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Impact of the global financial crisis on regional Australia

CHAIR —Whilst the committee is not requiring you to give evidence under oath, I do need to remind you that these are formal proceedings of the parliament and as such should be treated with the same respect as you would treat proceedings of the House of Representatives. It is customary for me to remind witnesses that giving false or misleading evidence before a parliamentary committee is considered a serious matter and may be regarded as a contempt of parliament. That being said, you are more than welcome and we are certainly looking forward to hearing what you have to say about what is happening in this region and what solutions you might suggest to this committee in relation to the global financial crisis and how it is affecting regional Australia.

I will accept the submission by the Grampians Pyrenees Regional Development Board and also the submission by the Ararat Rural City Council and a supplementary submission from Economic Development Australia. Can I ask that a member move that? Paul Neville has so moved, thank you. If we are going to talk about these then we need to formally accept them beforehand. Do you have an introductory statement that you would like to make?

Mr Chapple —I do. On behalf of the Grampians Pyrenees Regional Development Board, I would like to warmly welcome the chair and members and secretariat of the House of Representatives Standing Committee on Infrastructure, Transport, Regional Development and Local Government. Our organisation is very pleased that the committee has selected Ararat as one of the seven sites around Australia to visit for its inquiry. So, on behalf of all of us, I offer you a very warm welcome.

We might do this in three parts, with your indulgence. Firstly, Angela might provide a bit of an overview of the regions represented by the Grampians Pyrenees Regional Development Board—the three regions are represented well today. Then I am sure Glen will have some comments to make. Then, if I am able, I would like to make some observations on the submission we tendered this morning, some practical solutions or suggestions for the committee’s consideration and a couple of other bits and pieces that we might go through, if we have time.

Mrs Hunt —The Grampians Pyrenees Regional Development Board represents the Ararat Rural City Council, the Northern Grampians Shire Council and the Pyrenees Shire Council. There is a population of around 31,000 within those local government areas. Our mandate is to represent that region from economic, social and environmental development perspectives. There are a number of key employment areas and areas of development that are fairly significant across the region. Obviously agriculture is one of the largest employment sectors. Other include the Public Service and health and community services, but agriculture is the largest employer across our region, with varying levels within each of the local government areas. That is just a quick snapshot.

Mr Davis —I would like to start with a quick portrait of the Northern Grampians shire. We have a population that is highly dispersed over 6,000 square kilometres of territory, two major towns—Stawell and St Arnaud—and a number of small villages including Halls Gap, Great Western and Navarre. Our major industries include farming. Farming was our biggest industry until the drought of the last 13 years. It continues to be big, with wheat, barley, grains, cereals, legumes, sheep, including some of the best sheep studs in the state, wineries, olives, native flowers and a number of other areas of farming. In mining, we have the biggest goldmine in Victoria, Stawell goldmine. We have a potential for sandmining—it is yet to start, and I will speak more of that shortly. We also have a manufacturing sector. We have suffered a number of losses in manufacturing with the closure of Motorway, Steelchief, Aunde and a number of other firms as part of—

CHAIR —Has some of those been recent or have they occurred over a long period?

Mr Davis —Those are all fairly recent—in the last 18 months or so. Those losses have been part of a nationwide trend of manufacturing industry losses to Asia, but we continue to specialise in manufacturing and servicing of mining equipment, drilling rigs and farm equipment, and those sectors are doing well. Our manufacturing industry has declined less in total than the national average because of that specialisation in sectors that are doing well. We have a large service industry, which includes tourism centred on Halls Gap, the ‘Heart of the Grampians’. As a whole, we make a high contribution to the state’s gross product, but we have low personal wealth. We are ranked among the states most disadvantaged relatively.

The global financial crisis has hit us in a number of ways. Focusing firstly on farming, farming has suffered hugely over 13 years of continuous drought. The depressed income from poor crops has caused farm debt to rise quite alarmingly. It is now approaching an average of $700,000 per farm. While the lower interest rates that have been caused partly by the financial crisis have lowered the cost of that debt, the debt is at levels which are triggering many farm sales. The current rate of farm sales is more than double the long-term average. The long-term average of farms sold per year is four per cent; the current rate is about nine per cent. And, of course, there is a lower availability of credit. I will come to that in talking about banking.

Australian companies, including banks, raised significant debt from international markets in the 15 years to 2008. That resulted in a lower cost of debt for those businesses who raised their debts internationally and produced record banking profits. The global financial crisis is the result of the market realisation that the debt was cheaper for a good reason: it was backed by overvalued assets, especially US housing and the many derivative products that were packaged to disguise the underlying asset quality. Instead of passing those losses on to equity, Australian banks are now seeking to pass their losses on to customers in the form of widening interest margins. Customers in our shire, along with customers nationwide, are suffering from that.

We expect this trend to worsen unless the government intervenes. The derivative products on the balance sheets of Australian banks will take another year or so to fully emerge, as will asset revaluations. Australian banking regulation has not changed significantly since the early 1990s, when we saw the crashes of the state banks, ES&A, CBA, Pyramid Building Society and so on. Australia remains exposed to further banking losses in line with world trends, and we can expect those losses to be realised later in Australia than elsewhere because the debts that are on Australian banks’ balance sheets are disguised by a couple of generations of derivative products from the toxic assets which underlie them. So our concern is that it will take longer for these revaluations of assets to occur in Australia. Banks are talking up property prices. They say things like Australia does not have surplus housing stock. They are doing interest rate subsidies to maintain rural prices. The concern is when the bubble might burst.

In our mining industry, as our mayor mentioned, we are benefiting from a higher gold price. A goldmine determines its reserves, according to legislation, by which ones can economically be recovered. So a high gold price means that ore of a lower grade becomes economic. The Stawell goldmine currently has more than three years of reserves, at current gold prices and exchange rates. I must emphasise ‘at current gold prices and exchange rates’—if either of those change, of course, the reserves change. Stawell goldmine is currently benefiting from high reserves and high gold prices and doing really well.

We have many mapped beaches of sand-mining reserves. This results from a historic inland sea. The sand was swept from South Australia and deposited along the eastern shores of the inland sea, which starts on the western edge of the Grampians and then extends up through the western part of our shire and beyond. These beaches are rich in rutile, ilmenite and zircon. Those are not rare minerals. They are deposited in large quantities over much of eastern Australia. The current mining in Australia is done in Western Australia, but those mines are running out of life. Most of the deposits in eastern Australia are under high-value real estate. The deposits in our shire are the next commercially viable mining deposits because they are under low-value real estate and they are very readily accessible. I will come to what is happening to that shortly.

In our tourism industry—you will hear more about this later, I understand, when you are addressed on that subject specifically—the issue is quite complex. We need to distinguish the different markets for tourism. There are international markets from fully independent travellers, backpackers and tours and so on. All of those are suffering—largely, because of the US depression. In relation to interstate customers, we are suffering partly from fuel prices and partly from the Australian recession. But in relation to intrastate customers we are doing well. The reason for that is that we are benefiting from our recovery from the 2006 bushfires, whereas eastern Victoria is currently suffering from the 2009 fires. We have actually had our biggest Easter ever, but this is probably a fairly temporary effect. It is occurring despite the depressing effect of the global financial crisis on our international markets.

In agriculture other than farming we have a number of specialisations. Poultry and eggs are big. Rainbow Valley Turkeys is the centre of Australia’s turkey industry. It owns Australia’s turkey gene pool and it is a very innovative company which is now exporting, largely to Asia. We are in a great position, thanks to the occurrence of bird flu elsewhere and our absence from that disease. Our wineries are depressed by world demand and by oversupply. In the case of olives we have had poor crops and even tree losses due to drought. Flowers are suffering from depressed demand and the GFC, and water is a major concern to all of those industries.

There is a trend at the moment to speak of water migration, and the Wimmera Mallee Pipeline and the super pipe are part of that, and there is now talk of the ‘grid’. When you move water you move wealth. The Grampians is a huge catchment for most of Victoria’s water and it has traditionally been a source of water exports. Those water exports, between catchments in particular, should be priced. They should be priced at the ESC price of the recipient catchment, and over the long term water migration should be averaged out to close to zero—not materially different from zero. In other words, water migration should be used to alleviate temporary crises elsewhere and not as a long-term trend of moving water and wealth between catchments.

Mr Cheeseman asked earlier about population trends. Since the last census we have suffered a one per cent compound per annum decline in population. This is the state’s largest rate of decline. There are a number of factors. Probably the largest single factor is the tendency of farms to outsource a lot of work. Instead of work on fencing, dams, windmills, shearing and even sowing and harvesting being done on-farm it is being outsourced to regional contractors and they tend to operate from regional centres. That has probably been the largest trend in this area. Horsham has benefited from that as it has benefited from the jobs in the Wimmera Mallee pipeline. But in future it may be St Arnaud and Stawell who benefit from a similar trend. We are fortunate in that we have attractive scenery and lifestyle, so we are attractive for tree changers. Our real estate price rises have been amongst the state’s highest in the last couple of years—in the upper quartile. There was a question earlier about rate arrears—

CHAIR —We will not go into the detail of that yet. Just keep the comments brief at the start in relation to what is happening would be helpful. We will ask some questions about that later. Do you want to move onto some of the suggestions?

Mr Chapple —I just want to give a quick introduction of Ararat Rural City. It is a city of 4,200 square kilometres with approximately 12,500 people supported by a whole range of smaller communities. Our current economic profile, as I have indicated in the submission, is: 19.7 per cent in agriculture, 13.1 per cent in manufacturing, 15.3 per cent in retail, 12 per cent in health, seven per cent in education and 6.5 per cent in personal services. The reason I mention that is we are rather fortunate. If you look at that spread of employment it is not in one particular sector so in the event of recession or economic downturn then we have the potential to weather that storm a bit better than, maybe, some others do. I thought that was worth explaining to you.

Ararat, as you may know, has been sorely tested over many years of prolonged drought, climate change, devastating bushfires as Glen indicated, and during the mid-1990s significant slashing of government investment particularly in our government based employment. What was a thriving town and region in the early nineties suffered with the closure of public railways, mental health institutions, schools and amalgamation of the councils. Many jobs were lost. These events in a lifetime could have caused a catastrophic impact on a community but Ararat and its region has adapted with what I would describe as a very resilient community. This still remains as one of the most important assets of small regional communities—simply a strong sense of community spirit and business acumen. This community is very supportive and proud of its local businesses. The mayor mentioned before in her testimony that one of our local large agricultural manufacturers, Gasons, are looking at full order books for this season due to their Australia-wide dealership and also due to the recent excellent rainfalls in New South Wales—some describe them as floods—Queensland and parts of Western Australia. As a result of experiencing drought they have diversified their business and, as a result of that, they are now producing world efficient wood heaters distributed throughout Australia—the company have diversified their base.

With the current global financial crisis there has been evidence of lay-offs in our own local manufacturing sector particularly in an organisation across the road. They are in the business of making electrical harnessing for the automotive trade. One of our local manufacturers, AME Systems, which I understand will be presenting briefly to the committee this afternoon and as our mayor indicated, are looking for support directly from governments. One of the most significant issues facing our local manufacturing communities is payroll tax. They are simply saying that it is a cost impost that is very hard to bear particularly when they have been approached by Chinese companies, continually, for a number of years to relocate their manufacturing plant in China. They have over 250 people employed locally in Ararat so, from our point of view it is a very significant employer. To lose them would have a fairly devastating effect. The issue that we are concerned about with the payroll tax is that there are a series of taxes that our local manufacturing businesses are expected to pay yet overseas companies, particularly those that are importing materials into this country and selling them, are not subjected to that ‘level playing field’ and that is a serious issues which I am sure they will raise with the committee in more detail this afternoon.

In respect to the Commonwealth government’s stimulus packages we simply say that they need to target existing businesses. We think that those enterprises are the ones that are going to employ people in the future. Whilst it is important to attract new businesses, it is extremely critical that we retain our existing businesses. If they are lost it is very difficult for them to come back or to get them back. Small- to medium-sized businesses, as this committee knows, are the economic lifeblood of our country. They need to be assisted and practically supported by any further government stimulus. I think there was a comment made by the committee before about incentives in housing. I understand that the state government has provided incentives. I think it is $29,000 for people that want to build a home in regional or country Victoria. We welcome that type of initiative.

In terms of the expansion into more and more greenfield sites in metropolitan Melbourne, we would urge the committee to look seriously at why we are continue to push further and further into those greenfield sites and the associated infrastructure that is then required as opposed to some infilling, particularly within inner Melbourne.

We have three suggestions for consideration. One in relation to Commonwealth taxation is that the Commonwealth consider supporting existing small to medium enterprises in small regional towns of, for example, 10,000, with a range of innovative business tax reductions. Even better would be the removal or suspension of those taxes for a one- or two-year period. That might actually greatly assist those companies in retaining people rather than laying people off. Lifting that taxation burden and the compliance costs would potentially encourage businesses to remain in the town and keep people employed.

We would urge Infrastructure Australia, set up by the Commonwealth, to consider practical regional infrastructure support measures. As you have heard previously from the mayors, there are some great suggestions around the type of infrastructure that is going to significantly impact on our economic competitiveness for the future.

Another issue was the Commonwealth policy settings. Again, I am sorry to go over old ground. The chair has already mentioned this morning that the Commonwealth is soon to legislate hopefully on what will be a minimum 20 per cent renewable energy target—the MRET. We are encouraging this committee to advocate that on behalf of our region as soon as possible. Legislating such a target would signal to the renewable energy sector and potential investors—and the manufacturers of components —that this country is serious about taking renewable energy to the next level. From our point of view that creates market certainty and investment certainty. As was mentioned by some of the mayors previously, there are many hundreds of millions of dollars in this region just waiting to go. The committee today is sitting in Ararat. We were one of the first local governments that initiated a renewable energy park in this country. It is two kilometres out of town—you may have seen it when you drove up today. That is a 30-hectare renewable energy site. It has already been zoned for that specific purpose right in the middle of south-eastern Australia’s wind farm communities.

The other quick one I want to mention was in relation to our local and regional wine community. Through the leadership of local government, particularly our economic development managers, we have, over the period of a few months, finally got together a cooperative agreement with a number of wineries. We have all heard recently that there is going to be a glut of wine in the Australian market and that potentially 20 per cent of wine manufacturers will not be here in 12 months time. With this leadership and initiative, this group of regional winemakers has identified that they have an opportunity to export wine to China—not Beijing and not Shanghai, but to the second and third tier cities, where there are two or three million people. Australian wine producers have not bothered about that marketplace. In the exploration that our council has done recently we have identified a very strong demand for good quality, reasonably priced Australian wine. I am pleased to inform the committee that our first export will be leaving this region hopefully in June or July. Again, whilst there is doom and gloom out there, there is also cause for some optimism. Maybe we can talk about those things a bit later. Thank you.

CHAIR —Thank you very much for the evidence you have provided so far and setting the scene.

Mrs Hunt —Can I just add one further thing. We do not have a separate Pyrenees representative. We have talked fairly extensively about the Northern Grampians and Ararat. While I will not speak for Pyrenees, the critical area of production for them is really the viticulture industry. Without water, they are really struggling right now. The supply of sustainable water is the highest priority on the agenda for them. You have probably already heard that from the mayor. There are other issues there, too, but I think it is important that the viticulture area be added to our list of areas.

CHAIR —You alluded to it a little when you were talking about one of the ways that one of the local companies, Gasons, is doing well is because of its diversity—that it had completely diversified its products. We certainly heard evidence in Tasmania that one of the reasons that some of the communities, while not doing exceptionally, are surviving and still continuing to grow a little, is that, unlike the 1990s, when they had a very narrow base for their economy, they now have diversified their economies overall. How diverse are the economies in this district and how robust do you think they are going to be overall? Are you predominantly reliant upon agriculture and some bits on the side?

Mr Davis —Northern Grampians is fortunate in that its four major industries are of similar sizes. Therefore, we have that diversification, which is a strength. That has been partly brought about by the unfortunate decline in agriculture, which was previously the largest. That has now made agriculture similar in size to mining, manufacturing and services. But that is a strength. The diversification into poultry and poultry exports, wine, olives and so on has been strong. I think that is continuing. There is a lot of embryonic firms starting in the further production of rural products—gourmet foods and those sorts of things. I think that is a trend that Tasmania went through a long time ago and which I think is now strengthening here.

CHAIR —I might ask some questions further on in terms of what supports are around and what the development board is doing in relation to those.

Mrs Hunt —There are a number of innovative smaller niche businesses I guess across the region. We would be keen to support the growth of those businesses that are supporting others. Within agriculture, as Glen mentioned, while that sector has come down a bit, I think there are opportunities and they are being identified to diversify the types of crops and things that are grown in the area. That is being looked at very closely. Companies such as Gasons are very much looking at different aspects. They have their eye very closely on what costs and what they will focus mostly on this year—‘It costs us this much to produce this product and we need to purchase this much raw materials initially to get that happening.’ They are really managing the risks of their overheads. Gasons is one of those businesses that is actually a cash based business and avoids debt altogether to try to keep themselves going. They really are all looking very closely at continuing to diversify. It seems that those that have a number of niche areas are doing well.

Mr Humphries —The first one is the attraction of innovation of business owners—being very creative and adaptable. The second one would be their ability to retain skilled employees. I think that has helped them enormously. The investment and training that they have put into their employees has made a big difference. Having NMIT and Ballarat University, Ararat campus, has been helpful—having tertiary institutions available locally. Obviously, the support of local government business and economic development units has been crucial in that interface. The final one would be, as Glen and Angela alluded to, the niche markets—acknowledging that there is an opportunity to start to value-add rather than just exporting raw material. That would add a lot more value to that product. We are just beginning to come to terms with that.

Mr CHEESEMAN —I am very conscious, having driven through the Western Districts numerous times, of the significance of the wind sector as a renewable energy source. How large, if Commonwealth government gets its policy settings right, do you believe that industry might grow to? Clearly I can see that in the initial establishment of a wind farm there is a lot of labour required in building and construction on putting the things up. But in the long term, does it actually lead to substantial job growth? Does it take a lot of jobs to run these facilities?

Mr Chapple —The Clean Energy Council of Australia indicates that there is $3 billion plus worth of investment in renewable energy ready to go in this country once those policy settings are in place, and it is better qualified to speak on that than I am. Our own 30-hectare site has the potential to generate up to 100 jobs. What I think is important is creating not just those jobs but a centre of renewable excellence. The vision that our council and this region shares with us is that it is not just about potential blade manufacturing and development; it is also about design, research, creating Australia’s next major industry sector and import replacement.

I understand now that the Challicum Hills site here, for example, has 35 turbines. It does have a permit for 55 turbines but, because of the lack of grid capacity, it does not need more. Major investment is another issue with Infrastructure Australia. Cabling needs to be upgraded to enable large-scale wind generation farms to be built. What is important in the vision that this region shares for the Ararat Regional Renewable Energy Park is that it be not just simply about manufacturing but about a whole range of other components that would be building an industry sector around that. We would love this region and Victoria to become known as the renewable energy capital of Australia. Ballarat shares that. Part of the Central Highlands 21 group has a strong commitment to renewables, whether it is wind, solar or other forms.

It is in its embryonic stage. There is enormous capacity for universities to be involved and for younger people to be involved in these new careers. It has everything from manufacturing to the servicing of turbines. You do not just stick them up and leave them; this quite sophisticated equipment requires continuous maintenance. There are a lot of potential streams.

Mr Davis —Renewable energy comes in a number of different forms, and the jury is out on what the ratios of those will be, but wind, solar, geothermal, tidal and so on are all among them. In the case of wind and major solar plants it is important that the generation is on a transmission grid that has the capacity to carry it. At the moment in Victoria we lose over 30 per cent in transmission by the time the power that comes from eastern Victoria, where it is generated by burning brown coal, gets to our council and more than 30 per cent by the time it gets up to Swan Hill, Mildura and so on. There are terrible losses in transmission, which we can overcome by reasonable generation in this region. Whether that is done by solar plant or wind plant is not so critical; what is critical is that that generation is within reasonable distances of transmission lines which have the capacity because those are tremendously expensive to create and maintain. There are all sorts of issues with fires arising from them and so on, as you know. The capacity in that grid is critical.

We are fortunate in having very large capacity. A 220kV transmission line runs through the shire which closely corresponds to the best of the wind sites. The sites at Crowlands and Warrak will be attached to the 220kV grid. Along that area there are many prime sites for both wind and solar generation and there is the capacity to carry it. We think that is terribly important. The geothermal sites in South Australia do not benefit from having the same proximity to grid capacity. I think that may be a factor in the relative balance between generation of different forms of renewable energy.

Mr Chapple —My economic development manager, Clyde Humphries, has reminded me of another important initiative that the committee might be interested in. That is the regional possibility of western Victorian municipalities incinerating biomass waste to create energy which can then be used to operate a desalination plant at a minimum cost and also to heat water for hothouses covering land.

Ararat has the potential to dispose of waste cleanly creating a renewable energy source and a mass to tap saltwater. Our staff are doing a lot of work at the moment through some trials. One of those trials is looking at the creation of algae into biodiesel. We have been funded to do some work and have got some scientists reviewing the trial outcomes. If that does work then we have the potential to grow, extremely efficiently and inexpensively, a type of oil in ponds that can then be transferred into a biodiesel suitable for farm machinery and cars.

Mr SULLIVAN —Is there a small business incubator in your region?

Mrs Hunt —Not exactly. We tried very hard to get one for this region but for Grampians Pyrenees there is not exactly a small business incubator. However, the University of Ballarat is starting to do some work for Grampians Produce Group to enable the kitchen to be available to do some of that activity, but in terms of a small business incubator for various types of business, there is not.

Mr Chapple —A conversation that happened last night was about the concept of having a hub where people running their own businesses could come and link in to a state-of-the-art hub and use the facility when and if they needed to avoid the cost of setting up a small business. It is a similar thing but it helps with telecommuting, transport and a whole lot of things.

Mrs Hunt —There has been a feasibility study done for the region on having a small business incubator that taps into all three local government areas. There was a lot of positive information in that but, as far as getting funding, it did not meet the guidelines.

Mr SULLIVAN —I note earlier on you were talking about the initiative you have taken in the wine industry in regard to China and congratulations on that. I am hearing a couple of things about growing algae to turn into biodiesel. Are there any other initiatives that the board has taken to help develop industry and infrastructure in this area?

CHAIR —You mentioned embryonic firms recently so I would be interested in what sort of support you are providing.

Mr Davis —In addition to the physical incubator, which operates from the University of Ballarat premises, which is offering facilities to primary producers to develop products like pesto and meringues and things like that—and that is going very well but it is terribly small-scale—we also have a virtual incubator through a manufacturing industry cluster group which provides a lot of self-help, mutual support and so on. That has generated a number of opportunities for firms to work together in a complementary way. We also have a very strong poultry cluster centred on Rainbow Valley Turkeys but including Green Eggs, Goldfields Turkeys and others. We have got a pheasant farm and a quail farm so there are a number of opportunities there for those clusters to provide that—

Mr NEVILLE —Specialist areas.

Mrs Hunt —That tends to be how it is operated across the region. In Pyrenees they have the Pyrenees Hay Processors Cooperative and in Ararat they are getting close to utilising the NMIT facilities to develop wine for export and that is bringing together grapes and wine from across a number of different areas.

Mr Chapple —You might want to mention also NMIT, Northern Melbourne Institute of TAFE, has the home of the Australian centre for wine. There is enormous scope and opportunity there. There is, almost ready to go, a production facility sitting in that building. It would be fair to say that there is one missing component which would then potentially enable most of the production such as the bottling, labelling, manufacturing and the sales of small vignerons to be done locally within this region. While we are on Aradale, very quickly, it is the facility you may see as you come into town, that also has enormous scope and opportunity.

CHAIR —You said there was one missing element. What was that?

Mr Chapple —I will refer to Mr Humphries.

Mr Humphries —It is the crushing facility, which NMIT have committed to commissioning this year. We are running a co-op. The 170 wine growers around the area are to use that facility.

Mr CHEESEMAN —In a previous life I was on the committee of management for the University of Ballarat’s business incubator committee; I would just like to put that on the record.

Mrs Hunt —Another of the activities that have been happening to support industry has been the hugely successful Farming in the 21st Century activity. That has happened as a result of the rural workers within economic development units getting together and delivering across the region a number of different, innovative solutions for people within farming sectors. And the numbers of people who have been attending those workshops have been overwhelming—unprecedented, I would say.

Mr Chapple —I went to the closing one last night. Over 400 people have attended events in this Farming in the 21st Century series. They have been, as Angela said, tremendously effective. I spoke to people from 50 farming communities who were there last night. All of them said, ‘This is a great initiative. We would like to see that going.’ So from a practical point of view that is going to help farmers directly. We are more than happy to share the material with the committee, if that would be of value.

Mr SULLIVAN —Following on from my earlier question, you have indicated that AME are going to come to talk to us this afternoon. We do not have them on our list, so we assume they are coming in the open session.

Mr Chapple —Yes.

Mr SULLIVAN —What work have you done with them, given that they are a major employer and under some threat of departure?

Mr Chapple —Our council has had a long and positive relationship with AME Systems. They have been a significant contributor to the life of this community and have given sponsorship to all sorts of stuff. Our economic development unit and council have worked closely with them over many years, advocating on their behalf, where we could, to different levels of government, about some of the barriers or constraints that are preventing them from getting on with the business that they are involved in. Where we can, we try and open up doors to them. We help in their promotion and marketing and their advocacy. We do not provide them with cash—it is not something that the council does. But, in terms of the symbols of support, where we can help them we will, and obviously the most practical one at the moment is about advocating on the challenges that payroll tax is creating for their company. They spend several hundreds of thousands of dollars a year in payroll tax, which effectively could go towards retaining or employing further people and increasing their competitiveness.

Mr SULLIVAN —As I understand it, you are advocating for other levels of government to remove tax burdens. Do you advocate that your own removes its tax burden from the company?

Mr Chapple —Local government, unfortunately, has a very historic funding arrangement—it is 150 years old—based on a property taxation system. We would absolutely welcome a conversation with the Commonwealth around changing that to a much more sustainable, mature arrangement.

Mr SULLIVAN —The reality is that you have not offered them a rates tax break, whereas a number of local authorities around the country have, time after time, sought to attract industry to their area by giving them rates holidays. I am quite happy to go and talk about taxation assistance for people in regional areas, but I want it to be fair. If this committee were to approach a state government and say, ‘You’ve got to reduce your taxes,’ I think we would have to do so for everybody. My last question on AME—and I note you are looking to get in, Mr Davis—is: are they an exporting company?

Mr Chapple —Yes.

Mr Humphries —They have actually just got a contract with, I think, CASE, doing a lot of the looms for heavy duty tractors.

Mr SULLIVAN —It occurs to me that the Chinese are looking at markets beyond the Australian market, so they are unlikely to be moving an Australian company to China simply to provide for the Australian market. So it would seem to me that there are some opportunities for that company beyond the markets that they are obviously involved in now.

CHAIR —We will hear from them this afternoon and we will put that to them.

Mr Davis —I would like to offer an additional comment in response to Mr Sullivan’s question. Northern Grampians has a long tradition of offering a rating differential to its biggest industry—that is, farming—and the 35 per cent rating differential in favour of farming is effectively a tax subsidy because that comes at the cost of the other ratepayers.

To support Mr Chapple’s comment, the funding of local government struck me as quite ridiculous. When I first entered local government after a history in federal and state government and private enterprise I could not believe that local government was funded in the way that it was. It has mandatory duties under many acts of parliament and, without a sustainable revenue stream to match those mandatory duties, it exists on grant handouts from both state and federal governments. To the federal government’s credit, the formula funding through federal assistance grants and Roads to Recovery grants is based on attributes of each council, and that is the recipe that I think should apply to all local government funding Australia wide.

CHAIR —Thank you. I note that Mr Hawker, who is here in the audience, was one of the authors of a fairly substantial report into this very issue. You have provided a scene of some terrific things that you are doing here in this community to diversify your economy and to grow the existing businesses that you have. Mr Chapple has provided a couple of suggestions as to what the Commonwealth can do to actually assist you on the ground to promote that—obviously the government policy settings in relation to the energy sector are important and taxation issues do become important—but are there other things that you would like to suggest. For example, you have flagged the need for a small business incubator. Are there things around those more general issues that you would suggest as well?

Mr Davis —Yes. The suggestions I made about water pricing and water migration are, I think, quite critical to the whole region. We are a major exporter of water and, therefore, wealth. I think that would be a huge benefit. I also support the other suggestions that Mr Chapple made about payroll tax and so on. Those are the largest. The others would be around stimulating renewable energy and getting away from the reliance that we have on coal generated power and its transmission across the whole state.

Mr Humphries —I would like to make one comment on an incentive that I have had a lot to do with—that is, the research and development rebate. A couple of our small businesses around here, AME included, did achieve the 175 per cent level. One of them went into a quiet time—

CHAIR —Do you have the AusIndustry rep from the district as your—

Mr Humphries —Yes, John Finch.

CHAIR —Is he the same fellow who comes out from Ballarat?

Mr Humphries —Yes, he is based in Ballarat.

CHAIR —And also to Geelong as well?

Mr Humphries —We work very closely with him. One of the problems I find—and you would appreciate that as a region we are trying to be innovative to fight our way out of the gloom that is around—is that the $20,000 tripping point is very high for some people, such as a farmer who is trying to—

CHAIR —This is for Enterprise Connect?

Mr Humphries —Yes. To get to that level and then maintain research and development over three or four years suits the big places that can put in a team of people, but we are talking about the guy who has just invented the new plough that does wonderful things. It cost him $10,000 of his hard earned money to work it, but he does not trip the $20,000 point. If there were an option to be able to say that for regional areas—even an economic zone—there could be an extra benefit or a lowering of the trip point it would stimulate a lot of innovation and also potential manufacturing. That is where it is coming from. A small enterprise that does the netting on the vineyards came out of Ararat. It involves a tow-behind trailer that enables two men to do the netting. They have now sold that to Gason, who are manufacturing it worldwide. But he was not in the first thing; we tried to get him into the innovation side but the $20,000 was not there because he made it in his back yard and did everything for well under $20,000. He did not get the reward for that, but it has turned into something bigger. There could be the option there for government to think about some of these levels. The levels do sort out the wheat from the chaff but they also restrict some of the smaller innovative ideas that could go on to bigger things.

Mr Chapple —There is the potential to reintroduce the Commercial Ready grant scheme. It obviously had a lot of capacity for bringing things from small businesses or sole operators to the marketplace. The reintroduction of it may be something that the Commonwealth could seriously consider.

Mrs Hunt —I have comments on a couple of others. In terms of education services across the region, as you heard earlier the University of Ballarat services this region for the most part. I am watching very closely to see what impact the skills reform will have on the services we receive. The University of Ballarat is assuring us that it is committed to delivering in western Victoria but we really do not know how their bottom line will be affected by the changes in skills reform. I am not sure that I am necessarily asking for something there, but it is an area of real concern because, whilst we do have some small adult education delivery outside of that, our delivery is really limited. So it is incredibly important that we have University of Ballarat still as a university operating out in this area.

The other area to look at is health and medical services to the region. There is some talk of some rezoning happening that will potentially have our medical centres—

CHAIR —It is important to understand that there has been absolutely no decision made in relation to that and a lot of the information that is coming out is not necessarily correct. There has been some lobbying going on around that. But I do understand.

Mrs Hunt —Okay. Obviously those sorts of incentives that are attached to that program are incredibly important for us to maintain our medical services and our GPs in the area. That is probably the only point that has not been covered.

Mr CHEESEMAN —Could I ask for clarification on something. Is the percentage you have provided in the table the percentage that that sector contributes to the economy, or is it the percentage of employees.

Mr Humphries —That one is basically output.

Mr Chapple —I have got a further table here with the source of that, if you require that as well.

Mr NEVILLE —Sorry, could you clarify that.

Mr Humphries —Agriculture is our largest employer but there are a lot of self-employed people within that. So, in terms of actual paid employees, manufacturing would be our top-paying employer but agriculture is principally number 1.

—Thank you for your evidence. You will receive a proof copy of the Hansard transcript of today’s proceedings and we invite you to advise us of any changes you would recommend. If we have further questions the committee secretariat will write to you. If anyone would like to send further submissions to the committee please feel free to do so.

Mr Humphries —Thank you for your visit to our region and for your interest.

Proceedings suspended from 11.23 am to 11.39 am