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Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 [and] Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020



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ISSN 1328-8091

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BILLS DIGEST NO. 5, 2020-21 12 AUGUST 2020

Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 [and] Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 Dinty Mather Economic Policy Section Phillip Hawkins Economic Policy Section

Contents

Purpose of the Bills ......................................................... 2

Background ..................................................................... 2

Definitional issues ....................................................... 2

Industry consultation .................................................. 3

Industry levies ............................................................. 5

Committee consideration ................................................ 6

Senate Standing Committee for the Scrutiny of Bills .............................................................................. 6

Policy position of non-government parties/independents...................................................... 6

Position of major interest groups..................................... 6

Financial implications ...................................................... 6

Statement of Compatibility with Human Rights................ 6

Parliamentary Joint Committee on Human Rights ..... 7 Key issues and provisions ................................................ 7

Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 ............................................................ 7

Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 ................... 8

Date introduced: 17 June 2020

House: House of Representatives

Portfolio: Agriculture, Water and the Environment

Commencement: 1 January 2021 Links: The links to the Bills, Explanatory Memoranda and second reading speeches can be found on the home pages for the Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 and the Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at August 2020.

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Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 [and] Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 2

Purpose of the Bills The purpose of the Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 (the Customs Bill) and the Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 (the Excise Bill), jointly referred to as the Bills, is to amend the definition of lamb in the following Acts (the Acts):

• the Primary Industries (Customs) Charges Act 1999

• the Primary Industries (Excise) Levies Act 1999

• the National Residue Survey (Excise) Levy Act 1998 and

• the National Residue Survey (Customs) Levy Act 1998.

The proposed changes made by the Bills are intended to harmonise the definitions of lamb and sheep in the Acts with an amendment that was made to the Export Control (Meat and Meat Products) Orders 2005 (Export Control Orders) by the Agriculture Minister on 20 March 2019 (explained below).1 Consequently, these amendments will:

… provide administrative clarity for levy payers and support compliance with the levies system, through ensuring consistency across relevant legislation in the definition of the animal upon which levies and charges are imposed. 2

Background As discussed, the proposed amendments in the Bills are largely as a consequence of changes to the Export Control Orders, which were intended to address definitional issues around lamb and sheep that the industry had been consulting on since 2017. This history is discussed below as context for the changes made by the Bills.

Definitional issues The definition of a lamb provides a demarcation between what is a lamb and what is a sheep. The definition is important for several reasons including:

1. it underpins the labelling requirements of lamb and mutton meat for sale in Australia and overseas

2. it underpins the levies and charges on transactions relating to lambs and sheep, the slaughter of lambs and sheep and the export of lambs and sheep3

3. lamb has a higher saleyard price than mutton (according to the Australian Bureau of Agricultural and Resource Economics and Sciences, the 5-year average saleyard price of lamb is 654 cents per kilogram, and for mutton it is 436 cents per kilogram)4 and

4. other countries with a ‘softer’ definition of lamb (an animal defined as a lamb for a longer period of time) could have an unfair advantage over Australian grown lamb both locally and in international markets.5

1. Export Control (Meat and Meat Products) Amendment (Trade Descriptions for Sheep) Order 2019. 2. Explanatory Memorandum, Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 [and] Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020, p. 3. 3. Ibid., p. 2.

4. M Bruce, Sheep meat, Department of Agriculture, Water and the Environment ABARES, ABARES Agricultural Commodities, 10(2), June quarter 2020, p. 57. 5. Holmes Sackett, Summary of public consultation on the lamb definition review, Holmes Sackett, n.p., February 2018, p. 8 where it was noted that the change in definition would mean that ‘Australia would no longer be at a competitive

disadvantage in its supply of lamb because of differing definitions’. However Sheep Producers Australia expressed a different

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Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 [and] Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 3

Up until the amendment of the Export Control (Meat and Meat Products) Orders 2005, the Australian definition of lamb was ‘a sheep that has not cut a permanent incisor tooth’.6 New Zealand has a different definition of lamb, which:

… includes age (<12 months) in their definition, however dentition is the means by which the live animal is assessed as being a lamb. The New Zealand definition allow [sic] either of the first permanent pair of incisors to have erupted, however neither can be in wear. The New Zealand definition therefore allows an older animal than the Australian definition.

7 [emphasis added]

This is because:

Surveys of the age at which teeth erupt in Australia shows that the first permanent incisor will erupt anywhere between 369 and 483 (average 427 days) days of age … Survey work in New Zealand shows average age of teeth eruption to be slightly older. 8

Industry suggest that the older definition also ‘gives producers no warning light about when a lamb stops being a lamb’ which has consequences for the value of sheep and lambs for sale and processing.9

Industry consultation In April 2017, Meat and Livestock Australia (MLA), on behalf of Sheepmeat Council of Australia (now Sheep Producers Australia), undertook a review of the current definition of lamb. An interim report was produced by the agricultural consulting company Holmes Sackett which was tasked to:

… review the impacts of any change to the Australian Language definition of lamb such that it would harmonise the Australian definition with the New Zealand definition. 10

The interim report focussed on potential implications to the Australian sheep industry if the New Zealand definition was adopted, namely, ‘no permanent incisor tooth in wear’. The interim report stated, among other things, that a definitional change will:

1. increase the age of a lamb from one year to an average of 427 days11

2. have low market risk, as New Zealand has access to the same markets as Australia12

3. have no material impact on eating quality if Meat Standards Australia (MSA) standards were adhered to13

4. potentially have high market compliance, a finding based on the New Zealand market compliance experience14 and

view noting: ‘The proposed definition, which is already in use in New Zealand, is expected to have no impact on market access. New Zealand currently has access to all international markets that Australia does’: Sheep Producers Australia , Lamb definition explanatory policy paper, Sheep Producer’s Australia, 20 March 2018, p. 1 6. Clause 1 of Schedule 17 (Live-stock slaughter) and clause 1 of Schedule 18 (Live-stock transactions) of the Primary Industries (Excise) Levies Act 1999. 7. S McEachern, Review of the implications of changing the definition of lamb to allow eruption of permanent incisors, but without either incisor being in wear, Interim report, Holmes Sackett, n.p., 4 October 2017, p. [4]. 8. Ibid., p. [3].

9. Australian Meat Industry Council and Sheep Producers Australia, Australia’s new definition of lamb - what you need to know, information circular, June 2019, p. 1. 10. S McEachern, op. cit., p. [2]. 11. Ibid., p. [3]. 12. Ibid., p. [4]. 13. Ibid., p. [5].

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5. have a positive net economic impact on processors - a 2008 assessment indicated that processors incurred a loss of $15.6 million as a consequence of lambs that are found to have teeth erupted prior to slaughter but which had been purchased as lamb.15

Following the Holmes Sackett interim report, a lamb definition consultation paper was published by the Sheepmeat Council of Australia and a public consultation campaign launched on 4 October 2017.16 A summary of the public consultation, released in February 2018, claimed that, of 509 complete responses, 83 per cent were in favour of the changed definition of lamb.17 The subsequent February 2018 Explanatory policy paper states the SPA’s Marketing, Market Access and Trade Policy Committee endorsed a new policy position on the lamb definition as follows:

Whereas the sheep industry continues to incur a significant opportunity cost generated from an irresolute policy position on the lamb definition, and

Whereas the lamb definition public consultation process has identified broad industry support for the proposed change in definition, therefore

Be it resolved, that Sheep Producers Australia endorse changing the Australian lamb definition on the basis that:

1. Market access risk is minimised through the adoption of the New Zealand definition of ‘young sheep under 12 months of age or which do not have any permanent incisor teeth in wear’;

2. Final SPA Board approval is provided on the proposed regulatory framework governing the new definition as developed by the Australian Meat Industry Council (AMIC) and SPA;

3. Final Board approval is provided on the proposed implementation process and budgeted investment of production levies required to facilitate a change in definition; and

4. A strategic plan is collaboratively developed by AMIC and SPA to achieve national regulatory harmonisation of sheepmeat marks and brands. 18

On 21 November 2018, the Minister for Agriculture announced that the definition of what constitutes lamb for export purposes will change to align with the New Zealand definition.19 On 20 March 2019, the Minister for Agriculture and Water Resources amended the Export Control (Meat and Meat Products) Orders 2005 to change the definition of lamb accordingly (which also changed the definition of mutton and ram).20 The changes commenced from 1 July 2019.21

14. Ibid. 15. Ibid., p. [6]. 16. Sheepmeat Council of Australia, Lamb definition consultation paper, Sheepmeat Council of Australia, n.p., October 2017. 17. Holmes Sackett, Summary of public consultation on the lamb definition review, op. cit., pp. 6 and 9. 18. Sheep Producers Australia, Lamb definition explanatory policy paper, Sheep Producers Australia, n.p., 20 March 2018, p. 1. 19. D Littleproud (Minister for Agriculture and Water Resources), Giving lamb definition some teeth, media release,

21 November 2018. 20. Export Control (Meat and Meat Products) Amendment (Trade Descriptions for Sheep) Order 2019. 21. Ibid.

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Industry levies The Acts impose levies and charges on transactions relating to lambs and sheep, the slaughter of lambs and sheep and the export of lambs and sheep.22 These levies and charges are set out in schedules to the Acts, and are comprised of:

• charges imposed per head of sheep and lamb for live export23

• levies imposed per head on the slaughter of sheep and lamb for human consumption24

• levies imposed per head on transactions involving live sheep or lambs, including the transfer of animals from one person to another or to processors but not sheep for sale at a live-stock auction or transfers between related companies25 and

• national residue levies and charges imposed on transactions relating to sheep and lambs, the slaughter of sheep and lambs and the export of sheep and lambs.26 National residue levies are specifically collected for the purpose residue monitoring activities (that is, testing animals for pesticide and veterinary medicine residues).27

These levies and charges are imposed by the Australian Government at the request of industry and the amounts raised are dispersed, in full, to various industry bodies (including Meat and Livestock Australia, the Australian Meat Processor Corporation, the Australian Livestock Export Corporation Limited, Animal Health Australia, and the National Residue Survey) to fund industry research and development, marketing, animal health measures, biosecurity responses and residue testing.28

Whether an animal is defined as a lamb or a sheep is one factor that determines the rate of levy or charge that applies under each of the Acts (for example, the rate that applies to sheep and lamb transactions also depends on the sale price of the sheep or lamb).29

The specific levy amounts are set in the:

• Primary Industries (Excise) Levies Regulations 1999

• Primary Industries (Customs) Charges Regulations 2000

• National Residue Survey (Excise) Levy Act 1998 and

• National Residue Survey (Customs) Levy Act 1998.

While the definitional changes to sheep and lamb will result in some animals being defined as lamb for longer than currently and may result in increased rates of taxation being paid, the rate of levy that applies to a particular transaction or other taxable activity depends on several circumstances and is not always solely determined by whether an animal is defined as a sheep or a lamb. Any changes to the amount of levy or charge paid will translate directly into the amounts which are distributed to industry bodies. These changes are primarily about aligning the definition of sheep and lamb in the Acts with those in the Export Control Order and, as noted above, are supported by the major industry bodies.

22. Explanatory Memorandum, p. 2. 23. Primary Industries (Customs) Charges Act, Schedules 11 and 12. 24. Primary Industries (Excise) Levies Act 1999, Schedule 17. 25. Primary Industries (Excise) Levies Act 1999, Schedule 18. 26. National Residue Survey (Excise) Levy Act 1998, Schedule 15; National Residue Survey (Customs) Levy Act 1998, Schedule 5. 27. Department of Agriculture, Water and the Environment (DAWE), ‘National Residue Survey’, DAWE website, last reviewed

4 February 2020. 28. Ibid. 29. See for example Schedule 18, clauses 4 and 5, Primary Industries (Excise) Levies Regulations 1999, made under the Primary

Industries (Excise) Levies Act 1999.

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Committee consideration At its meeting of 16 June 2020, the Senate Standing Committee for the Selection of Bills recommended that the Bills not be referred to committees.30

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee on the Scrutiny of Bills had no comment on the Bills.31

Policy position of non-government parties/independents At the time of writing this Bills Digest, no comments on the Bills by non-government parties or independent Members and Senators have been identified.

Position of major interest groups As outlined earlier (in the ‘Background’ section of this Digest), many responses received to a public consultation process in 2019 were in favour of the changed definition of lamb. During the public consultation period conducted by Holmes Sackett, only 17 per cent of completed responses did not support the proposed definitional change based on:

Not enough eating quality work has been done for sheep outside MSA pathways.

That it is not clear how the changed definition would be regulated and what it would cost.

That a precedent on this definition by New Zealand does not guarantee success in negotiating future market access

That there are already physical signals available to producers of impending change in animal classification between lamb and hogget. 32

Since the amendment to the Export Control (Meat and Meat Products) Orders 2005 no further concerns from major interest groups about the proposed changes in these Bills have been identified. According to the Explanatory Memorandum the changes in the Bills are supported by the Australian Meat Industry Council and Sheep Producers Australia.33

Financial implications These Bills are estimated to have a nil net financial impact over the forward estimates.34

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.35

30. Senate Standing Committee for Selection of Bills, Report, 6, 2020, The Senate, Canberra, 18 June 2020. 31. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 9, 2020, The Senate, 6 August 2020, p. 4. 32. Holmes Sackett, Summary of public consultation on the lamb definition review, op. cit., p. 2. 33. Explanatory Memorandum, p. 3. 34. Ibid. 35. The Statement of Compatibility with Human Rights can be found at page 3 of the Explanatory Memorandum to the Bill.

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Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights had no comment on the Bill.36

Key issues and provisions All provisions in the Bills seek to amend the definition of lamb in the Acts so that they have the same respective meanings and align with the amendments made to the Export Control (Meat and Meat Products) Orders 2005.37 This will ensure that the definitions used to determine the appropriate excises and levies aligns with that used for export purposes.

As a result of the proposed changes, the definition of lamb will change in the Acts from:

• a sheep that has not cut a permanent incisor tooth38 (or other similar wording) to

• as an ovine animal that:

- is under 12 months of age or - does not have any permanent incisor teeth in wear.39

Excise Levies Legislation Amendment (Sheep and Lamb) Bill 2020 Schedule 15 to the National Residue Survey (Excise) Levy Act 1998 sets out definitions of ‘lamb’, ‘sheep’ and ‘slaughter’ for the purposes of imposing sheep and lamb transactions levies that are duties of excise, for the purposes of investment in residue testing.40 Subclause 1(1) of Schedule 15 currently states that ‘lamb, sheep and slaughter have the same respective meanings as in Schedule 18 to the Primary Industries (Excise) Levies Act 1999’.

Item 1 of the Excise Bill repeals subclause 1(1) of Schedule 15 of the National Residue Survey (Excise) Levy Act 1998 to remove the reference to the Primary Industries (Excise) Levies Act 1999 and inserts the new definition of lamb as well as a definition of sheep and slaughter which are unchanged.

Schedule 17 of the Primary Industries (Excise) Levies Act 1999 sets out definitions of ‘lamb,’ ‘live-stock,’ ‘processor’ and ‘sheep’ for the purpose of imposing levies on the slaughter of sheep for human consumption.41

Item 2 of the Excise Bill repeals and substitutes clause 1 of Schedule 17 to the Primary Industries (Excise) Levies Act 1999 replace the current definition of lamb with the proposed definition.

Schedule 18 of the Primary Industries (Excise) Levies Act 1999 sets out the definition of ‘lamb,’ ‘live-stock,’ ‘processor’ and ‘sheep’ for the purpose of imposing levies on transactions involving sheep and lambs.42

Item 3 of the Excise Bill repeals and substitutes clause 1 of Schedule 18 of the Primary Industries (Excise) Levies Act 1999 to replace the current definition of lamb with the proposed definition.43

36. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 8, 2020, 1 July 2020, p. 37. 37. Export Control (Meat and Meat Products) Amendment (Trade Descriptions for Sheep) Order 2019. 38. Clause 1 of Schedule 17 (Live-stock slaughter) and clause 1 of Schedule 18 (Live-stock transactions) of the Primary Industries (Excise) Levies Act 1999.

39. Ibid. 40. National Residue Survey (Excise) Levy Act 1998, Schedule 15, clauses 1 and 2. 41. Primary Industries (Excise) Levies Act 1999, Schedule 17, clause 1. 42. Primary Industries (Excise) Levies Act 1999, Schedule 18, clause 1. 43. Explanatory Memorandum, p. 6.

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Subitem 4(1) of the Excise Bill provides that items 1 and 3 of the schedule apply in relation to the following actions that occur on or after 1 January 2021:

• transfers of ownership of sheep or lambs

• the delivery of sheep or lambs to a processor

• the slaughter of sheep or lambs by a processor.

Subitem 4(2) of the Excise Bill provides that the changes made by item 2 of the Bill applies in relation to the slaughter of sheep or lambs on or after 1 January 2021.

Customs Charges and Levies Legislation Amendment (Sheep and Lamb) Bill 2020 Schedule 5 to the National Residue Survey (Customs) Levy Act 1998 sets out definitions of ‘lamb’ and ‘sheep’ for the purposes of imposing sheep and lamb export charges, collected for the purposes of investment in residue testing. Clause 1 of Schedule 5 currently states that ‘lamb and sheep have the same respective meanings as in Schedule 12 to the Primary Industries (Customs) Charges Act 1999’.

Item 1 of the Customs Bill repeals clause 1 of Schedule 5 to the National Residue Survey (Customs) Levy Act 1998 to remove the reference to the Primary Industries (Customs) Charges Act 1999 and inserts the proposed definition of lamb and the definition of sheep.

Schedule 11 of the Primary Industries (Customs) Charges Act 1999 sets out the definition of ‘lamb,’ ‘live-stock and ‘sheep’ for the purpose of imposing export charges on sheep and lambs on exporters.

Item 2 the Customs Bill repeals and substitute clause 1 of schedule 11 of the Primary Industries (Customs) Charges Act 1999 to replace the current definition of lamb with the proposed definition.44

Schedule 12 of the Primary Industries (Customs) Charges Act 1999 sets out the definition of ‘lamb,’ ‘live-stock and ‘sheep’ for the purpose of imposing export charges on sheep and lambs on producers.

Item 3 of the Customs Bill repeals and substitute clause 1 of schedule 12 of the Primary Industries (Customs) Charges Act 1999 to replace the current definition of lamb with the proposed definition.45

Item 4 of the Customs Bill provides that the amendments apply in relation to the export of sheep or lambs from Australia on or after 1 January 2021.

44. Ibid. 45. Ibid.

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