—on leave without pay and being made to take holidays now—because this government has not done enough in this area. We have a minister who is spending his time trying to save the Queen. What you should be doing is saying to him, `That's not good enough.'

Senator Minchin —What did you do when you put up the sales tax on cars? You whacked it up to 22 per cent.

Senator CONROY —I am glad the minister is awake. But he is on his white charger and he is out there looking after Lizzie. He only gets concerned when Fergie runs amok on him again; he cannot help himself.

But what we have here is a minister who is not spending his time on his portfolio issue. He is not listening to the industry, he is not listening to the Democrats and he is certainly not listening to the government. He is more interested in criticising the Treasurer as a hypocrite because the Treasurer has been supporting the republic. We have seen a very disappointing response so far from the minister in this area. To conclude, I want to make it perfectly clear that the opposition regards the automotive industry as an Australian industry of the future. I move:

At the end of the motion, add "but the Senate expresses its concern about the failure of the Government to provide for a review of the future of the automotive industry before tariffs are reduced in 2005".

(Time expired)