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Economics Legislation Committee
04/06/2013
Estimates
INDUSTRY, INNOVATION, SCIENCE, RESEARCH AND TERTIARY EDUCATION PORTFOLIO

INDUSTRY, INNOVATION, SCIENCE, RESEARCH AND TERTIARY EDUCATION PORTFOLIO

In Attendance

Senator Lundy, Minister Assisting for Industry and Innovation

Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education

Executive

Dr Don Russell, Secretary

Ms Sue Weston, Deputy Secretary

Ms Patricia Kelly, Deputy Secretary

Mr Steven Kennedy, Deputy Secretary

Mr Robert Griew, Associate Secretary

Mr Terry Lowndes, Principal Adviser

AusIndustry Division

Ms Chris Butler, Head of Division

Ms Trish Cattell, Acting General Manager, Innovation Branch

Ms Erika Fellows, Acting General Manager, Cooperative Research Centres Branch

Mr Paul Sexton, General Manager, Customer Services Branch

Ms Lisa Peterson, General Manager, Clean Technology Investment Branch

Ms Wendy Launder, General Manager, Business Development Branch

Mr Andrew Lewis, Acting General Manager, Research, Development and Venture Capital Branch

Australian Building Codes Board

Mr Trent Bourne, Acting General Manager Australian Building Codes Board

Australian Astronomical Observatory

Ms Cathy Parisi, Ag General Manager

Corporate Division

Ms Vanessa Graham, Head of Corporate Division

Mr Brad Medland, General Manager Finance Branch

Ms Ditta Zizi, General Manager Parliamentary and Business Services

Ms Margaret Tregurtha, General Counsel Legal Services

Ms Megan Watson, General Manager Communications and Media

Ms Natalie Marsh, Acting General Manager Human Resources and Strategic Planning

e-Business Division

Mr Craig Pennifold, CIO and Head of eBusiness Division

Mr Colin Roberts, Acting General Manager, ICT Operations Branch

Enterprise Connect Division

Ms Deborah Anton, Head of Division

Mrs Michelle Henderson, General Manager, Program Performance Branch

Mr Paul Trotman, General Manager, Trade and International Branch

Ms Karen Redshaw, Acting General Manager, Business Improvement Branch

Small Business

Mr Peter Chesworth, Head of Division

Mr Mark Brennan, Australian Small Business Commissioner

Ms Anne Scott, General Manager, Business Conditions Branch

Mr Andrew Joyce, General Manager, Strategic Policy and Regulation Reform Branch

Mr Anthony Steve, Acting General Manager, business.gov.au Branch

Mr Craig Latham, General Manager, Office of the Small Business Commissioner

Industry and Innovation Division

Mr Ken Pettifer, Head of Division

Mr Anthony Murfett, General Manager, Precincts Policy and Coordination

Mr Doron Ben-Meir, General Manager, Commercialisation Australia

Ms Tricia Berman, General Manager, Innovation Policy

Mr Richard Snabel, General Manager, Industry Policy and Analysis

Ms Maryann Quagliata, General Manager, Innovation Analysis

Ms Julia Evans, General Manager, Pharmaceuticals and Transformative Industries

Manufacturing Division

Mr Mike Lawson, Head of Division

Mr Mark Durrant, General Manager, Automotive Branch

Dr Anne Byrne, General Manager Manufacturing Performance Branch

Ms Ann Bray, General Manager Food and Chemicals Branch

Mr Grant Wilson, Acting General Manager Australian Industry Participation Branch

Dr Michael Green, General Manager Manufacturing Innovation Branch

Higher Education Division

Mr David de Carvalho, Head of Division

Dr James Hart, Former General Manager, Higher Education and Infrastructure Branch,

Ms Shane Samuelson, Acting General Manager, Higher Education and Infrastructure Branch

Ms Susan Hewlett, General Manager, Office for Learning and Teaching

Mr Mark Warburton, General Manager, Funding and Student Support Branch

Mr Craig Ritchie, General Manager, Indigenous and Equity Branch

Dr Andrew Taylor, General Manager, Policy and Analysis Branch

Mr Andrew Herd, Acting Director, Funding Policy Section

Ms Kate Woodall, Director, Higher Education Infrastructure Branch

International Education and Science Division

Ms Anne Baly, Head of Division

Ms Susan Bennett, General Manager, Mobility, South and South East Asia Branch

Mr Jason Coutts, General Manager, Scholarships and North Asia Branch

Ms Di Weddell, General Manager, International Strategy Branch

Science and Research Division

Dr Rob Porteous, Head of Division

Ms Clare McLaughlin, General Manager, Research Funding and Infrastructure

Professor Ian Chubb AC, Chief Scientist

Ms Katharine Campbell PSM, General Manager, Science Policy and Agencies

Dr Roslyn Prinsley, National Maths and Science Education and Industry Advisor

Dr Simon Prasad, Assistant Director-Science

Ms Lisa Schofield, General Manager, Research Outcomes and Policy

SKA Project Office

Dr Brian Boyle PSM, SKA Project Director

Mr David Luchetti, General Manager

VET Reform

Ms Peta Furnell, Head of Division

Ms Christine Woodgate, General Manager, Commonwealth State Strategy Branch

Mr Martin Graham, General Manager, VET Transparency Reform Branch

Mrs Kathryn Shugg, General Manager, Unique Student Identifier Branch

Ms Anita Mills, Acting General Manager, Unique Student Identifier Branch

Skills Connect Division

Mr Craig Robertson, Head of Division

Mr Andrew Lalor, General Manager, Australian Apprenticeships Branch

Ms Susan Devereux, General Manager, Foundation Skills Branch

Dr James Hart, General Manager, Skills Connect State Network Branch

Dr Melissa McEwen, General Manager, Trades Recognition Australia

Ms Linda White, General Manager, Industry Skills Branch

Tertiary Quality and Student Support Division

Ms Jessie Borthwick Head of Division

Mr Adam Luckhurst, General Manager, Tertiary Quality Governance

Dr Lyndal Groom, General Manager, Student Support

Mr Stephen Murtagh, General Manager, Tertiary Regulation and Systems Reporting

Ms Mary-Anne Sakkara, General Manager, Tertiary Strategies and Income Support

Mr Craig Johnson, Director, Tuition Protection Service

Mr Vipan Mahajan, Director, Tuition Protection Service

National Advisory for Tertiary Education, Skills and Employment

Ms Sharon Robertson, Head of NATESE

Mr Philip Clarke, General Manager

Australian Workforce and Productivity Agency

Mr Robin Shreeve, Chief Executive Officer

Australian Nuclear Science and Technology Organisation

Dr Adrian (Adi) Paterson, Chief Executive Officer

Australian Research Council

Professor Aidan Byrne, Chief Executive Officer

Ms Leanne Harvey, Executive General Manager

Australia n Skills Quality Authority

Mr Chris Robinson, Chief Commissioner

Mr Justin Napier, National Manager Corporate

Commonwealth Scientific and Industrial Research Organisation

Dr Megan Clark, Chief Executive

Mr Mike Whelan, Deputy Chief Executive, Operations

Mr Craig Roy, Deputy Chief Executive Science, Strategy and People

Ms Hazel Bennett, Chief Finance Officer

Dr Tom Hatton, Group Executive, Energy

Dr Brian Keating, Director, Sustainable Agriculture Flagship

IP Australia

Mr Philip Noonan, Director General

Ms Fatima Beattie, Deputy Director General

Mr Doug Pereira, General Manager, Corporate Services Group and Chief Financial Officer

Ms Emma Deutrom, Chief Human Resource Officer and Director, HR Projects and Reporting

Tertiary Education Quality and Standards Agency

Dr Carol Nicoll, Chief Commissioner

Mr Indhi Emmanuel, Chief Finance and Operating Officer

Committee met at 09:03

CHAIR ( Senator Mark Bishop ): I declare open this continuation of the public hearing of the Senate Economics Legislation Committee into the particulars of proposed expenditure for 2013-14 for the Industry, Innovation, Science, Research and Tertiary Education Portfolio. I welcome the Minister Assisting for Industry and Innovation, Senator the Hon. Kate Lundy; the secretary, Dr Russell; and officers of the department. Minister, Secretary, would either of your care to make an opening statement?

Dr Russell : I thought I might say a few words about the changed arrangements in the department. The forward outcomes in the portfolio budget statements we are discussing over the next two days, in fact over the last two days, reflect the responsibilities of a department with a broader remit then the one I presented this time last year. The Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education was created following the 25 March 2013 machinery of government changes. This saw the transfer of the climate change functions of the Department of Climate Change and Energy Efficiency to my department. A new organisation chart reflecting the new arrangements has been made available to the committee.

This latest expansion builds on the earlier broadening of the department's policy responsibilities to drive productivity improvements and help transform the Australian economy as Australia deals with what, in fact, is a period of intense structural change. Bringing climate change into the mix reinforces the economic role of my department and recognises that the task of mitigating the impact of climate change in Australia requires economic transformation. The new department will assist industry to take advantage of the opportunities of a low-carbon economy to boost sustainable development and growth under outcome 1 while facilitating the harnessing of innovation to reduce greenhouse gas emissions under outcome 4. We continue to support collaboration between industry, small business, research bodies and tertiary education sectors to generate and use new science and research knowledge under outcome 2 and improve the nation's skill base under outcome 3. Together the four outcomes fulfil complementary roles central to securing Australia's future prosperity in a productive and competitive global economy.

Integration of the climate change function has seen some 456 staff transferred into the department. Progress has been made to address staff accommodation, IT systems and infrastructure. This has been a significant undertaking but we have the benefit of past MoG experience which we have brought to bear on our work towards a successful transition. Regular staff communications kept employees up to date with the transitional arrangements in addition to ensuring a smooth changeover for transitioning staff through a program of orientation. The department's governance structure has also been reviewed so it properly supports the overall organisation performance and meets the requirements of accountability, probity and disclosure. We will manage any cost from the new arrangements within existing departmental resources. Notwithstanding the short period between the announcement of the MoG changes and the budget being handed down, we have achieved a good measure of integration. The portfolio budget statements tabled by the minister reflect this, and we look forward to assisting with the committee's deliberations on these statements.

CHAIR: Thank you, Dr Russell. We will go straight to questions.

Ms Kelly : Excuse me, could I make a clarification on a figure provided to the committee yesterday?

CHAIR: Yes, Ms Kelly.

Ms Kelly : Senator Colbeck was asking questions yesterday about the proportion of GDP represented by our R&D spend. We provided a figure of 2.2 per cent, which represents all of Australia's R&D spend as a proportion of GDP. The senator sought a similar figure for India. The figure is 0.76 per cent. However, on reflection, I think the question that Senator Colbeck actually asked me was what proportion the 2012-13 $8.9 billion government expenditure on R&D represented of GDP, and that figure is 0.59 per cent.

Senator COLBECK: Thank you.

Senator RYAN: Could we turn to automotive schemes, please. What analysis has the department done regarding the employment impact there will be within the motor manufacturing and car industry as a result of the decision by Ford announced the week before last to close its Australian manufacturing operations by 2016?

Mr Kennedy : My group has responsibility for these issues. I will pass to Mr Durrant and Mr Lawson in a moment for further comment. We have not undertaken any formal economic analysis of Ford's announcement and the wider impact on employment, although, of course, we have our ongoing assessment of the industry and analysis of any impacts. We are aware there will be significant flow-on consequences for the supply chain that supports Ford in the longer term. They are issues that we are actively considering. You may have noticed that the government announced an extension to an existing program that supports the diversification of the supply chain. I will just pass to Mr Lawson.

Mr Lawson : We continue to work that analysis through, because Ford has made an announcement about an event occurring in about three years time. That gives us some time to work through with the companies that are directly affected what the impact on them is. We do know some companies have operations that, for example, are directly over the fence from Ford and are wholly dependent on Ford's operations. Other companies have a smaller impact. So working through exactly what the direct job implications are on a company by company basis will take us a bit of time. The other thing to note is that, with the time available before the decision occurs, companies will hopefully continue to work their diversification plans.

If Ford had made a decision to stop today, it would have a different impact on jobs than a decision to stop in some years time. It is a work in progress to analyse the detailed implications for the supply chain.

Senator RYAN: Given the discussions we have had here before, have you done a sort of back of the envelope analysis?

Mr Lawson : We look at those issues, but to actually have a firm understanding of the sort of impact on companies does take a discussion with those companies to get a proper understanding. A theoretical one does not add a great deal to something. Given that Ford has made the announcement and we are able to talk to those companies and understand how they are going to respond, we will be able to come to a solid understanding of the implications over time.

Mr Kennedy : It would be potentially quite misleading to simply take the numbers that the gentlemen would have discussed in the past for the flow-on economic impact of Ford and say that would be the job losses associated with the closure, because, for the reasons that Mr Lawson is outlining, firstly, firms have some time to change their operations, so it is not clear how the impact will flow through. Secondly, we noted the program that would support their changes. While they have certainly discussed the broader economic reach of these automotive companies through the supply chain, one cannot simply take that number and turn it into a job loss number. I think that would be misleading.

Senator RYAN: I appreciate that you have the dynamic effects of what may or may not happen in the coming few years before the operations cease. I will turn to that soon. So we could talk then of jobs at risk, couldn't we? Do you have an idea of how many jobs are at risk in the supply chain, as well as the 1,200 at Ford we know are going? Have you done any analysis about the jobs at risk, rather than predicting job losses? I take your point on that.

Mr Lawson : I think the same analysis applies. To properly understand the jobs at risk takes an engagement with those companies to understand what actions they are going to take and how much of their work is actually dependent on Ford. Even if it is not dependent on Ford, that may have implications for the viability of companies, because their viability may well depend on economies of scale. So it is not just the direct Ford impact; it is understanding the issues within the company as to what those implications are. So when projecting this number of people working in these companies making bits for Ford, it is not really a matter of just adding those up. That is the process we—

Senator RYAN: I appreciate that it is hard to predict job losses because of the dynamic effects that may happen over the coming three years, but if we use the multiplier, which we have spoken about here so often, that the department assigns to the benefit of having direct jobs in the motor vehicle manufacturing industry, then surely we can apply the same multiplier to a concept of the number of jobs at risk? I am not saying they are going to go. We have had a long debate about how rigorous that model is, but surely given that you stick by that model in terms of promoting the benefits of vehicle manufacturing then we have to concede that that model also applies to a concept of jobs being at risk. There has to be a reverse multiplier as well as a positive multiplier, hasn't there?

Mr Lawson : Yes, but as we have explained the multiplier analysis depends on macroeconomic conditions at the time and the circumstances for those particular companies. To sort of call out a particular number that might occur as a result of this foreshadowed October 2016 close would potentially create concerns in those companies that are affected. We do not want to—

Senator RYAN: With all due respect I do not think the statement you made was going to increase the level of concern. The level of concern is already there, particularly for those you described as being over the back fence from Ford at their two major sites. But if one is talking about the multiplier in terms of the overall employment effect of activity, then that cannot just be activity that occurs or grows, then the multiplier has to apply when that activity is no longer is there, even if not as a specific predictor of numbers that might go, as an indicator of the concept of jobs at risk. Surely within the department you have in your mind and in your internal discussions a concept of the number of jobs at risk from this particular announcement and you are trying to use policy to attenuate that risk?

Mr Kennedy : Certainly on the last point the government has announced a range of policies to deal with the adjustment. To the extent the adjustment goes to this issue you are talking about—what you are describing as jobs at risk—the government has indicated a response to facilitating that adjustment. I take your point that there is no doubt a dynamic adjustment that—

Senator RYAN: But do you also take my point that the multiplier has to be applied in both directions, because the flip side is saying 'without this industry we will not have these 200,000 jobs'.

Mr Kennedy : Perhaps the point where we disagree is that turning that into the notion that these are jobs at risk—it is just not a label or perhaps a way we have approached the issue. We are certainly approaching the issue from the point that you raised where we expect an adjustment, and it will be the case that there are flow-on consequences in the sense in which you are talking about a multiplier that flows back through parts of the sector. But we also expect firms to dynamically adjust, some but not all. So, to sort of say that the multiplier equals X and X is now the number of jobs at risk, I am not sure that is a reasonable way to kind of come up with—

Senator RYAN: I think it would be unreasonable to say that was the number of jobs that would go. I think it would be entirely unreasonable to suggest that, because of the dynamic effects. But it is not unreasonable to say they are at risk, because that has been the logic for promoting support for the industry. So it cannot just be a logic that promotes support; it has to be a logic that also underpins risk when a company leaves manufacturing in Australia. Does the department not have a number in its head about how many jobs are at risk because of the Ford announcement?

Mr Kennedy : As Mr Lawson said, we are certainly working through in detail where firms are more likely to be more heavily impacted than other firms. Then from a bottom-up sense we are working through where some of those firms might be. And as Mr Lawson said there is a program designed to look at those to assist those firms. But we have not done a bottom-up or a top-down calculation saying that there are this number of jobs. We do not have a precise estimate in the manner in which you are putting it to us. But we certainly understand that these regions will be affected and, as I said, the government has announced some programs that—

Senator RYAN: And they are part of the dynamic affects that attenuate the risk.

Mr Kennedy : Yes.

Senator RYAN: So, does the department stand by the multiplier of four? Do you stand by the multiplier that every job in the motor vehicle manufacturing industry supports three others—a multiplier of four.

Mr Lawson : We have put that multiplier on the record a number of times if we have talked about how it was analysed as an aggregate at a point in time. There are those sorts of factors. And that multiplier was four.

Senator RYAN: So do you think it unreasonable if someone says that, therefore, there are this many jobs at risk. I am not saying they are losing them. You have announced policies in place to try to attenuate that. The effectiveness of those will be seen in the future.

Mr Kennedy : Perhaps the point—and it might only be a minor point of difference—is that we appreciate the negative economic impact that flows from the multiplier. It is just whether one turns all of that into a notion of jobs at risk.

Senator RYAN: In economic terms explain to me how I have a multiplier that works to justify activity but that it literally does not work the other way. I am having trouble understanding how there is a multiplier—if there are terms or assumptions in this multiplier that I have not taken into account I am happy to have them explained, as you previously explained the multiplier. If I were to provide support for a company today that would employ 1,200 people in the motor vehicle manufacturing industry, you would say that that multiplier would still have the impact of creating three other jobs in the supply chain.

Mr Kennedy : You are exactly right to be talking about the symmetry of the multiplier—positive or negative, in terms of its economic impact. I think the issue with the negative impacts—thinking about the multiplier working in the other direction—is then to convert that number into the jobs at risk type of calculation you are trying to come up with. That is the bit that we feel less comfortable about.

Mr Lawson : That multiplier—sort of partial equilibrium analysis—looks just at that direct impact within that sector in a macroeconomic sense, as I indicated earlier, depending on whether people get jobs somewhere else and are we in a growing economy. Those things all affect both the implications of a multiplier on the upside and the downside. In addition to that, that sort of aggregate number of four for the whole sector will not necessarily apply to each individual company. Ford makes casts and engines and things like that, so you may well have different multipliers between those different sectors—because we have the capacity to engage with the firms to work out a precise number.

Senator RYAN: Am I correct in saying that your analysis of the multiplier for the industry cannot be applied to the decisions of one company because of the different profiles within the industry? So, if I were to say 1,200 jobs would be added to the industry, the multiplier would have effect. But 1,200 job losses from one company within industry do not necessarily have the same effect. Is that what you are suggesting?

Mr Lawson : No, I am trying to get at—we have come up with a multiplier of four, based on various bits of analysis, aggregate. That tells an aggregate story. But if you are looking at the specifics of a particular company increase or decrease, depending on the macroeconomic circumstances you will get different numbers of jobs created in some macroeconomic aggregate sense. The multiplier is a sort of static concept that looks at direct linkages along a supply chain—ignores the fact that the economy can make other changes. So it is that sort of concept of jobs at risk or jobs going that is the thing that we have—

Senator RYAN: If I was not clear enough, I am referring to a similar analysis: the jobs at risk entirely within the industry. You are quite right, presumably the overall impact changes depending on the ability of people to find other work. But your analysis of the multiplier does not take that into account. It is merely looking at the industry and the supply chain, which is what I am trying to get at now: the impact of this announcement from Ford. I am trying to apply the same analysis.

Dr Russell : Maybe I will have a go at trying to unravel the issues here. I think what we are trying to come to grips with is, as my colleague has mentioned, the general equilibrium of how things work their way through. When we talk about the multiplier, it is looking at the industry after it is all settled down. You will notice then that there will be three jobs linked to one. After all the various relationships within the economy have worked their way through, there will be a general equilibrium type set of relationships.

What we are talking about here is a shock, conceivably, to that general equilibrium. As with any shock, all sorts of things could happen. Where the whole thing settles down again after that shock, we would expect the relationship to be much as before. But that is not really what we are interested in at the moment. We are interested in what we are going to do or what lies ahead for Australian industry because of the shock of Ford leaving. This is an interesting shock, as my colleagues have suggested, because it is not happening now. It is happening in a number of years time—conceivably in three years time. So all sorts of forces will be at work. One of the important forces will be what happens to the exchange rate over the next three years. The Australian exchange rate is quite volatile and it does have lots of links with other world events. That is a dynamic that we cannot come to grips with.

The other thing is that with the car industry because of the long history of government involvement the outcome over the next three years will be very dependent on what government does. Already the government has taken a number of steps to work with the supply chain. They will be one of the key aspects of the multipliers. I think it is a tricky situation to take the relationship that exists from a general equilibrium perspective and try to turn that into the likely consequences of the closure of Ford in three years time.

Senator RYAN: You mentioned there the long involvement of the government. We have a couple of examples of this to draw upon from just the last few decades—Nissan in Melbourne and Mitsubishi in Adelaide. I appreciate it will be different going from five to four, four to three and three to two. There will be some difference there. But also the policies you talk about presumably have some sort of objective in mitigating the impact of the Ford closure. How are you measuring the effectiveness of mitigating the impact of the Ford closure? We could come back here in a few years and I could be asking Mr Lawson, Mr Durrant and Dr Russell about how effective these policies were. But if we did not have a target in mind or something to measure it by, how would we measure the effectiveness? Is it against the number of people employed in the industry now? That would reflect the current multiplier being applied. Is it assuming that there will be some that do go and therefore mitigating the absolute fall in employment? How do we measure the effectiveness of these policies that you are referring to?

Mr Kennedy : The best insight you will get about the overall effectiveness of the policies will be around the economic circumstances of the regions most affected by the change. Frankly, it is very difficult to build up from a very bottoms-up approach to measure these things. So you are right in that the department will be closely monitoring the effectiveness of these programs and undertaking that type of program evaluation. But, frankly, the clearest sense you will get of the effectiveness of the government mitigation of such changes will be the economic circumstances of the regions most effected.

Senator RYAN: So you are saying I am going to measure the effectiveness. What regions are we talking about? I have a pretty good idea of what the regions are, but what regions is the department saying?

Mr Lawson : Perhaps I could just step back a moment. Looking at those past events, the Mitsubishi one was seven weeks notice, not three years notice—so, very different. Mitsubishi, in the southern suburbs of Adelaide, was a very different economic circumstance. The other issue to note is that the policy response is much wider than an automotive policy response. So there is a range of activities to support the employees. There are some things for the employees—some new things that Minister Shorten has recently announced and some new skills measures that Minister Emerson has announced for the employees. So there is an employee aspect. Then there is a communities aspect, and I think you were getting to part of that issue, and that is those so-called industry innovation funds—the $30 million funds that the Commonwealth has put in for those two regions. And then there is the policy response to deal with the supply chain, and that is the automotive new markets program. So, that sort of multiplier story was around the supply chain. There is a response to the supply chain, but the range of responses that a government makes to these sorts of events is much broader than that direct supply-chain response. It is calibrated to the size of the event and the circumstances of the community in which that event occurs.

Senator RYAN: By 'event', do you mean the number of job losses at Ford, with their announced closure?

Mr Lawson : Yes. So, it is 1,200 job losses spread in two regions—Broadmeadows and Geelong, in the employment categories of Outer West Melbourne and Greater Geelong. Those obviously have a different regional impact to something that happened in the CBD.

Senator RYAN: So, the two regions that are being deemed affected are the Broadmeadows region and the Geelong region.

Mr Lawson : Correct.

Senator RYAN: In a supplier sense, though, it is also likely that there will be an impact in what you might call the south-east manufacturing hub in Melbourne, is it not?

Mr Lawson : Indeed. There is data available on the density of automotive employment in different regions—Dandenong certainly shows up. Some of the impact will be in other states. That is why the government has this sort of integrated package of measures to respond. There is a regional response about those communities and then there is supply-chain response in this automotive exercise, and that supply-chain response can follow the companies to wherever they are in Australia.

Senator RYAN: Mr Kennedy, a minute ago you mentioned that the success of these programs will be measured by the sort of economic environment of the regions.

Mr Kennedy : Mr Lawson started to go to this issue. To the extent that there is a negative—or, as Dr Russell put it, an economic shock, although this is an unusual one, because it is rare that you see something like this foreshadowed to the extent that this is foreshadowed—how well policy has mitigated the local or the regional aspect of that negative shock will give you some insight into the overall effectiveness of the policy. Other regions, for example, have seen closures of businesses—significant businesses in those regions. In the main, through both policy and the emerging dynamism of local businesses that responded positively, we have seen those regions recover.

I was just trying to give a sense. Being particularly precise—taking, say, the jobs at risk concept and then saying, 'Did we mitigate all those jobs at risk?'—would I think be a pretty flawed exercise. But if one went back to a region where there had been a negative economic shock and businesses had not diversified and they were not generating the economic circumstances one would expect to see in the broader community, that would tell you that perhaps policies had not been that effective in mitigating the circumstances they had approached.

Senator RYAN: So, there is no measure and there is no policy in place to mitigate the impact of this decision on the automotive sector? All you have spoken about there, Dr Kennedy, is the impact on regions—which is very important—particularly, I would say, in Broadmeadows, which I think has been more dependent upon manufacturing in recent years. So, there is no yardstick by which these policies are going to be measured for their success or otherwise in maintaining employment in the automotive sector?

Mr Kennedy : I was not meaning to give you the impression that this was just about the regions. Mr Lawson was talking about the integrated package and the extent to which there are measures to support the industry more broadly, and the supply chain. One needs to be careful. Dr Russell was raising this issue in the context of the exchange rate. The automotive industry in the broad response will also, frankly, depend on the way the government supports or interacts with the industry more broadly; the broader economic circumstances the industry faces, be it through the exchange rate or any other means; and their own internal competitiveness and how well they compete. It is difficult for us public servants to tell you exactly how that is going to go, but we cannot say that the automotive industry will be exactly this or that in the future.

Senator RYAN: I understand that. I understand that there are policies in place, and I am happy to have a brief description of those if there is, with that, an answer to the question of what the measure of the success or failure of those policies is. What is the metric?

Mr Lawson : With those programs, we measure the outputs.

Senator RYAN: The one specifically dealing with the Ford announcement.

Mr Lawson : Yes. So, in terms of the supply-chain program—which is the automotive new markets program, which is a relatively new program that has had one round seven months ago, and the government has decided to put additional funding into that program to have additional rounds available to Ford suppliers—the measures of success that we ask of the companies that make applications to that program are their investment, what new business they got. But I think the issue my colleague Dr Kennedy was getting at is that those measure of the success of the program are only part of the story for the industry as a whole. The reality is, with small programs like that, that their broader impact on the total number is going to be swamped by the macroeconomic conditions, in particular the exchange rate. So, the future of this industry will depend very much on the exchange rate. And those sorts of things will determine the number of jobs that end up in the industry as it goes through its adjustment. But particular programs will help firms adjust or support specific jobs. But to go to a macroeconomic number and say that that will be the number of jobs in the industry coming out of those small individual programs would be misleading.

Mr Kennedy : Senator, would it be helpful to talk through the package as it was and then, in the way Mr Lawson has, respond to what you would expect with each part of the package?

Senator RYAN: I would be interested in new components. We have discussed the existing packages at length. We do not need to recount those but, very briefly, I would be interested in the new components. I am familiar with most of it, but there is the additional money you mentioned for the new markets program.

Mr Kennedy : Or perhaps even Mr Sexton might like to comment on the operations of the funds. He has had some experience with those in the past—the two funds of a more regional nature that have been announced by the government to support the activity we were talking about before. Would you like to hear some comment on that?

Senator RYAN: Briefly, yes, only because I know we are constrained for time. Anything that I would not have gotten from a press release or various announcements would be good—if there is something that has not been public.

Mr Sexton : I am not sure what you have read about the funds, but one of the largest responses to the Ford closure of course is the announcement by the Prime Minister of these regional funds. One will be located in Broadmeadows and the surrounding area, and one will cover the Greater Geelong area. Some $39 million has been committed by the combined Commonwealth and state governments, and there is an expectation that Ford will also contribute to those particular funds. Their focus is very much on the regions, as my colleagues have already mentioned, recognising that the employees come from those regions. We have tried to identify regions where those employees work and live and conduct their ongoing day-to-day lives. So, the money will go into those regions in order to create new jobs and to diversify those regions and assist them regions at a time when they have significant unemployment.

Senator RYAN: So, there is no program for impacted suppliers in south-east Melbourne? This is a regional based program; it is not a supply-chain based program. There is no program in place for people outside these regions whose employment is indirectly impacted, potentially, by this Ford announcement?

Mr Lawson : That is not correct. Let us clarify, just to give a good understanding of the regional programs. They do not necessarily provide jobs to the people who lost their job; they are about creating new jobs in that region, and that is why these regional funds will start soon. There are things specifically for the workers in terms of skills assessment, skills training and things like that. There is a specific automotive program that exists. About a year ago it was extended on to 2017. So, that is available for them. In terms of dealing with the supply chain, that automotive new markets program—the automotive supply chain diversification program—will follow Ford suppliers to wherever they are. That is an additional $10 million to a pre-existing $30 million program that is jointly funded by the Commonwealth and Victoria and run as a combination between the Commonwealth, Victoria, and South Australia.

Senator CAMERON: In relation to the multiplier, I heard what both Dr Kennedy and Secretary Russell said about that. I am convinced that it is not a static analysis that you make; you have to look at the other implications. So, could someone tell me about the implications of the government's continued support for other areas of the car industry—that is, Toyota and GM—and whether that has any implications for workers in Geelong if we can maintain a viability in the rest of that industry sector?

Mr Kennedy : As I mentioned in an earlier answer, it is hard to predict how the broader automotive sector will respond. They certainly have been facing and do face difficult circumstances with the exchange rate where it has been and where it continues to be, as Dr Russell was saying. And certainly the sector itself has made clear that the support it has received over a long period from a number of governments, state and federal, is important to its existing operations. So there is, if you like, a whole set of dynamic factors that will determine the success or otherwise of the automotive industry. And there are particular circumstances surrounding Ford's foreshadowed exit from the market—in particular, its inability to access or open up export opportunities in the same way that the motor vehicle producers have. So, I think, Senator, that you are right to point to the broader dynamics that sit around those industries. There are many things that will determine their success or otherwise. We should be careful of trying to be too precise about how big or how small these industries will be in the future, but we do know—or we can be reasonably confident—that there will be a number of factors that will go specifically to their success or otherwise, both their broader economic circumstances and their own capacities. And it has been clear that the government's involvement with the automotive industry has been important in the past, and certainly the companies have indicated that it is likely to be important in the future.

Senator CAMERON: Probably unlike most sitting around here, I did work in the car component sector. I worked at GM in Pagewood many, many years ago. So I know what it is like when car plants close down; it is not something new, unfortunately. But when I worked in the components sector, the company I worked for, National Springs—which is now Monroe Springs—had to find other markets. They actually did replace, as I understand it, some of the imported components that came from overseas some years ago. Is that an option for the components sector?

Mr Kennedy : Certainly for the components sector there are options around competing against imports but also seeking out exports, finding their way into the global supply chain, which can give them an opportunity to get better-scale economies, if you like, rather than just being connected to local production. Again, without being prescriptive—it is not for a public servant to say what will determine success or otherwise—one would imagine that in the Australian economy the opportunities to connect to research and development would be important, in particular given the significant amounts of money that go into research and development in Australia and the fact that we have a relatively highly skilled workforce. There is the opportunity for these companies to get on to the cutting edge of what products are being developed, and Mr Lawson can probably talk to some success stories we have had in that area in the past and get scale. That is just two dimensions. But certainly Australia, being a relatively wealthy country, is naturally going to have a higher cost base than other countries. But for firms to be likely to be successful, one would imagine that they would need scale and they would need to be connecting to global supply chains, and they would be also likely to be perhaps more successful when they are developing the products you were talking about, Senator Cameron, where they get to those new and cutting-edge products that are coming into the market.

Senator CAMERON: So, the issue of scale is important, and the domestic scale of the industry is important in order to be able to nurture some of these components-sector companies. Before we go anywhere else in terms of multipliers in this discussion: there are policies around to take $500 million out of the support for the car industry—which is the coalition's policy, and I am not particularly asking you to comment on that. But I would ask you to comment on any statements that have been made by the car companies in relation to a loss of government support for the car industry. And could someone also identify what support measures are in place around the world to support their car industries?

Mr Kennedy : I will ask one of my colleagues to comment on the mechanisms in place around the world. The vehicle producers Ford—in the past and now, because it is continuing till 2016, or it is foreshadowed that it intends to—and Holden and Toyota have all made statements in the past. Apologies that I do not have them in front of me, but they have all made statements in the past about the importance of government support for their ongoing operations. That is just a matter of public record. In terms of the support that is offered to motor vehicle producers around the world, it is of a variety of natures, but I might ask Mr Durrant to comment.

Mr Durrant : Australia has the Productivity Commission, and in that way information about support from governments to the industry is very obvious. Other countries around the world do not have such bodies. It is very hard therefore to compare what we are very obvious about and others are somewhat opaque about. For example, in Thailand, the Board of Investment of Thailand offer incentives, including tax holidays up to eight years, guarantees, support services, reductions or exemptions to import duties, machinery and materials to attract automotive businesses to their country. We have seen in the US where they have actually have lines of credit subsidies. They have had $1.3 billion in budgetary appropriation through various car plans. There is $700 million to the industry through R&D tax credit benefits. So there are a whole range of direct and indirect policies that different countries around the world provide to the automotive industry in order for them to continue business in the countries.

Senator CAMERON: One of the multipliers that the car industry is very strong on is research and development. Holden, according to their chief financial officer, spent $197 million in new product development, and they have spent over $1 billion in the last five years in research and development. That is Holden, without bringing Toyota in, and I want to come back to Ford. These are major multiplier drivers in the industry, research and development, are they not?

Mr Durrant : Correct, yes. The ABS reports that the automotive industry spent $694 million on research and development in 2009-10—the latest numbers.

Senator CAMERON: You indicated that the issue of government assistance was on the public record. What is the public record saying about the investment by car companies if government support is gone?

Mr Durrant : I might refer to a statement by the Federal Chamber of Automotive Industries in relation to the opposition's plan to—in their words—cut vital funding from the automotive industry. The chief executive at the time, Andrew McKellar, said that this was an ill-advised proposal and would severely damage the local vehicle manufacturing industry and endanger existing and planned investment projects. So there is an indication there from the peak association of its considerations of the effects.

Senator CAMERON: In relation to Ford, there has been a well-known impediment to Ford actually engaging more effectively in the supply chain in Australia and internationally, in that they have taken deliberate policy decisions not to export. Is that correct?

Mr Durrant : Over time I think the Australian managers of Ford, at various times, have had an aspiration to export, but I think they found it difficult to get a mandate from head office.

Senator CAMERON: So that has meant that Ford have had a particular problem that the other car companies have not had.

Mr Durrant : Yes. It is a strategic issue.

Senator CAMERON: It is about scale.

Mr Durrant : Yes, and recognising that the Falcon is a unique Australian product. So, from Ford's point of view, it is about how to find an international market for a unique product.

Senator CAMERON: It should be clear that Senator Ryan is being a bit of a hypocrite in terms of his sudden concern for car workers. We know that he has made statements in the past about—

Senator RYAN: Get off the soapbox, Dougie.

Senator CAMERON: the terrible government intervention. We know he is a modest member, whatever that means, and it is all about government not getting involved in the car industry. So, for anyone that is listening in, we should know what Senator Ryan is all about—it is about making sure that the government does not intervene to develop a decent car industry in this country. Understanding that position, can someone explain to me this argument that we are supporting the car industry too much? Has anyone got any overview of the Sapere Research Group analysis that was done on the support that is provided to the Australian car industry compared to other industries? There was some argument that the Productivity Commission and the OECD had demonstrated that our support for our car industry was way above that of other countries. That was an argument from the flat earthers in the coalition as to why we should stop supporting the car industry.

Mr Durrant : Yes. On 14 November 2010, the OECD released a report, an economic survey of Australia. That contained a chart that showed Australia had the second-highest per capita level of assistance to its automotive industry amongst the OECD economies, behind Sweden. The chart was reproduced by the Productivity Commission in its annual report. The chart itself was prepared by the Grattan Institute using data from the OECD's Policy responses to the economic crisis: investing in innovation for long-term growth. However, there were a number of concerns raised with the methodology used by the Grattan Institute. The OECD, in the end, issued a corrigendum noting that the amount of subsidies to the automotive sector may not include all the forms of government support and covers different time periods. In fact what happened was that the New Car Plan for A Greener Future was announced and basically the report condensed that support, which was over 13 years, into one or two years, so you had an overestimation of that support, and it did not take into account, for example, support from the American government through direct loans to the car companies. As a consequence of that, the FCAI were concerned that information that was in the public domain was incorrect, and they commissioned the report that you referred to, the Sapere report, and that report showed—

Senator CAMERON: Sorry, I missed that. Who commissioned that?

Mr Durrant : The Federal Chamber of Automotive Industries.

Senator CAMERON: So it is their report.

Mr Durrant : That is correct. That report showed that Australian support for automotive industry, in terms of US dollars, was about $18 per capita, compared with $28 in the United Kingdom, $90 in Germany, $96 in Canada, $147 in France, $265 in the US and $334 in Sweden.

Senator CAMERON: So the modest members in the coalition should understand that we only provide modest support compared to the other countries.

Mr Durrant : Yes. On top of those types of numbers, it is worth considering what our tariff regime is and how it is the third-lowest tariff in the world, at five per cent for automotive products, behind only Japan and the US.

Senator CAMERON: And, even though we have signed a free trade agreement with Thailand, there are still impediments to us exporting into Thailand.

Mr Durrant : Yes. Unfortunately the tax regime in Thailand—basically an excise on the size of engines—does make it quite difficult to export into Thailand. But Ford is in the process of exporting some Territories up to Thailand in an effort to break down those barriers.

Senator CAMERON: I am flabbergasted. Ford is now exporting.

Mr Kennedy : They are small numbers, I understand.

Senator CAMERON: Yes, small numbers. Is anyone at the table aware of any country in the world that has a reasonably sized car industry that does not provide support to that car industry?

Mr Kennedy : No.

Senator CAMERON: So there are tariff barriers in some areas, is that correct?

Mr Kennedy : For some countries, yes.

Senator CAMERON: Non-tariff barriers?

Mr Kennedy : Yes.

Senator CAMERON: Tax holidays?

Mr Kennedy : Yes. Mr Durrant went through some of the forms and mechanisms. There are a range of support mechanisms but, to our knowledge at the table, I think, where automotive industries are located they are typically receiving usually a range of government assistance.

Senator CAMERON: Has there been any analysis to challenge this peer research group, has that stood up to any critiques?

Mr Durrant : No, I am not aware of anybody who challenged it.

Senator CAMERON: In relation to the government's policies to try and assist Ford workers, you are saying that you have to look at the timeline on this, that we will get three years to try and deal with it. Will that give us another three years to work with GM and Toyota to try and source more of their externally sourced components back into Australia? So get the supply chain more domestically focused as internationally focused.

Mr Durrant : Yes. There has been a number of programs that have been directed at improving the capability of the supply chain in order for them to support not only the Australian industry but the industry overseas. We have had some good results through the automotive capability development program. It has been undertaken by a group under the AutoCRC—ASEA is its acronym—which has been working with firms for a number of years to improve their capabilities. I am very happy to say that, through the program, both Holden and Toyota have been working directly with their suppliers to increase their capabilities, not only to do a better job and win more business with them but also to integrate those suppliers into their international supply chains.

Senator CAMERON: One of the comments I saw last week was that Geelong would probably be better off in the longer term because you are getting rid of the smoke stacks. I found that a bit bizarre and I thought it demonstrated that there was a lack of understanding about exactly how the car industry operates. The car industry is not described as a smoke stack industry anywhere that I have seen around the world, is it?

Mr Durrant : No, I think it is recognised as being at the high end of manufacturing.

Senator CAMERON: Can you just give us some of the details of some of the high-end types of processes both in management systems and the technology that is used and why countries actually want to have a car industry?

Mr Durrant : There are a number of facets from a management point of view and a production point of view. There are the just-in-time processes that the car industry has developed over time and that are used right throughout manufacturing and high-technology manufacturing ability to have a product land on the production line at the right time, being the right colour, being the right specifics for a variant that might be going past. It has been taken up by many other industries. There are the skills, for example, that workers receive through the automotive industry. It is an interesting statistic that over three-quarters of workers who have automotive related skills—this is skills through diplomas, advanced diplomas or even higher education degrees—actually work in non-automotive industries. Because of those skills that are generated by automotive the whole manufacturing area benefits from them.

Senator CAMERON: As I said, I worked in the car industry and I moved from the car industry to other industries and took skills I learnt there to other industries. So Boeing have indicated that many of their skilled tradespeople come from the car industry. Is that correct?

Mr Durrant : Yes.

Mr Lawson : Yes, skilled tradespeople and designers and engineers from the automotive sector have been used in the aerospace sector, and in the mining resource sector. People have commented on using lean technologies and debottlenecking and those sorts of processes in the resources sector, from things that they learnt when they were in automotive.

Senator CAMERON: When you talk about multiplier effects, it is not just multiplier effects; it is spreading skills around the nation, isn't it?

Mr Lawson : Yes. The economic term is 'externalities'. They are very hard to measure, all those spillover benefits. What things does the rest of the economy get from the existence of a high-tech sector? As my colleagues in CSIRO say, those skills walk on two legs. As in your own case, it is the people moving from that sector with that training to be introduced in other sectors that is a large part of the mechanism by which those spillover benefits occur. So it is the technological innovation, lean technologies, just in time, measuring what you do, and having a strong, measured relationship with your customer along the supply chain. Those are factors that are very strong in the automotive industry and are weaker in Australia in many of the other industries. Bruce Griffiths, the chairman of Futuris, an automotive company, is working with us on the rail industry, as a rail supplier advocate, trying to bring in some of those supply chain understandings to the rail industry. The companies, the primes, have been quite responsive to recognising that, if they are going to win work in the—­believe it or not—growing rail rolling stock industry in Australia, they need to bring in more modern and competitive manufacturing technologies, and they are learning some of those from the automotive industry. So those are the sorts of hard-to-measure benefits that come. In the Bracks review of the automotive industry some years ago, there was some work done, commissioned work by academics, on those sorts of benefits, and some effort was made to try to measure some of those spillover benefits. So that is on the public record from the Bracks review.

Senator CAMERON: The mining industry have gone through a boom. They are now not in a bust, but they are certainly not in a boom phase. ­The boom phase has driven the dollar to levels that are making it very difficult for a lot of these companies. What are these companies saying about the level of the dollar that is important for them to gain competitiveness, because we are going to get the argument that, if the workers were only non-unionised, if they were only more flexible, if we could fix all the workers' problems, then everything would be okay, but the strength of the dollar is one of the major issues, isn’t it?

Mr Lawson : Yes. If you are an internationally traded company and you measure your costs, you are measuring your costs in international currency. When companies talk about having a high cost structure, that is at the moment predominantly driven by the very high exchange rate. You will see things such as I have seen in this place—a discussion between workers and employers around a table, where the employer said, 'Our wage structure has gone up 30 per cent,' and the employees said 'We haven't had wages rises of 30 per cent; it's an exchange rate move.'

So I think it is well established that the high exchange rate is putting very large pressures on the trade exposed sector, manufacturing and others. The automotive companies have given us numbers around, I think, the 80s. The automotive companies would like to see a lower rate because they are truly competitive in their export markets when it is below parity. But they recognise that we are at approximately parity and that they need to put business plans together to ensure their survival and growth at the sort of exchange rate that we have. We may wish for another, but they have to put business plans in place given what the exchange rate actually is, not what they would like it to be.

Senator CAMERON: Given the issue of the mining industry driving the dollar up and jobs being created in mining and then disappearing, how important is it that we have a manufacturing sector that can smooth out some of the cyclical and structural changes in the mining industry?

Mr Lawson : Actually, it is the movement of the exchange rate that allows those changes. To the extent that you have growth in one sector—the mining sector in this instance; and most of it is an investment growth rather than jobs growth, although there is some jobs growth—resources have to shift out of the other sectors into those sectors. So the exchange rate is part of the actual smoothing and adjustment process. Notwithstanding that, the traded sectors that are not in that boom do experience a great deal of pain and pressure as a result of that. In an economy like ours, where we have the terms of trade driving the exchange rate around somewhat more in the longer term—I am not talking day-to-day movements—than some other economies, that does mean there is more pressure on the manufacturing sector than there might be in other economies. However, it has to be said that Brazil, for example, having had the same resources boom, has a big automotive industry, so those sorts of pressures do occur in other economies as well.

Senator CAMERON: Thank you.

Senator Lundy: Chair, Senator Cameron was asking some questions before about responses of the representatives of both Toyota and GM. Both of those companies have emphasised the importance of the ongoing partnership between their companies and the government. I have a couple of quotes here that I think satisfy your query, Senator Cameron. On 6 December last year, Mr Yasuda of Toyota noted that governments around the world recognise that a healthy manufacturing industry supports the hundreds of thousands of jobs in automotive and puts billions of dollars into the respective local economies. I am reminded that, on 2 February, Mike Devereux on the ABC AM program said:

We certainly … will not be able to do business in Australia without the Australian Government's investing along with the auto industry.

Then, on 24 May, Mr Devereux of Holden warned that 'swift action' was needed from political leaders to ensure the Australian auto industry remained viable. He added:

We believe the industry can survive in Australia. The industry needs swift action to make Australia's automotive policy settings clear, consistent and globally competitive as quickly as possible.

I think that satisfies your query about some of the views expressed by the respective companies.

Senator CAMERON: Thank you, Minister.

Senator RYAN: After the free character assessment provided by Senator Cameron and the series of half volleys, I will actually return to a question. That was a lovely segue, Senator Lundy, because in mid-2011 Mike Devereux, the managing director of GM Holden, highlighted the sovereign risk element of the government's chopping and changing policies by the breaking of over $1 billion worth of promises, cutting the remainder of the Green Car Innovation Fund without any notice, junking the albeit appalling 'cash for clunkers' policy and reducing the LPG Vehicle Scheme by nearly $100 million. At the time, the FCAI said:

The decision to abolish the Green Car Innovation Fund comes as an unwelcome surprise and it sends an adverse signal to international investors responsible for future investment in the Australian industry.

So the problems Mr Devereux was referring to are directly a result of the decisions taken by the government, without notice, that made the investment environment uncertain and, in his words, brought in the element of sovereign risk. What do you say in response to that?

Senator Lundy: In response to that, clearly this government remains committed to the automotive industry, and we have been able to demonstrate that with our programs. We have been able to make adjustments to our programs to ensure not only that they are fit for purpose but that they are designed to enhance the long-term sustainability. Notwithstanding this very disappointing announcement by Ford, we are continuing to work very closely with the industry, as you have heard this morning, with our forward-looking programs to ensure its ongoing viability in the current circumstances. Whilst there are a lot of factors involved in that, issues relating to the supply chain, the preservation of jobs and improving the prospect for both GM and Toyota remain at the forefront of our considerations.

Senator RYAN: They are great talking points, Minister, but never before has the head of a car-manufacturing company in Australia questioned the sovereign risk elements of dealing with a government. Never before has a government stripped out of a program a billion dollars that it had announced only a couple of years earlier and, without notice, closed down the Green Car Innovation Fund, which companies had not applied for but had incurred costs doing work for. And it did all that overnight. So, in relation to those talking points about what you want to do in the future, your government's behaviour towards this industry has been demonstrated by the decisions it took to strip money out.

Senator Lundy: Senator Ryan, I think the sovereign risk you are talking about is the prospect that—

Senator RYAN: Mike Devereux said sovereign risk, not me.

Senator Lundy: What we are facing now is a country that has a choice between a government that is demonstrably committed to the auto industry and, with all due respect to your questions in estimates this morning, an opposition that is clearly not committed. So to come in here today and suggest that somehow you are defending the nature of public investment in the auto industry when your own party is a proponent of withdrawing that investment—and indeed, further than that, abandoning the Australian automotive industry—is a little bit rich.

Senator RYAN: I am not going to have that. Despite the attempts to sledge by Senator Cameron, and now by you, Senator Lundy—

Senator Lundy: I am feeling provoked, Senator Ryan, because you are sitting there purporting that somehow—

Senator RYAN: I am holding you to account for decisions the government has made.

Senator Lundy: there is some criticism of this government's commitment to the auto industry. Far from it. We are demonstrably committed, and you have previously spent your time on these estimates committees challenging our commitment and our investment in the Australian automotive industry.

Senator RYAN: Again, I have spent my time in these committees ensuring that there has been value for the Australian taxpayer and challenging the effectiveness of government programs, the way this government has administered programs and the assumptions made. That it is very typical of this government.

Senator Lundy: Characterise it like that, Senator Ryan, but, with all due respect, your party opposes the continued viability of the auto industry.

Senator RYAN: No it does not. Who said that? What is the quote?

Senator Lundy: That is demonstrated by your withdrawal of investment, which is contained in your policies.

Senator CORMANN: What have you achieved? Nothing.

Senator RYAN: What about the billion dollars you withdrew?

Senator CORMANN: You achieved the closure.

Senator Lundy: There are statements made by your representative in this portfolio area, consistently, that the automotive industry does not have a viable future here. We believe it does. You believe it does not.

Senator CORMANN: You have achieved nothing. You have wasted billions of dollars on nothing.

Senator Lundy: We are very proud of our ongoing investment. You can yell at me all you like, Senator Cormann. I am just stating the facts of the matter. We are absolutely committed.

Senator CORMANN: You failed. You pushed up the cost of production by bringing in the world's biggest carbon tax. You have failed.

CHAIR: Order! The minister has the floor. She is engaging in a dialogue in response to questions from Senator Ryan. Show her courtesy and we will all get on better.

Senator RYAN: I was going to move onto questions.

CHAIR: Minister, have you finished?

Senator Lundy: I would like to make the point, as I was saying to Senator Cormann, that we can stand by what is an exemplary record of investing with our auto industry, to ensure its ongoing viability. Notwithstanding the disappointment of the announcement by Ford, we continue to do so, and no yelling across the table today or backflipping on the position will change the fact that it is this government that is committed to the future of the auto industry here and that the opposition policies clearly demonstrate they are not.

Senator RYAN: Okay, I will move on to questions. Australians judge people—government versus the coalition—by their record of trustworthiness. I refer to the Sapere report that you were referring to in questions with Senator Cameron earlier. My understand of this report is that it was a calculation purely of the amount of money spent by government and that the report did no modelling of the comparative outcomes of that spending, including in relation to the production volumes of cars in those countries. It was purely an analysis of government spending, was it not?

Mr Durrant : Budgetary expending.

Senator RYAN: Yes, so it was an inputs analysis entirely about how much governments spend, not about the comparative value of spending and not about the outputs in relation to that spending.

Mr Durrant : No. It was about determining how much is spent by different governments.

Senator RYAN: So it is in no way representative of the size, scale, effectiveness or efficiency of the industry in any of those countries mentioned; it is merely an analysis of how much budgetary assistance is provided to the industries.

Mr Durrant : And compares that per capita.

Senator RYAN: I have some questions I would like to move to that I think are more factual in nature. Has the department had any discussions with Ford regarding how many cars it now expects to produce each year up to the end of 2016? If not, when do you expect to have that discussion?

Mr Durrant : It is part of the business plans that are provided by all participants in the Automotive Transformation Scheme. Ford, along with Holden and Toyota, provides the value of production. Ford also provides the amount of vehicles they intend to produce.

Senator RYAN: That presumably will change, given the announcement and given what has happened in the past when there have been changes to manufacturing arrangements. When do you plan to have an update or a discussion with Ford about those numbers changing, because I am assuming you have not had a business plan given to you in the last 12 working days that reflects the announcement they made.

Mr Durrant : We are in discussion constantly with Ford on numerous issues. They have not really discussed their production numbers in recent times. As we discussed last time, Senator, Ford was doing a number of scenarios on its position, and it is only two weeks ago that it announced the outcome of that planning.

Senator RYAN: Do you expect to have a number from them—a discussion with them soon that will come to a number in terms of value?

Mr Durrant : Yes.

Senator RYAN: Would one or three or six months be closer to when that discussion might happen?

Mr Durrant : Yes, that is correct, as part of—

Senator RYAN: One, three or six months? Which one would be closer to the update to that number?

Mr Durrant : They do not necessarily have to update until November 2013.

Senator RYAN: But do you expect it will happen before then?

Mr Durrant : I expect that they may provide us with those updated numbers, yes.

Senator RYAN: What is the department's assessment of how Ford's decision will effect local production numbers for Holden and Toyota?

Mr Durrant : I would suggest that Mr Devereux at Holden is actually working hard at competing with Ford for Falcon numbers. He may well be considering that he has an advantage now that he will try to take advantage of.

Senator RYAN: The department does not have an assessment of that?

Mr Durrant : No. It is competitive.

Senator RYAN: Do you plan to plan to do one?

Mr Durrant : No. I do not see the necessity.

Senator RYAN: You will just rely on the business plans from Holden and Toyota when they are updated in November this year.

Mr Durrant : Yes.

Senator RYAN: This may be a question for Senator Lundy: will Ford's decision change the overall amount of money the government will make available through the ATS to 2020 and, if so, in what way? I am assuming that Ford is likely to continue to apply to access the ATS in the remaining years of its manufacture.

Mr Kennedy : You are right, Senator. That is a matter for the minister. The ATS, as you know, is legislated with the amounts also contained within the legislation I believe through to 2020, but it is entirely a matter for government around decisions around the policy.

Senator Lundy: I will take that on notice for the minister.

Senator RYAN: Has the department had discussions with the minister regarding changes to the ATS (?) given the Ford announcement?

Mr Kennedy : As often discussed in these places, we advise the minister on a whole range of matters constantly around automotive policy and many other policies. We typically, in this place, would not go to the specific details of that advice, but we provide careful—

Senator RYAN: I carefully worded the question. I have not asked for the content of the advice. I have asked: has the department had discussions with the minister or advised the minister regarding any changes to the ATS since the Ford announcement?

Mr Kennedy : Perhaps the clearest answer I can give is: we provide policy advice on all aspects of automotive policy to the minister on an ongoing basis.

Senator RYAN: The clearest response that I will give to that is: the fact that you have advised the minister is not a ground to refuse to answer a question. I am not going to waste the committee's time by having the argument. If it is advice to cabinet, that is fine. That is covered by the public interest immunity claim, but there are other avenues to access this information. I would suggest that, if other avenues to access information produce information that officials and ministers will not allow to be presented to Senate estimates committees, it does not reflect well on the process or the departments, because you are not establishing a claim of public interest immunity to this discussion. You are simply saying you do not want to tell us what you advised the minister.

Senator Lundy: I think the official did satisfy the question, if you reflect on how you asked it. It was satisfied perfectly by the answer that was provided.

Senator RYAN: Maybe in another universe, Senator Lundy, but I asked a specific question.

Senator Lundy: Perhaps you could ask a more specific question, but do not verbal the officials in the way that you just did.

Senator RYAN: We have had this discussion over and over again at this committee. I am entirely respectful of the existing claims to which material should not be released into the public domain, but advice to a minister, and not to be providing it, is not a ground to not answer a question at this committee. I am sick of being given that answer.

Senator Lundy: You received an answer.

Senator RYAN: I did not receive an answer to the question.

Senator Lundy: They said that they do provide advice to the minister on these things.

Senator RYAN: Is the department making any assumptions regarding the number of cars that will be produced in Australia following the closure of Ford's manufacturing facilities? Have you modelled out whether you are assuming that there will be a decrease, a constant, or an increase in the number of cars manufactured following Ford's announcement—appreciating, given your previous answers, that macroeconomic conditions like the value of the dollar have some impact?

Mr Lawson : I think those previous answers reasonably explicitly answered that question. We get periodic updates of the business plans from the companies. We think about whether those business plans are realistic or not, but, apart from those macroeconomic circumstances three years away, it is yet to be seen what the impact on the marketplace is of the announcement by Ford. When Nissan closed down, it had a significant impact on Nissan's sales. When Mitsubishi closed down, it did not have a significant impact on Mitsubishi's sales, when they announced the changes. So there are a large number of factors that go into that.

Senator RYAN: But this is an incident where you rely on an example, where you rely on the business plans rather than make your own.

Mr Lawson : We make our own assessment of—

Senator RYAN: The business plans.

Mr Lawson : the business plans.

Senator RYAN: But you do not undertake your own modelling work or assessments other than starting with the business plans as submitted by the companies.

Mr Lawson : It is true to say that the basis of our analysis is on those business plans.

Senator RYAN: When was the government first informed by Ford that it was intending to close its manufacturing operations in Australia?

Mr Lawson : The 19th of May.

Senator RYAN: In The Australian Financial Review on 25 May, there was an article that said that the government and the industry department were briefed ahead of the January 2012 funding announcement, which we have previously discussed, that Ford would likely stop manufacturing once subsidies ran out. Was that article correct or is such a statement correct?

Mr Lawson : It is incorrect. That statement that you have made is incorrect. But you said 'once subsidies ran out'.

Senator RYAN: That was the quote. I will read the quote again from the article.

Mr Lawson : But certainly we were not told prior to 19 May that Ford would be closing. That was the first the government knew of that decision. All of the companies have said that if there is not co-investment then that continued existence depends on continued government support for the—

Senator RYAN: So such briefings from Ford did not occur with the department?

Mr Lawson : Correct.

Senator RYAN: I will turn briefly to the impact of emissions standards. This has been an issue of discussion with respect to the Ford announcement. Am I correct in saying that the government abandoned an earlier round of proposed changes to emission standards in Australia which flagged a move to the Euro 5 standard by 2012 and Euro 6 standard by 2016? Were they abandoned or delayed?

Mr Durrant : Emissions standards are the responsibility of the Department of Infrastructure and Transport.

Senator RYAN: But this is a manufacturing issue because the ability to manufacture compliant engines in Australia, as I understand it, is a significant issue for manufacturers. Is this something either you have provided advice on or that has been raised with you by the manufacturers—compliance with new emission standards?

Mr Lawson : Certainly in the case of the Ford closure it was not about emission standards. They very clearly stated that it was about their capacity to produce a sufficient number of cars for the Australian economy, that they were unable to achieve scale—

Senator RYAN: I do not think that anyone would suggest that there is one reason. It is a maelstrom of reasons with negative impacts. Did the department make representations to the department of transport about the risks that new emission standards would pose to motor manufacturing in Australia?

Mr Durrant : We regularly talk with our colleagues in Transport. The emission standards are in place and have been for some time. I suppose, as part of the tensions between departments, positions are put. For example, the department of transport asked me to test whether some of the positions they had received from the car companies were over emphasising different issues.

Senator RYAN: For example, emission standards?

Mr Durrant : Yes—which we were able to provide a perspective on.

Senator RYAN: Can I take from that that the industry department made representations regarding the impacts of emission standards and the potential risk that would pose to engine manufacturing in Australia?

Mr Durrant : I think 'representations' is a bit strong. We certainly discussed implications with our colleagues in Transport.

Senator URQUHART: I want to ask about the impact of the carbon price. There have been a lot of figures thrown around—50, 400 or whatever. Can you tell us what the correct figure is?

Mr Kennedy : This is an issue that was discussed as part of this department in the environment committee when the climate change divisions were there. In that committee, Ms Wilkinson spoke to the issue. She outlined the department estimates across the three Australian vehicle manufacturers as being approximately $50 per vehicle. My understanding is that that is a calculation that effectively is based on the National Greenhouse and Energy Reporting data and the vehicle production numbers in years 2011-12 and 2012 and simply looks at the price on emissions and the vehicles produced and then comes up with a calculation in the order of $50 per vehicle.

Senator URQUHART: Do you know where the $400 that we keep hearing comes from?

Mr Durant : In the lead-up to the announcement of the carbon price the FCAI and FAPM, which is the Federation of Automotive Products Manufacturers, commissioned a study. That study was before the price was announced and was based on $30. It did not take into account any of the systems measures that were part of the government's package. In that way it is a gross number rather than a net one.

Senator URQUHART: So, the correct figure is actually $50.

Mr Kennedy : The department's estimate in the manner outlined is $50 a vehicle.

Senator URQUHART: Thank you.

Senator RYAN: By November later this year you will receive the updates and you will conduct your analysis, hopefully, on some of them soon with respect to the number of vehicles proposed to be manufactured in Australia after the Ford closure. If there are fewer vehicles to be manufactured—and I do not think that would be an unreasonable assumption about, not necessarily, the whole amount that Ford sell and manufacture—one, I think, would not be unrealistic in assuming there could be a slight decline, even if temporarily. That would change the amount the government envisaged to spend on the ATS because the calculations for the number of vehicles would have changed, would it not?

Mr Lawson : I think your calculations are ignoring that the companies also export. The calculation of the impact of a reduction in the sales by Ford to the domestic market would be how much of that is taken up by domestic suppliers as opposed to imports, but also what is happening over that period to their exports.

Senator RYAN: Unless there is growth elsewhere, does that not mean that the amount of money spent on the ATS presumably would decline, unless there is growth either in exports or from one of the two manufacturers?

Mr Lawson : There is a modulation process with the ATS—the capped ATS of $300 million, 55 per cent of which goes to the motor vehicle producers, are the headline rates of assistance, but then to ensure that the expenditure is not over the $300 million the amount of money that they get is modulated down. Currently it is around 70 per cent.

Senator RYAN: There is a bit of headroom there is what you are saying.

Mr Lawson : Yes.

Senator RYAN: It comes down to assumptions around volumes in those outyears and whether or not that headroom is initially taken up. It is only if that headroom is taken up does your assumption about the amount of money paid out through ATS then decline. Is that correct?

Mr Kennedy : Senator, I will ask my colleagues to comment on this as they have a much more detailed knowledge than me. Monies can roll over to subsequent years.

Mr Lawson : There are two phases of the program, 2010-15 and 2016-2020. Within each of those phases under the legislative special appropriation, if those funds are not used in one year, they roll over to the next and so on. The schemes are designed to accommodate a range of changes.

Senator RYAN: If I could turn back to the carbon tax issue that Senator Urquhart raised. Has the department commissioned or received external analysis on the full extent of the impact of the carbon tax on the car industry?

Mr Kennedy : Not that I am aware of. I am responsible for the climate change division but I do not have the officials with me who manage those divisions. There may be some questions here that I will need to take on notice. They are in the environment committee and, as I mentioned to Senator Urquhart, this question was asked in that committee.

Senator RYAN: They have moved around various committees. They started in finance a few years ago, I remember.

Mr Kennedy : I refer to the answer given in that committee. As far as I am aware no external analysis has been commissioned of the nature you just outlined.

Senator RYAN: Are you aware of external analysis that the previously climate change department, previously various other structures, have commissioned on the full impact of the carbon tax on the car industry?

Mr Kennedy : I am not aware of any external analysis.

Senator RYAN: In a 2009 submission to the Victorian government Ford made the following claim in relation to the then proposed CPRS:

The industry operates on very fine margins, with the ability to recover increased costs through increased pricing significantly curtailed due to the competitive pressures within the market.

They also said:

… the proposed emission trading scheme could well impact on its—

Ford Australia's—

manufacturing activities by way of increased costs, …

They continued:

A competitive cost structure is crucial, and Ford Australia welcomes and encourages any effort to remove or reduce costs associated with conducting business in Victoria.

Do you accept that Ford's claims were accurate in that 2000 submission, when it also said to a Senate inquiry: 'The impact of the CPRS could well be in the annual order of many millions of dollars via increased energy costs.' Do you accept the validity of those two?

Mr Kennedy : Senator, I do not think there will be officials here that would have done an analysis of Ford's claims, and I am not sure of against what the claims are made. Are they against the previous versions, the Carbon Pollution Reduction Scheme, when they made those claims or clean energy plan. So, I apologise, Senator, but I am not in a position to evaluate their claims.

Senator RYAN: You referred earlier—I think it was you, Mr Kennedy,— to the departmental cost analysis of it being $50. Aren't they only for the direct liabilities incurred under the National Greenhouse and Energy Reporting scheme? They do not take into account the input costs of various components such as higher electricity costs and energy costs impacting people along the supply chain like components manufacturers.

Mr Lawson : My understanding is that those were analyses on the automotive companies, so that $50 is for the automotive companies and does not link to the supply chain. One of the reasons the PWC-FAPM study was wrong was the absence of the jobs and competitiveness program, with the free permits being put into their modelling process. So, steel and so on had 94.5 per cent free permits. So, the cost structure of the supply chain does not go up as much as some of those early analyses predicted.

Senator RYAN: But the thing is that the department's analysis does not include supply chain costs. It only includes direct costs to motor manufactures and not across the whole gamut of the carbon tax impact. The car manufacturers did not get any permits; the electricity companies did.

Mr Lawson : Electricity into the car companies is part of their NGER estimate. On the other side, one needs to take into account the impact on the car company. The full effect is not its competitive disadvantage against its competitors, because the competitors also have it.

Senator RYAN: Mazda does not.

Mr Lawson : They have the costs, because there is a relatively high cost associated with the air-conditioning gases associated with cars, so those costs apply at the border for the imports.

Senator RYAN: Just to clarify, there was no direct assistance for the auto manufactures with the carbon tax. That is a correct statement, isn't it, Mr Lawson? No direct assistance provided directly to the car manufactures.

Mr Lawson : They are eligible for the Clean Technology Investment Program.

Senator RYAN: But there were no free permits, no direct assistance for the carbon tax.

Mr Lawson : Correct.

Senator RYAN: You said that they do not suffer a competitive disadvantage to their competitors with respect to air conditioning. That is one that is applied at the border, but there is no carbon tax burden at all for the manufacture of a Mazda 3 that is shipped here from Japan, is there? I just want to clarify that because not all of their competitors are Toyota and Ford or Holden.

Mr Kennedy : Senator, we do not have the officials who are well placed to talk about the extent to which carbon prices are applied in other countries. I am aware of some of the issues, but we would have to start to take some of those issues on notice, I am afraid. There are a range of, if you like, climate change related policies that have impacts on companies, but I am not well placed to tell you what they are in Japan.

Senator RYAN: I am talking about the Australian carbon tax here. I am very conscious that I cannot expect you to know about everything around the world, but Mr Lawson did mention the competitive disadvantage impacts of one company vis-a-vis another. I am just trying to disaggregate and clarify that.

Mr Kennedy : To be frank, I do not think we would be well placed to do that disaggregation. I think Mr Lawson is just trying to illustrate that upstream and downstream costs that may have been affected by the carbon cost should not automatically be attributed back to automotive costs because some apply more broadly, as you have just discussed, and some might not be passed through because they are effectively an international price that is set internationally and jobs and competitiveness assistance is in place to support those industries that are exposed to that cost.

Senator RYAN: This is my point: not all costs can be passed through. We have confirmed that there has been no direct carbon tax assistance applied to motor vehicle manufacturers in Australia and that the department's analysis of $50 only applies to the direct costs that manufacturers pay, not to the cost of their supply chain. It is also true that no free permits or support was provided directly to component manufacturers for the carbon tax.

Mr Lawson : Steel is a component for the production.

Senator RYAN: Yes, but not directly to the component manufacturers. That is an input cost. I would like to turn to the assistance packages. On what date did the government first suggest to Ford that it should contribute to a restructuring or other fund—the one we were discussing earlier in the morning—for assistance to workers at Geelong and Broadmeadows?

Mr Lawson : 19 May.

Senator RYAN: The same day you were told by Ford?

Mr Lawson : Yes.

Senator RYAN: Who within the government raised it with Ford?

Mr Lawson : The minister.

Senator RYAN: Over each of the use of the forward estimates what is the profile of spending on the programs announced in the wake of the Ford announcement?

Mr Kennedy : Are you talking about the programs in response to the Ford announcement?

Senator RYAN: The assistance programs announced in the wake of the Ford announcement. The regional adjustment fund that Dr Russell commented on earlier and the extra money for the new markets initiative are the two I am aware of.

Mr Kennedy : We have the numbers that have been announced for the programs in aggregate, but we do not have a year-by-year breakdown. Typically that would be published in a subsequent set of budget estimates.

Senator RYAN: MYEFO, for example?

Mr Kennedy : Or they will have to check in PEFO if it is before MYEFO.

Senator RYAN: And if all goes as announced earlier in the year, most people would expect that to be the case.Is it correct that $470,000 has been given to the Federation of Automotive Products Manufacturers as part of the Ford announcements?

Mr Durrant : Yes.

Senator RYAN: And what is that for?

Mr Durrant : I will defer to the Department of Employment, Education and Workplace Relations because that is in their portfolio.

Senator RYAN: So that money is all being administered by DEEWR?

Mr Durrant : I think it is a package of $5.1 million.

Senator RYAN: Has the department sought or been given any guarantees by Ford that it will definitely continue manufacturing in Australia until October 2016 as announced a couple of weeks ago?

Mr Kennedy : Ford have indicated what the position is and I do not think it is for the department to seek guarantees as such. I am not aware of any other discussions, but we have taken the Ford announcement at face value.

Senator RYAN: If conditions were to deteriorate for Ford between now and October 2016, is there anything that would stop Ford from leaving earlier than that any contract they may have signed with government?

Mr Kennedy : Ford decisions are a matter for Ford.

Senator RYAN: In the special $34 million contract that was announced in late 2011 were there any aspects which, if Ford left early, would allow some sort of recovery of funding? Is that all paid at once or is it partly prospective depending on future performance until 2016?

Mr Durrant : When we have discussed the contracts previously we have indicated that, as usual, there are clawback provisions if certain milestones are not met and conditions not adhered to. That is a general comment about contracts. We have also discussed previously how these are commercial contracts and therefore we cannot discuss the detail of them.

Senator RYAN: So you cannot tell me whether those contracts have any condition in them that may or may not lead to non-payment of money by the government if Ford left before October 2016?

Mr Durrant : That is right.

Senator RYAN: When you made your assessments and recommendations to the government with respect to the $34 million payment to Ford, did you give consideration to the redundancy and associated clauses in Ford's EBA at the time?

Mr Durrant : No, that was not part of our considerations in general. But we did look at the costs associated with the initiative and the investment associated with initiative. As we discussed before, it is about working out the investment gap. So costs in general were part of the proposal, but the individual down to an EBA level was not involved.

Senator RYAN: Are you aware of claims made with regard to the clause that was inserted in the EBA after the government struck the $34 million deal with Ford that increases the payments to workers in the event of a plant closure?

Mr Lawson : Certainly we have seen the newspaper reporting of that.

Senator RYAN: I am trying to understand what you said about considering the EBA versus line items.

Mr Durrant : As we have discussed before, co-investment is about identifying an investment gap where a company wishes to make an investment and has its own resources of a level and requests the government to support them to fill that gap. In analysing the merits of that support, we would look at the costs associated with that investment, and involved in the production of motor vehicles is labour costs as a total, not as an individual line item with respect to an EBA.

Senator RYAN: In designing the arrangements for the economic adversity adjustment fund, do you take into account Ford's own redundancy arrangements? Given the discussion we had earlier, they are focused on regions and workers.

Mr Lawson : Large companies meet their obligations and they have EBAs. It has been the case that small companies have closed not meeting their entitlements, and the government has the fair entitlements provisions to provide a guarantee that entitlements are provided to the employees when a company goes out of business.

Senator RYAN: If I am correct, Ford needs to negotiate a new EBA from July 2015. Do you have any knowledge of that?

Mr Lawson : DEEWR deals with industrial issues. But my understanding is that Ford does need to renegotiate its EBA at about that time.

Senator RYAN: Will the complexion of that agreement, given that it does have the potential to impact on what we might call the closing costs and the impact upon workers, have the potential to impact on the amount of money that is allocated to various assistance arrangements?

Mr Lawson : One would expect that Ford will meet its obligations. Ford has stated that it will meet its obligations. So we do not see a moral hazard issue there with them arbitrarily increasing their EBA arrangements and the cost being imposed on taxpayers. If Ford and its employees negotiate an EBA that has increased or made other changes to termination entitlements, that will be a matter that Ford has to pay out on. It will not be an impact on the taxpayer.

Senator RYAN: We have previously discussed the interrelationship between state and federal packages, for lack of a better way of putting it, to the motor vehicle manufacturers. I am not expecting you to disclose anything that you should not disclose, but Ford's decision to stop car manufacturing in Australia and lose 1,200 jobs came about seven or eight weeks after Holden announced it was slashing its workforce by 500 people. In response to that announcement the South Australian Premier, Jay Weatherill, said the company's job cuts were inconsistent with the agreement he had struck with them in 2012 and his government might withhold its promised payment of $50 million of taxpayer funds. Do you agree that the announcement was inconsistent with the South Australian component of the deal with Holden?

Mr Lawson : It is not really for us to comment on the content of the South Australian arrangements. It was not inconsistent with our own contract.

Senator RYAN: That is where I was going next. In 2012 there was a $215 million deal for Holden from the Commonwealth. That announcement of 500 jobs going was not inconsistent with that deal?

Mr Lawson : For the Holden deal, no money has been paid out yet; it is about future investment. Our experience has been that, on these sorts of large investment arrangements, the company is making its contribution and is seeking to maximise its return from that contribution. If everything goes well, that will lead to increased employment or maintained employment. In the interim, before that investment occurs, the companies can only produce the cars that they can sell and they can only employ people to produce the cars they sell. So there may be circumstances like the one that occurred with Holden, where that co-investment arrangement with governments is about the maintaining their competitiveness after 2015. If in the interim the macroeconomic conditions prevent them from—

Senator RYAN: I just want to clarify this point. No money from that $215 million deal with Holden has yet been paid out?

Mr Lawson : Correct.

Senator RYAN: It is dependent upon future investment?

Mr Lawson : Correct.

Senator RYAN: I gather it is for post-2015 investment.

Mr Lawson : Post-2015 production.

Senator RYAN: But you mentioned that it was dependent upon future investment.

Mr Lawson : And investment starts in anticipation of future models.

Senator RYAN: So 2014?

Mr Lawson : 2013-14.

Senator RYAN: Do we have publicly available breakdowns of that? I cannot remember off the top of my head the payment years.

Mr Kennedy : Those numbers will be detailed in the portfolio budget statements.

Mr Lawson : They tend to reflect their investment profile.

Senator CAMERON: Mr Devereux, in response to some of the attacks from the coalition on support for the car industry, has indicated that, over a 12-year period, GM received $1.8 billion in support and that generated $32 billion in investment and economic activity. Could you give us, on notice if you have to, what the government's view is on that figure?

Mr Kennedy : I will take it on notice.

Proceedings suspended from 11:00 to 11:16

CHAIR: The committee will come to order. We continue with examination of budget estimates.

Senator RYAN: On page 26 of your annual report, there is a table that shows that just over $256 million was paid to the three motor vehicle manufacturers in the year to 31 March 2012. Are you able to provide a more up-to-date figure on what has been paid to motor vehicle manufacturers since 1 January 2012 through the ATS?

Mr Sexton : The three passenger motor vehicle manufacturers are part of the capped scheme and the figures that I have include supply chain participants, so we would have to break it out.

Senator RYAN: If you would take that on notice, and also for the other categories and tables, that would be great. Is it possible to go through each of the car programs now and receive an indication of what has been spent and what remains to be spent over each year of the programs through to 2022?

Mr Durrant : I can do that.

Senator RYAN: Including the capped and uncapped breakdowns, if possible. You are normally very good—you can do these from memory, Mr Durrant!

Mr Durrant : Under the Automotive Transformation Scheme, the capped element, because it is a special appropriation and therefore is committed—and we discussed how it rolls over—for 2013-14 there is $324.2 million. That is an example of it rolling over: it would be $300 million, but $24 million has come from the year before. The next year is $300 million, then $300 million and a further $300 million in the following two years. Then, in the out years, from 2017-18, there is a declining rate: $258.4 million in 2017-18, $175.0 million in 2018-19, $91.7 million in 2019-20 and $25 million in 2020-21.

Senator RYAN: That is capped?

Mr Durrant : That is capped, yes.

Senator RYAN: And the other, if I may?

Mr Durrant : The uncapped across the forward estimates are $67.5 million in 2013-14, $52.9 million in 2014-15, $36 million in 2015-16, $46.8 million in 2016-17 and $16.5 million in 2017-18—the capped element finishes then.

Senator RYAN: Sorry, would you speak up a bit. It is not your fault; my hearing is not great today.

Mr Durrant : The capped element finishes in financial year 2016-17, and in that year $16.5 million is available. That is uncommitted at this stage.

Senator RYAN: Can we go to the Automotive New Markets Program?

Mr Durrant : Obviously, it will not include the recent announcements.

Senator RYAN: Sure.

Mr Durrant : In year 2013-14, there has been $1.8 million committed, leaving $5.8 million to be committed. In 2014-15, $900,000 has been committed, leaving $6.2 million to be committed. In 2015-16, $400,000 has been committed, leaving $3.7 million uncommitted.

Senator RYAN: I will go through other remnants later. Senator Lundy, in 2008 Senator Kim Carr was the minister responsible for this area. Was he deceiving Australians when he said Ford was 'dramatically increasing their export strategy in the Asia-Pacific region and about to launch a major export strategy'?

Senator Lundy: I suspect not. I am not able to answer that question because I am not Senator Carr. And I cannot take it on notice because I am not sure the minister would be able to answer that question either. Perhaps I can ask the officials if they can assist.

Mr Durrant : Senator, could you help me with the time frame, please?

Senator RYAN: In 2008, Senator Kim Carr said Ford was 'dramatically increasing their export strategy in the Asia-Pacific region and about to launch a major export strategy'.

Mr Durrant : Senator Carr may have been referring to the research and development that Ford undertakes for its affiliates around the world, including in India at that time, where they did the design and engineering for the small car, the Figo.

Senator RYAN: The reason I used that quote, Minister and Mr Durrant, is that, since the Ford announcement, we have had other statements by ministers. Minister Emerson, on 26 May, said:

… Ford should have realised that they needed to integrate into that global supply chain system earlier.

Minister Albanese, on 29 May, said:

We know that Ford …didn't have in place an appropriate export orientation behind their future agenda.

We had Ford being given a special $34 million—money that was reallocated that was not previously accessed through the various schemes—at the same time as Minister Emerson, on 26 May, said that Ford 'were working on a business model that didn't really offer long term prospects'.

Senator Lundy: Senator Ryan, before I ask the officer to answer, I should say, in light of that information provided, Senator Carr was obviously not misleading when he made the statement.

Senator RYAN: We have had a long discussion about the $34 million that was granted at the end of 2011. We became clear, through the course of that discussion, that this was money that had not previously been accessed through the performance based components of the various schemes we have in place. Yet, at the same time that money was being provided, we had ministers outlining how the company never had an export strategy in place, and this was the reason for its problems and the subsequent announcement that was made only a few weeks ago.

Mr Kennedy : I cannot go directly to the issue of the minister, but it is certainly something that we discussed. The Ford production side, the production of vehicles, is not linked to the global supply chain in the way that Holden and Toyota are linked in, and it does not fit in, as Mr Lawson outlined earlier, to the One Ford policy. Design and engineering, on the other hand, is part of Ford's business which is globally integrated. They compete for business all around the world to design cars, as Mr Durrant outlined, all around the world. I cannot provide commentary or even infer what the ministers were trying to say. It is factual in nature that the production side of things was not linked globally in the way that Holden and Toyota's production is linked globally. The design and engineering, which Ford indicated it wants to continue doing here, is globally linked. I am not commenting on your earlier remark; I just wanted to be clear about the two parts of those—

Senator RYAN: I appreciate that. I think a lot of people have expressed surprise at those observations that ministers have made, given that only 15 or 16 months earlier the arrangement was made to give Ford $34 million. All that $34 million has been paid by the Commonwealth, has it not?

Mr Kennedy : Correct.

Mr Lawson : Senator, you might remember that that $34 million was towards a $100-and-something million investment by Ford in a model refresh for 2014 to 2016, so it was—

Senator RYAN: So it bought two years; is that what you are saying? The $34 million bought two years—the model refresh that we now know is going to finish at the end of 2016?

Mr Lawson : In effect, it certainly contributed. Ford have committed to saying that they will continue with that refresh to mid-2016. But, as we talked about before, Ford were going through a lot of scenario planning at that time to see if they could find a business plan to go forward. They had not concluded those processes at that time. The ex ante, before the event, decision is about saying, 'This will give a refresh. It will increase the capacity of Ford to sell more cars.' It supports their significant—

Senator RYAN: But you knew at the time it was not part of the ONE Ford strategy, it was not plugged into the global supply chain and they had no export manufacturing strategy.

Mr Lawson : They were working through whether they could find an export strategy. When they came to see the minister on that Sunday, they said: 'We have worked through these options, looking at every export strategy we could find. We were unable to find one that makes sense.' But certainly those were the grounds on which the government engaged with Ford—for them to explore those options.

Senator RYAN: If I could turn to a couple of questions on some numbers. Across the forward estimates there is no further money to be paid to grant recipients under the Green Car Innovation Fund, or are there some disbursements remaining?

Ms Cattell : Across the forward estimates there is $47.5 million in this financial year, just $6.1 million in the next financial year and $5.2 million in 2014-15. There is no money beyond 2014-15.

Senator RYAN: So the $47.5 million is in this financial year?

Ms Cattell : Correct.

Senator RYAN: Can you outline which projects have not been fully paid, which projects are awaiting payments?

Ms Cattell : The projects that have not been fully paid as yet are two projects for Holden, one project for SMR Automotive Australia, one project for Hirotec Australia, one for Toyota Australia and a project for Nissan Casting Australia.

Senator RYAN: Can you take on notice the amounts for those project payments, or are they commercial-in- confidence?

Ms Cattell : We will take it on notice. If I could clarify: are you after the amounts remaining to be paid?

Senator RYAN: Yes.

Ms Cattell : Certainly, Senator.

Senator RYAN: We have had discussions in the past about the Green Car Innovation Fund and whether a formal audit was undertaken. If I recall correctly, there was going to be an audit undertaken. Has that work commenced?

Mr Durrant : It has, yes.

Senator RYAN: Who is it being undertaken by?

Mr Durrant : It is an internal review by the department, evaluation by the department.

Senator RYAN: Has it concluded?

Mr Durrant : It has not concluded. Participants are being surveyed in person today, actually. So it is well underway.

Senator RYAN: When is it expected to conclude?

Mr Durrant : The third quarter 2013.

Senator RYAN: Is it expected to report publicly?

Mr Durrant : It is the usual position of the department to publish a summary of evaluations, but this is at the discretion of the minister.

Senator RYAN: Are there any publicly available criteria by which it is being assessed?

Mr Durrant : A steering committee has been set up by executives within the department and they have agreed a list of issues to be addressed. I might check with our corporate people whether we make that available or not. It is not usual.

Mr Kennedy : A colleague just noted that the evaluation criteria are in line with those outlined by the department of finance. We do not have those here in front of us but we could make those evaluation criteria available to you.

Senator RYAN: That would be much appreciated. Is it possible to take on notice the members of the steering committee? Are there only departmental officials or are there external advisors on it?

Mr Kennedy : We are happy to tell you who they are. They are internal officers.

Mr Durrant : Terry Lowndes, our industry consultant/adviser, Mr Butler and Mr Lawson.

Senator RYAN: You had responsibility for administering the fund as well?

Mr Durrant : I had the policy responsibility and AusIndustry had the—

Ms Butler : delivery responsibility, and Mr Lowndes is the independent person on that group.

Senator RYAN: He is a bit outnumbered, isn't he?

Ms Butler : I am very kind!

Mr Kennedy : We are a very independently minded set of officials.

Senator RYAN: I know, but, as a general rule, do you have people who design the policy and administer the payments comprising two-thirds of the review panel? Is that common or uncommon? I know in some places it would be uncommon. I know, Mr Durrant, that you have had a longstanding interest in this area. I am not trying to impugn anything. You did have a role in providing advice and designing the policy. Ms Butler, you have had a role in administering the program.

Mr Kennedy : Typically the valuation would be discussed by the executive board, which is the secretary and the four deputy secretaries, and if we were concerned or if Mr Lowndes had any concerns that his views were being put at contest by the other members then we would take it up there.

Senator RYAN: I appreciate it is not likely to happen that way. If this is the way that it is commonly done across the Commonwealth, I am happy to hear it. I know in some places it would not be this way, that people who have designed and administered programs will have a different perspective and fresh sets of eyes. I do not think that is unreasonable to suggest. That is why we require all sorts of people to have independent reviews done.

Mr Kennedy : The people administering the program and the policy partners, if you like—which is the way it is designed in the department—often have quite strong views on how either party has performed their role. Perhaps you could get them out of interview; it is a fair point. We could have had an entirely independent panel who went and interviewed those parties. But we have typically found that it is useful to have those people involved because they will impart insights that one would not get from people who were not deeply involved. But I take your point: there are other ways to construct the panel.

Senator RYAN: This was a departmental decision, an executive board or the secretary’s decision to conduct the review this way?

Mr Lawson : It is a departmental decision about whether it is an internal or external review. There are various layers of reviews. This is I think relatively standard.

Mr Kennedy : Mr Lowndes is a first assistant secretary and a very experienced officer. He is in charge of our evaluations and is quite independent.

Senator RYAN: I appreciate having people who design and administer the program may be an incredibly effective way to look at the administration and design of the program. But, on an external view of its effectiveness, you are saying that is the role of Mr Lowndes?

Mr Kennedy : He would bring that perspective. The alternative is that we could have gone down an external assessment route.

Dr Russell : Maybe I could add a little. We have had good results in having the people designing the policy working very closely with the people who administer it. Often the people who administer it have insights into the consequences of what the policy design people have designed. My experience is that they are not backwards in coming forwards in saying, 'You have designed this policy, but it does not make a lot of sense when we actually—

Senator RYAN: I appreciate that.

Dr Russell : I would not want to lose the tension that we get from that. If we ended up not getting the insights that we wanted then we would change the set-up.

Senator RYAN: No; I think they are very effective insights. Having filled out forms for a department of industry program in a past life, I know it is like speaking to the participants in the program. They can give you very useful insights into the administration of it, its design, its potential impact on incentives. They are not necessarily the best people to speak to to talk about the overall effectiveness of a program because they have a particular mentality that reflects the silo they work in.

Dr Russell : Yes.

Mr Kennedy : The point of going through the process and going out and doing these interviews is to engage the external perspective on how effective they thought the program was and what difference it has made. I take your point about how forming panels of different natures can have different advantages. It is one for us to consider, but, as you understand, we do not simply rely on Mr Durrant's view on whether the policy was well delivered; we look to the people externally when they fill out the surveys and we interview them, and that analysis is presented objectively in our evaluation and then that is passed through to government.

Mr Lawson : The external people are not just the successful applicants; the non-successful applicants are engaged in that process and so on, so it is not an insider.

Senator RYAN: I appreciate that. I am thinking of people that do not have much to do with the program at all, if you know what I mean—people who can look at it saying, 'I don't have particular knowledge or experience of green cars innovation but I want to look at the effectiveness of the program,' which is what I am going to turn to now. The then minister, Senator Carr, said in the government's launch document for the Green Car Innovation Fund, and various other programs that were part of its new car plan package, 'We expect that investment to generate significant new employment opportunities.' That was five years ago. I understand that at least six of the companies involved have decreased their staff numbers and operations since receiving a Green Car Innovation Fund grant—namely, Toyota, Ford, Holden and SMR Automotive. Also, Alternative Fuel Innovations and EV Engineering have had a harder time and, I understand, no longer exist. So which of the 15 companies has generated significant new employment opportunities following receipt of money out of the Green Car Innovation Fund? Has any of the companies that I have named increased staff numbers or significantly expanded its operations since receiving money through the Green Car Innovation Fund?

Mr Lawson : Just a general point I could make is to do with that conversation we had earlier—that the nature of these programs is that they can be overwhelmed by the macroeconomic circumstances. So the program itself increases employment beyond what it otherwise might have been, but the other things that occur, like movements in exchange rate, which were very dramatic from when that Green Car Innovation Fund was first launched—

Senator RYAN: So it would have been worse without the Green Car Innovation Fund—is that effectively the assertion?

Mr Lawson : Yes. It is the case that the firms say that these programs make a contribution to their investment and outcomes. That is the analysis that this review will do, to reach a conclusion about whether it has made it better.

Senator RYAN: You can see my point when I was referring earlier to the benefit of people externally, because—call me cynical, but I have been involved in industry—people who are recipients of government grants, even those who may not be successful, tend to have a particular perspective of 'It would have been worse without this,' unlike someone who might seek taxpayer value or look at overall analysis here. I take your point that macroeconomic circumstances can overwhelm programs—in fact, that is one of the arguments used against certain programs—but one does need to be particularly rigorous about the 'It would have been worse otherwise' argument.

Mr Kennedy : You are right. Any recipient is likely to be grateful for receiving the grant, so you are absolutely right. We do not want to say 'Were you pleased to get the grant?' because typically they would say yes. But, to be frank, we do not disagree with anything that you are saying, and the finance department's guidelines—apologies for not having them in front of you—are designed to bring some of the rigour that you are talking about. So the inputs that we seek—was the program well administered; what was your response to the program; did it change your behaviour; those sorts of things—are inputs into an overall assessment of: did the program deliver what it was intended to deliver?

To follow up from Mr Lawson's comments, that is the process we are going through now.

Senator RYAN: One of the grant recipients was a company called Toyota Gosei, which received $2.36 million. I understand that it has increased staff numbers and expanded operations in other countries, but not Australia, since it received that money. Are you aware of that being true or untrue?

Mr Kennedy : I will ask colleagues at AusIndustry to comment.

Ms Butler : The Toyota Gosei project, which commenced on 15 July 2011, was to introduce lighter weight seals, safety components and plastic components for the Camry and the hybrid Camry. The project was completed in 2012. It was a technical success and those components are now in production.

Senator RYAN: That is one of the challenges of these programs; they do not necessarily lead to ongoing increases. Is one of the benefits that would be asserted for the program that then Toyota have got the benefit of lighter weight materials in the production of their cars. Is that the benefit that, I would gather, is being asserted as coming from it? Obviously, if that company has invested in R&D and various processes to ramp up the production of new equipment, there is going to be a phase down as they are just producing it, rather than inventing it, for lack of a better way of putting it.

Ms Butler : I might just clarify the merit criteria that applied to the Green Car Innovation Fund. The merit criteria included the extent of the reduction in passenger motor vehicle fuel consumption and/or greenhouse gas emissions arising from the proposed project, the technical merit and extent in calibre of innovation generated in Australia by the proposed project, the capacity and capability of the applicant to undertake the project, including management capability, the commercialisation potential of the proposed project to the benefit of Australia and the contribution of the proposed project to a sustainable, internationally competitive Australian automotive industry, and benefits to the broader Australian economy. They were the merit criteria against which the projects were assessed.

Senator RYAN: Thank you, very much. That is all I have on cars. Much appreciated.

CHAIR: Are there further questions on auto?

Senator RYAN: No.

CHAIR: We are done. Where do you want to go now, Senator Colbeck? R&D tax incentives?

Senator COLBECK: Tax incentives.

Senator RYAN: Is that R&D tax incentives?

Senator COLBECK: Correct. I want to go through some numbers around registrations for the program since the new changes, please. For the R&D tax concession and the R&D tax incentive, respectively, for each of the 2011-12 and the 2010-11 years, can you give me the number of how many firms are registered for the program?

Mr Lewis : That was for both the 2010-11 and 2011-12 years?

Senator COLBECK: Correct.

Mr Lewis : For the 2010-11 year the R&D tax incentive, the new program, had not yet commenced. For the 2010-11 year, the R&D tax concession saw a total of 9,274 companies registered. For the 2011-12 year, registrations are not yet complete, because some companies have non-standard accounting periods. I can tell you the registration numbers that we currently have for both the concession and the incentives. There are still some companies registering under a concession in 2011-12 because their income years started prior to 1 July 2011. For the tax incentive, as of 15 May 2013, 9,050 performing entities had registered. At the same date, 1,074 companies had registered under the old tax concession program for that 2011-12 income year.

Senator COLBECK: So 1,074 remain registered for the R&D tax concession and 9,050 for the incentive for the new program?

Mr Lewis : That is correct. That reflects the fact that it is a transition year and some companies with non-standard income years started their income year before the start date of the R&D tax concessions.

Senator COLBECK: Would some of those have dual registration?

Mr Lewis : No, they register for one or the other. We should also note that there have been some changes to the registration rules under the R&D tax concession. Individual companies within the same group were able to register individually for the concession. Companies must register as a group under the R&D tax incentive. However that 9,050 figure represents the individual entities that we have been able to disaggregate from those figures. We are still doing some analysis on the data and, as I said, that income year for non-standard income year companies has not been completed for 2011-12 registrations under the incentives, so we expect that there will be more registrations.

Senator COLBECK: They have to register as a group rather than as an individual unit, but this number represents individual units?

Mr Lewis : That is correct.

Senator COLBECK: How do we aggregate that figure?

Mr Lewis : When companies register as a group will identify subsidiaries that are undertaking R&D tax activities as well. My colleague has just reminded me that the change to registration on a group basis is to better align that registration with the obligations of companies to lodge their tax returns as groups.

Senator COLBECK: I am just trying to work out how I get an association between the two sets of numbers because you are registering on a different basis, that is all.

Mr Lewis : The 9,050 is our analysis that is comparable to the previous individual registration.

Senator COLBECK: That 9,274 in 2010-11 was effectively your registrations at that point in time. So, in transition to the new system in 2011-12, you have 1,074 which remained on the old system because of their tax year, and 9,050, as at 15 May, individual businesses registered under the incentive rather than the concession.

Ms Butler : And likely to go up.

Senator COLBECK: How many firms qualified for financial benefits through the program and what was the total value of money paid to all these firms?

Mr Lewis : The purpose of registration is for those companies carrying out research and development activities, which they have self-assessed to be eligible activities, for which they receive a tax benefit.

Senator COLBECK: You do not know the total of the money paid?

Mr Lewis : At the time they register, the companies provide an estimate of the value of those activities. That is not the same as the actual benefit they receive, because they make tax claims and there are other considerations in the application of tax law.

Senator COLBECK: So there is an assessment of the tax claim after they lodge their claim.

Mr Lewis : Yes.

Senator COLBECK: I understand that. Can you give us a sense of what the claims might be, based on those registrations?

Mr Lewis : I can certainly give you a figure for the 2010-11 year, the last year under the tax concession. That was a total of $18.238 billion. I cannot give you a complete figure for the R&D Tax Incentive for the current year. There are a couple of reasons for that. One is that the registration is not yet complete.

Senator COLBECK: You have numbers only till 15 May, based on what you told me before.

Mr Lewis : That is correct. Also, there is a caution around quite a significant change in the accounting for the expenditure. There was a change in legislation so that, instead of having the value of feedstock—that is, the inputs where R&D was being carried out in a production context—under the tax concession those inputs reduced the value of the R&D expenditure. Under the tax incentive, instead of reducing the value of the R&D expenditure, those feedstock costs go to increasing assessable income. At the moment the expenditure figures that companies provide to us on the incentive are not comparable to the figures that were provided under the tax concession. It is only after companies make their tax claims and their assessable income is calculated that any comparison will be able to be made between the expenditure figures under the concession and the R&D expenditure figures under the tax incentive.

Senator COLBECK: With those caveats, can you give us the estimated number?

Mr Lewis : Certainly. At the moment companies have registered an amount of $5.759 billion for the tax concession for 2011-12. And for the tax incentives—again, with the caveat that this figure is not comparable with the figure for the concession—they have currently registered $12.422 billion.

Senator COLBECK: That is the estimated claim that they are putting in, based on where they are at. Do you have a sense of which way that number might go, north or south?

Mr Lewis : In comparison to what, Senator?

Senator COLBECK: When they get their tax returns done and the assessments are made, what will happen to that number? Or is that their estimation of what they are claiming?

Mr Lewis : It is their estimation at the time that they register.

Senator COLBECK: Of what their claim will be?

Mr Lewis : Certainly what they claim under their tax may change on the basis of preparing their tax claims. Also, as I have mentioned, there are some quite significant changes in the treatment of feedstock inputs under the incentive. That figure for the R&D Tax Incentive may have some quite significant variation when assessable income is calculated and the net effect of the feedstock adjustment is calculated. The majority of companies were obliged to register for the 2011-12 year by the end of April, which is only a relatively short time ago. At the moment we are undertaking some quite detailed analysis to try to analyse what the effect of those feedstock changes may be, so that we can have an understanding of how we may be able to compare those estimates with previous years under the tax concession. But it may well be that the only point at which we are able to make a meaningful and reasonably accurate comparison will be after companies have lodged their tax returns, and then we will rely on information from the ATO about what the aggregate picture is.

Senator COLBECK: That could be 12 or 18 months down the track.

Mr Lewis : I am not sure how long the ATO may take to process that information, but I would imagine it would be far less than 18 months and probably less than 12 months.

Senator COLBECK: With the caveats that you put—and I can understand your being cautious about the numbers—can you give us a sense of what you think the impact of the feedstock changes might be on that $12.4 billion?

Mr Lewis : No, I am sorry, I cannot at this stage.

Senator COLBECK: You have absolutely no idea?

Mr Lewis : We have not done the analysis that will enable us to have a well-informed idea. We believe that there are some companies—particularly in the manufacturing sector—where they are carrying out R&D activities in production environments where there may be very significant impacts. As you would appreciate, we now have over 9,000 individual sets of data and it is going to take quite some time to work through those. We will certainly be looking at the more significant ones to start with, but we cannot get a complete picture very quickly when we have 9,000 individual sets of data, each of which are doing different R&D in different environments. We expect that there are likely to be some significant impacts for some companies, but the full picture will only be understood at the time when companies make their tax return.

Senator COLBECK: When do you expect to have the final analysis and figures for 2011-12?

Mr Lewis : I cannot give you a particular date at this stage. We are working on the analysis already and we will end up with some analysis. But, as I have suggested, it will not be directly comparable and it will be after the time when companies lodge their tax returns that we will be able to do a more complete analysis and have a good handle on how to compare the performance of companies under the current program with their previous program in previous years of registration.

Senator COLBECK: Have you done an analysis of the new companies that have come in and those that have not maintained their registration?

Mr Lewis : We have not yet. As I have mentioned, the bulk of the registrations came in during April. We can see that there have been significant increases—the increases in the number of companies we have seen registering are particularly in the small and medium enterprise sector, which is one of the objectives we are aiming to do; that is, to increase the reach of the program and encourage innovation in small and medium enterprises. At the moment, with 9,000 separate sets of company data, we are working through the analysis and trying to get out the sort of information that you are talking about, so that we have a good idea about how the program is delivering innovation benefits to industry.

Senator COLBECK: How many firms with a turnover of at least $20 billion registered and qualified for financial benefits through the program?

Mr Lewis : I do not have that figure. I am aware that Treasury has done some modelling and I might pass the question to our policy colleagues.

Mr Pettifer : If your question was: how many of those companies that have registered have a turnover above $20 billion, I cannot answer that question because I do not have the registration data information before me, but the modelling that Treasury did in relation to putting a $20 billion threshold on the R&D tax incentive scheme suggested that there would be relatively few companies, fewer than 20 groups of companies, that would be affected by that. So I think the number would be small, but I do not have it in front of me.

Senator COLBECK: That would be part of the analysis we talked about a moment ago?

Mr Lewis : Certainly, and I think there are some major groups of companies that have non-standard accounting years and therefore will not have registered yet.

Senator COLBECK: They could still be in that R&D concession cycle?

Mr Lewis : That is correct.

Senator COLBECK: Obviously you will not know how much they have put in for claims. Do you know how many pharmaceutical businesses registered for the program?

Mr Lewis : No, I do not have a break down to that level of detail at the moment, I am afraid. I could take that on notice, if you wish.

Senator COLBECK: Okay. I have a number of questions along that line, looking at different categories. It appears that you do not have that level of detail in your analysis yet, so we might move on to some other stuff. Senator Lundy, the Prime Minister said on 17 February that the government would make around a $1.1 billion cut to the R&D tax incentive by restricting access to larger companies. Can you give us a guarantee that, if the government does not achieve this desired saving of $1.1 billion, you will not expand the exclusion to others?

Senator Lundy: I might see if the officers are aware if the minister has made any specific statement in that regard—

Senator COLBECK: The Prime Minister, I am talking about.

Senator Lundy: but we are in the business, of course, of doing what we say we will do, particularly in relation to these important programs.

Mr Pettifer : Perhaps I could add to that. Certainly the projected savings are reflected in the budget papers. Budget Paper No. 2 has an estimated saving of $350 million in 2014-15, $400 million in 2015-16 and $300 million in 2016-17. So the clear expectation is that the savings would be delivered.

Senator COLBECK: But the question is: if you do not achieve that saving, that you do not expand the exclusion to other companies. It is a policy question I am asking of Minister Lundy and I do not really think that the officers can reasonably answer that question. I am just asking if that is something the government is prepared to rule out.

Senator Lundy: You can ask questions which impugn some kind of—

Senator COLBECK: I am not trying to impugn; I am simply asking a question—that is all I am doing.

Senator Lundy: We stated the objective of the program, so—

CHAIR: Let me just interrupt, Minister. You have been asked to provide a comment on a commitment or undertaking made by the Prime Minister. If the possibility raised in Senator Colbeck's question were to occur sometime in the future, that would be an issue for cabinet to resolve at the time and the relevant minister would carry it out. Senator Lundy does not have the capacity to speculate on future cabinet decisions.

Senator COLBECK: I might have used a different word, Chair. I said 'power' perhaps but not 'capacity'. I have a lot of respect for Senator Lundy's capacity. But we are not going anywhere with that, by the sound of it, so that is fine. Can you tell us which other governments in the world disqualify firms from accessing R&D tax incentives on the basis of turnover?

Mr Pettifer : I would have to take that on notice to the extent that I can respond to it, but it is very clear from the policies available overseas that they vary a lot. There are a range of different thresholds in schemes overseas and there is a recognition in the work that we have looked at in relation to where you get the best bang for your buck, if you like, from your R&D tax incentive scheme that small businesses are much more responsive to a tax incentive than larger firms. While I cannot answer it directly, I am happy to take that on notice and provide as much information as I can—other than to say that the schemes vary a lot in how they operate. Also, countries often provide grants rather than tax incentives as the form of support. The extent to which you want to target the scheme into particular industry sectors and that sort of thing is also a factor in the policy thinking overseas. It is quite mixed actually.

Senator COLBECK: Are you aware of any other jurisdictions that disqualify on the basis of turnover?

Mr Pettifer : I would have to take that on notice.

Senator COLBECK: Is there any specific evidentiary support for the view that large companies are not as likely as small firms to increase their R&D spending as a result of government incentives?

Mr Pettifer : Yes, there is. There are a few studies that I could mention. Some of these are actually referenced in the industry and innovation statement. For example, the OECD did a study, The international experience with R&D tax incentives, in 2011. Part of the finding there was that the evidence suggests the different impact on small relative to large firms. Small firms seem to be more responsive to the R&D tax incentive. There was another study done in the Netherlands, which again finds that the program is effective in stimulating additional R&D expenditure in small firms but the evidence is less clear for larger firms. They looked at the elasticities of response to the tax incentive there, with a significantly greater response for smaller firms. Another one, for example, relates to the Norwegian tax incentive scheme. In particular, the study found the scheme to have the greatest input additionality on firms that did not invest much in R&D before the tax credit was introduced. Firms that were not doing the R&D were found to be much more responsive. Also, the authors stated there particularly the effect is positive for smaller firms with little R&D experience. So there are a range of studies there. They are three that we have looked at which provide some evidence, I think.

Senator COLBECK: Do those studies give any information or views around the likelihood that small firms are more likely to deliver a greater return on taxpayer funds?

Mr Pettifer : I suppose the reason you are providing the incentive is a recognition of the spillovers that occur. I guess what I am saying is that the evidence suggests there that smaller firms are more likely to increase their R&D activity. You are more likely to get additionality from providing the incentive to the smaller firms than you are to the larger firms. That is the evidence I would use to support that particular view.

Senator COLBECK: Before introducing its restriction on R&D, the government would have done some modelling, I am expecting, on the impact it would have on R&D spending in Australia and on employment. Can you can give us a sense of what the government did along those lines?

Mr Pettifer : We do not actually do modelling on the R&D tax incentive. Treasury is responsible for costing the incentive, so, if there are questions around that particular issue, they really need to be directed to the Department of the Treasury.

Senator COLBECK: So the government did no modelling at all around—

Mr Pettifer : I am saying that this department did no modelling. The policy in relation to the R&D tax incentive is really a joint exercise between us and Treasury. Treasury are responsible for doing the costings of various policy options. As part of the change Treasury would have done that different costing—

Senator COLBECK: Were you provided with any modelling from Treasury?

Mr Pettifer : Yes, as part of the policy thinking on this we got some information from Treasury that supports the estimated saving from the policy change I mentioned earlier on.

Senator COLBECK: My question was about the impact it would have on R&D spending and on employment. You are talking about modelling on the costs, which Treasury has done. Is it possible for you to provide the committee with that?

Mr Pettifer : I think that is a question you would have to direct to Treasury.

Senator COLBECK: We might do that later. The explanatory memorandum for the relevant bill says that the changes will not lead to any reduction in R&D activity in Australia. Does the department agree with that and do you have any evidence in relation to that at this stage?

Mr Pettifer : I suppose, going back to your earlier line of questioning, there are two things at play here. There is the new scheme coming into force, and we are still getting companies registered for that. Then there is the additional change that has been introduced. It will be some time before both of those things play out in a way that we could provide you with definitive information on that. But I would say that we expect that larger companies will continue to do R&D in Australia, because of the significant benefits they get from doing it here, and drawing on the established relationships they have with providers of R&D. So we do not think that for the larger companies this will be a factor that will shut down a lot of R&D. There may be some impact at the margin, but we do not think it would be a large impact.

Senator COLBECK: So it is an expectation at this stage rather than something you have specific evidence about.

Mr Pettifer : Yes. And I was talking to the CSIRO yesterday about his issue. They are not seeing any impact as far as they are concerned at this stage.

Mr Kennedy : It is related to Mr Pettifer's earlier comment on additionality and evidence about which firms respond to various incentives. The flow-on from that comment is that if large firms are not in a sense responding much or there is not much additional R&D investment being done as a result of the incentive, then the converse is that when the incentive is taken away there is not much change. So the additionality question is about: is the incentive leading to additional R&D? If you think that effect is relatively small, when you take it away the effect should be relatively small. That is how it links to that earlier comment that Mr Pettifer made.

Senator COLBECK: Just recalling the debate at the time the bill was passed and when we went through the Senate inquiry, the claim of the government and the Greens, who supported the legislation, was that they wanted to crack down on some of the claims of the larger companies and instead were hoping to give smaller enterprises access to the program. How do those two things align?

Mr Pettifer : I think what we were talking about back then was that a number of the claims from larger companies were arguably not genuine R&D. I think at the time we gave some examples to the committee. There were a few changes around the definition of R&D and—

Senator COLBECK: My recollection of those examples was that they should not have qualified anyway and action was being taken to recover some of the monies around some of those claims—

Mr Pettifer : That is another issue.

Senator COLBECK: So that was part of the previous incarnation of the scheme rather than what the new rules did.

Mr Pettifer : But the new rules had a couple of things in them. One was a dominant purpose test. This test meant that it would be much more difficult to claim supporting activity as R&D. For example, if a mining company had put a road into a mine you would not be able to claim that as a supporting activity. They were the sorts of things we were sort of cracking down on with the changes to the definition, to make sure the scheme was much more focused on genuine R&D activity. And we increased the benefit then to the small to medium enterprise as well, so that they get a higher rate of support under the new scheme.

Senator COLBECK: But my recollection still is that under the old definitions those things would not have and should not have qualified anyway. That was my recollection of the discussion we had on a number of occasions both here and in the inquiry.

Mr Pettifer : Under the old scheme there was some pretty marginal activity being claimed.

Senator COLBECK: There might have been some claims being made, but there was also recovery activity going on around those claims, because there was an understanding by players on all sides of the equation that they were not genuine R&D and therefore should not qualify for the—

Mr Pettifer : Yes, there were integrity measures under the previous scheme, as well. But all I am saying is that the new scheme tightens that up further to focus it on real R&D.

Senator URQUHART: I have questions on a couple of areas. One is the Clean Technology Innovation Fund. Can you give me an overview of what the fund was set up for.

Ms Butler : The $200 million Clean Technology Innovation program aims to help industries be more competitive and assist in the transition to a low-carbon future by developing a range of clean technologies and associated services. That is the overarching program. The particular Clean Technology Innovation program you are talking about opened for application on 6 July. It is a five-year program from 2012-13 to 2016-17. It is a competitive, merit based grants program of grants of between $50,000 and $5 million, on a matching funding basis. It will be used for applied research and development, proof of concept and early stage commercialisation activities that relate to new products, processes and services that are energy efficient and/or reduce greenhouse gas emissions.

Senator URQUHART: How many businesses have been successful in getting that clean technology funding?

Ms Butler : I will pass to my colleague.

Ms Cattell : As at 30 April 10 companies had received grants under the program.

Senator URQUHART: Can you give me an idea of the number of those that are from Tasmania, which is my home state, and also the type of work those businesses are looking at doing and what that means in terms of reducing the carbon footprint?

Ms Butler : While my colleague is looking that information up I will give an example. We have a grant of $134,135 in Definium Technologies Tasmania. The grant is for the development of an affordable monitoring and management system to help building owners understand and modify their energy usage through an automated demand response system. We have another one in Tasmania, which is Saturn South. That grant is for a smart grid high-profile integration project on King Island. This will demonstrate the capabilities of the power demand management system in an isolated power market. With this technology, power system operators and utilities can control the level of demand in their networks to improve stability, enable greater adoption of renewable generation capacity and reduce the cost of supplying electricity to consumers. That grant is around $115,000. Those are two examples.

Ms Cattell : I have a further two examples. Dunham Holdings has received a grant of just under $500,000. The clean tech innovation funding will allow the company to develop a railway traction electricity network integrity management system. This is a pole-mounted monitoring unit that measures the condition of the network at that point. Using the data services of mobile telecommunications, the monitoring units, mounted at regular intervals on the traction power grid, report back to a central server database, allowing for real-time assessment and maintenance.

There is a fourth project, which is Sedwyn. They are receiving just under $158,000. That funding will be used to complete the development of a prototype auto controlled wind power water pump, and expand into new markets.

Ms Butler : So, four out of the 10 grants at this stage are from Tasmania.

Senator URQUHART: I want to follow on with some issues around the food industry. I want to know how many people work directly in food manufacturing in Australia?

Ms Bray : As of 2011-12 the manufacturing employment four-quarter average over the financial year was 225,500.

Senator URQUHART: That is direct. How many people work throughout the supply chain?

Ms Bray : I do not have those figures. That is for the food and beverage manufacturing employment. Of course the supply chain includes all sorts of people from farmers, to logistics firms, to service industries that might provide—

Senator URQUHART: Are you able to take that on notice?

Ms Bray : We will take it on notice and I will see whether I can make that information available.

Senator URQUHART: What proportion of Australian manufacturing is classed as food manufacturing, in the overall statistics of manufacturing?

Mr Lawson : It is roughly 20 per cent.

Senator URQUHART: What is the total value of manufactured food exported from Australia?

Ms Bray : Industry merchandise exports for 2011-12 were $17.917 billion.

Senator URQUHART: The Senate select committee that Senator Colbeck chaired and I was part of found that energy costs were a major cost disadvantage to Australian food manufacture, but in particular the big drivers here were the upgrades to the distribution networks, which created the large price rises before July 2012. We have now put in place the Clean Technology Investment program, specifically for the food industry, which is worth many millions of dollars. Can you outline how many food manufacturers have received assistance under this program?

Ms Bray : I will pass that over to my AusIndustry colleagues.

Ms Peterson : As at 30 April, there were 174 approved projects under the 'food and foundries' program.

Senator URQUHART: How have the assistance packages been received by industry?

Ms Peterson : Very well. A number of areas in the food industry, for example, meat processing, are particularly energy intensive. Meat processing is particularly energy intensive because they have direct emissions associated with wastewater treatment and also a number of other very energy-intensive production processes, typically around refrigeration. The meat sector has been a very active participant in the program. As at this stage, there are 30 approved projects in the meat processing industry, with a total grant value of $27.8 million. Together, those projects represent a total investment in new capital equipment of about $66 million.

In terms of the impacts on the meat industry, the Australian Meat Processor Corporation has done some work. They have a Red Meat Processing Industry Climate Change Strategy. That is a joint initiative with the Australian Meat Industry Corporation and the Australian Meat Processor Corporation. Part of that strategy is about measuring, verifying and reporting on outcomes delivered through investment in climate change research and development and clean technology implementation. They have recently published a fact sheet, which is available on the website, which provides some analysis that they have done for meat companies that have had grants under the Clean Technology Food and Foundries Investment Program. They have done a comparative analysis of relative costs and benefits for five successful applicants which had a direct liability under the carbon pricing mechanism. Four of those applications incorporated projects using covered anaerobic lagoon technology and associated biocapture and reuse, and there was a fifth project involving a tri-generation plant. The total project investment in these five facilities is more than $40 million, of which about $18.6 million is funded under the program. The combined savings, in terms of CO2 emissions, is estimated to be around 3,000 kilotonnes over the life of the project, and they are delivering a reduction in carbon intensity for meat processing operations of around 75 per cent.

Senator URQUHART: What is the time line for the reduction at the 75 per cent?

Ms Peterson : It will vary. It is all about the life of the emission reductions measures. It is about the lifetime of the particular bits of plant and equipment that are being installed. In meat, from memory, you would typically be looking at things between 10 and 20 years.

Senator URQUHART: Can you tell me what the total government investment was on the program?

Ms Peterson : In the food and foundries program?

Senator URQUHART: Yes.

Ms Peterson : There is a $200 million funding allocation for that program.

Senator URQUHART: What was the total industry investment?

Ms Peterson : In terms of the approved projects for food and foundries, the grant value is about $101 million and the total project investment is $276.3 million.

Senator URQUHART: You have given us a bit of an overview about the meat industry. Do you have any other case studies or examples of what has been done in the food sector with these grants and how those energy cost savings impact on the ongoing viability of the recipient?

Ms Peterson : Certainly. In terms of the food industry, we have seen a lot of activity in the wine industry. Around 24 per cent of applications approved so far come from the wine industry. The sorts of activities that we see there are typically around refrigeration. Also, a large number of wineries have gone for solar photovoltaics. There is also quite active engagement in the dairy industry—around 10 per cent of applicants. The sorts of projects that we see there are typically around modification of plant and equipment and, again, with a focus on refrigeration, which is very energy intensive. In terms of the two programs that have been approved so far—this is combining food with the general investment program—in terms of business benefits, there will be more than $30 million a year of financial savings to customers, and that will come through reduced energy bills, lower maintenance costs and other productivity improvements.

It is typical that many of the projects that are funded over the programs provide benefits in addition to just reduced energy. We typically see projects delivering productivity improvements, increased production capacity, improvements in product quality and access to new market opportunities. Perhaps I could give you an example from Western Australia. Alba Edible Oils is a refiner of vegetable oils and fats. They have a project for which the total project cost was $998,000, with a grant contribution of just under $500,000. The project will involve modifications to production plant to reduce the amount of wasted energy when the plant makes changes to produce different oils. This project will reduce energy wastage by 80 per cent, saving $190,000 for the customer in energy costs each year. It will also expand the operational capacity of the plant by up to 50 per cent, and the carbon emissions reduction for the production process by 52.8 per cent. In particular, the increase in operational capacity and the positive impact on their cost structure are allowing the company now to target international export markets.

Senator URQUHART: I will move on now and ask a couple of questions in relation to Enterprise Connect. I know there are a number of Enterprise Connect centres around the country. Perhaps you could give me an overview of how a business review works—what is the process for how Enterprise Connect comes in and does a business review?

Ms Anton : Enterprise Connect is a demand-driven program. So, business approaches the program and requests a business review. An application can be made through the website. We aim to have a very quick process, so that can be filled out with relatively little detail. The aim is then to provide a response back to that company within 24 hours. The company needs to meet one of our eligibility criteria to be eligible for review. A quick assessment of that is done on the assertions of the company, and then one of our state centres will contact the business to arrange to have a business advisor come and talk to them. There are around 100 business advisors and facilitators who are part of the program and located around the country. They will try to match up the interest of the firm with the skills of the business advisor so that they have a good idea of some of the challenges that firm might be facing. The business advisor will then typically go and meet with the company and do an initial assessment—do they actually meet the criteria when you have a bit more of a detailed conversation?

Then, in terms of the business review, once they are through that eligibility process they will have a very broad based conversation with them about the challenges they are facing their business. They will go through some of their financials for the last few years as a starting point: how robust is the firm? What might they look at? And then they will look at a range of different elements, from succession planning to what their products are and how they might improve some of their procedures and processes. And at the end of that business review process—which is really a coaching conversation in a lot of ways—they will provide some specific recommendations about what they might do to improve their competitiveness and capability within the firm. The firm is then eligible for a Tailored Advisory Service Grant, which is, again, a 50/50 matching grant, to implement the recommendations that are made by the business advisor in that review.

Senator URQUHART: I am aware that there are about 20 or so businesses, around northern Tasmania in particular, that have taken up the opportunity for that full advisory service or part advisory service. Some of them I know have taken it up more than once. I am not sure whether you can give me this detail, but, if not, you might be able to take it on notice. But I am just wondering if you can let me know the success or otherwise of the reviews on those businesses in northern Tasmania.

Ms Anton : In northern Tasmania there are a couple of areas of activity for the program. There is the broad based business reviews. I can give you some numbers on Tasmania generally. I would have to take it on notice if you want a cut on northern Tasmania.

Senator URQUHART: That is fine. If you could give me the broad stuff, that would be great.

Ms Anton : To date there have been 241 business reviews approved in Tasmania. That is one level of activity, and then the firms are able to take on the TAS grants. Separate to that, northern Tasmania is also an innovative region, so we have the general business advisors who go in and help. There is also activity around innovative regions. So, there is a facilitator based in northern Tasmania, and they actually have a regional approach. The work they have been doing there includes development of regional innovation plans, and then specific projects and programs. So, the firms may engage with us multiple times. They may engage for a business review—that is the first level of engagement—and in some cases firms will go into a second and third year of engagement with Enterprise Connect, which is called the continuous improvement program. Or, alternatively, they may be engaging with some of the projects in terms of that innovative region. There has been some work around innovation and entrepreneurship in Burnie. There has also been some alliance building around King Island and Flinders Island. There has been some work with the University of Tasmania around engineering capability and services, done under what we call a 'mapping the connections' process. So, there has actually been quite a concentration of activity in that region. In terms of the successes or the outcomes of that, I would really need to take that on notice. And I know that we would have within our list some case studies of firms who have had successful things. I can certainly dive into my folder and try to find those for you.

Senator URQUHART: If you want to take that on notice, that is fine. And if you could take on notice too the success or otherwise of the other businesses that have been done, even across Australia, that would be great. So perhaps you could give me a Tasmanian one and then a model of what it looks like broadly.

Ms Anton : Certainly. And I guess in those I would be relying on some of the broader reviews of the program. They generally suggest that the companies do see an improvement when they are engaging with Enterprise Connect. A large percentage will actually take up and implement the recommendations of the review. But I am certainly happy to give you some further details on that.

Senator URQUHART: Does that information measure the impacts of new jobs or jobs that have been saved—productivity improvements—and tailored advisory services? Does it cover off on that sort of detail?

Ms Anton : I would be relying on the outcomes of the review, which is really going to the improvements we have seen at a firm level.

Senator URQUHART: And would that go down to the addition of new jobs?

Ms Anton : I will have to take that on notice. The review is a couple of years old. We have implemented, since that review, a more standardised data capture. So there are a number of data points that we are now collecting from firms. I am expecting that in the next six months we will start to see a far more detailed capacity to answer questions of that nature. But, again, we need to rely on the information that firms are providing, and I need to be careful in terms of not identifying firms in relation to what we release and what we do not release. So, that is something we will certainly be looking to also.

Senator COLBECK: Back to R&D tax credits: when we left off we were talking about investment by larger companies. Part of the government's argument around this has been that the new restriction on claims would only affect about 15 larger companies. And I think you gave me a number earlier of about 20.

Mr Pettifer : It was less than 20.

Senator COLBECK: Is that still the view?

Mr Pettifer : Yes. We think it will be around 15. This could change a bit over time, of course, as aggregated assessable income has changed. It could be that companies move in and out of the eligibility threshold.

Senator COLBECK: So, that aggregation process could move those numbers?

Mr Pettifer : Just as the aggregated assessable income of the company changes, yes. But we do not think it is going to be a large number.

Senator COLBECK: Do we have an assessment of the employees in that number of companies that we are talking about?

Mr Pettifer : No, we do not. The data that the department has access to is not company specific, because of the rules around disclosure of tax data. We are not sure about the company names, as a department. So we would not be able to work out the number of employees. I am just wondering what the line of thinking would be there about that, because we do not think there is going to be much impact, as we were saying earlier on, in terms of the level of R&D they would do, because we are not getting much additional R&D from the incentive, and therefore we would not get much less.

Senator COLBECK: Are you familiar with the Dyson report?

Mr Pettifer : No.

Mr Kennedy : That is James Dyson, the manufacturer. He visited Australia recently.

Mr Pettifer : I have seen reference in a news clip or something.

Senator COLBECK: The report, as I understand it, indicates that large companies undertaking R&D are likely to engage with academia and smaller companies to collaboratively do that R&D and foster innovation around them. I suppose I was looking to see what understanding you had of that element of the report—that this is what occurs; the larger companies undertaking R&D are likely to engage with academia and smaller companies to collaboratively do R&D and foster innovation.

Mr Kennedy : This is an issue that has been picked up in the context of the government's recently announced precincts policy. There is a set of measures there, which we are very happy to talk to you about, that are trying to increase the collaboration that you are referring to. I have not read the specific comments that you are referring to, but the issue of collaboration between universities and large and small companies—effectively the whole supply chain—or the issue of collaboration more broadly across companies in trying to address issues of scale or research and development is an issue being picked up through that set of policies. Would you like us to talk to those issues?

Senator COLBECK: Let's move on to that. I do want to come to some of those other programs later, so I will not interrupt where we are at now. Do you have a measure of how many joint venture R&D projects between large companies and SMEs would typically take place in Australia annually?

Mr Pettifer : I do not have that information.

Mr Kennedy : We would be happy to take that on notice for you, Senator, and try to find some estimates of collaborations. There are estimates of the extent to which companies collaborate. It might be difficult to have a number of those collaborations, but there are certainly OECD estimates around the extent to which firms collaborate in Australia. Mr Pettifer might have more details.

Senator COLBECK: KPMG said in its submission on the exposure draft for these exchanges that at least one of the firms that will now be excluded from the program 'contractually obliges its vendors to undertake at least 45 per cent of its R&D in Australia' and that 'part of the rationale for this contractual clause is that the company recognises the spillover benefits that will accrue to it and the local development community by undertaking a substantial proportion of the project in Australia, even though it might be more expensive to do so.'

It goes on to say: 'The benefits available to this company under the R&D tax incentive program are routinely considered as part of its development investment decisions. Without the 10 per cent funding assistance provided by the federal government under the R&D tax incentive program it is likely that this company may reduce its R&D expenditure and will reduce or remove this contractual clause, thereby increasing the level of development undertaken offshore in comparatively cheaper jurisdictions.' Have you had a look at those particular claims?

Mr Pettifer : Not those claims specifically. But I just note that one of the changes that we did make with the reforms to the R&D tax incentive was to remove the beneficial ownership test, which meant that Australia was a much more attractive place to do your R&D, because you could claim for the R&D tax incentive. That is a factor that would encourage more R&D to be happening here, and we hope that through the precincts initiative we will be actively trying to build bridges between firms, both large and small, to the R&D community, to the universities and publicly funded research organisations. I have not looked at those claims as such, but I am saying there is a sort of a policy mix that we are trying to get right in this space which will hopefully lead to higher levels of R&D occurring overall. There may be some impact at the margin on the larger firms, but as I say we do not think it is going to be substantial.

Senator COLBECK: When we got to the announcement made by the Prime Minister and Mr Combet on 17 February that they were intending to make their $1.1 billion cut to the tax incentive, they said that that would be on the basis of disqualifying companies with a $20 billion turnover or more. Is that correct?

Mr Pettifer : Yes.

Senator COLBECK: Why does the exposure draft of the bill now state that the $20 billion calculated is based on business aggregate assessable income rather than turnover?

Mr Pettifer : The aggregated assessable income is the practical implementation of that policy intent. We do not think it is going to change the number of companies in scope at all; we still think it is the same on that front. It was a way of talking about larger companies when we were referring earlier to that threshold. The way the legislation is giving practical effect to that is through this aggregated assessable income.

Senator COLBECK: You do not think it will make any difference to the number of companies qualifying at all?

Mr Pettifer : No. That is the advice we have.

Senator COLBECK: If the changes that have been flagged in the exposure draft are passed into law what is your current assessment of the total payments under the R&D tax incentive for each of the next five financial years?

Mr Pettifer : We would expect it to be less by the savings number that I mentioned to you earlier which was reflected in the budget papers.

Senator COLBECK: Three fifty, four hundred and three hundred?

Mr Pettifer : Yes.

Senator COLBECK: You don't have anything out beyond that?

Mr Pettifer : No, I do not.

Mr Kennedy : We would only prepare and publish for the forward estimates period.

Senator COLBECK: If those changes had not been passed into law those numbers would be the same on the other side of the equation?

Mr Pettifer : Yes, it would be that much higher in terms of revenue forgone.

Senator COLBECK: Why is there such a difference between potential savings modelled last year by the government's business tax working group and the figures cited by the government itself this year?

Mr Kennedy : That is a matter for Treasury. They are responsible for those estimates, both sets of estimates, the business tax estimates and the estimated that are published. That is the shared responsibility. We have responsibility for the development of policy, but they do all the cost estimates so they would be able to answer that question for you.

Senator COLBECK: So you get to step back out of the line and leave them to answer that question.

Mr Kennedy : They are in front of estimates in the same way we are, and you can ask that question then.

Mr Pettifer : It would be inappropriate for us to respond to it even if we could.

Senator COLBECK: Was it based on the figures for the old R&D tax concession?

Mr Pettifer : These are questions you really need to put to Treasury, but my understanding is that they were modified to take account of the impact that the threshold would have. These are questions that really need to go to Treasury.

Senator COLBECK: But surely you should have some understanding of why the numbers have changed. Wouldn't you ask Treasury that question yourself? I am just trying to get a sense of why the numbers changed. I accept wholeheartedly that Treasury has done new modelling and there are different numbers; I get that, that is fine. But you do not know why.

Mr Pettifer : I cannot add to what we have said earlier.

Mr Kennedy : They are responsible for those estimates. It is best to address the questions to them.

Senator COLBECK: How many staff in the department in total are currently working on the administration of the R&D tax incentive?

Mr Lewis : There are approximately 56 staff in the Canberra office of AusIndustry, plus there are additional staff working on the program in state offices. The state office staff also have responsibility for delivering a number of other programs in the state offices quite commonly, so it is 56 staff dedicated to the program in the national office and approximately another 40 or so who work on the program in state offices, but not all of those are full time on the program.

Mr Pettifer : There would be about six staff working on it from the policy side.

Senator COLBECK: So about 102 all up based on those numbers. Do you know what proportion of time staff in the state offices would spend working on the program?

Ms Butler : Of the 40 or so staff who are located in our state and territory and regional offices, in the larger state offices it would be fair to say that most of them would be 100 per cent dedicated on working on that particular program. If I were to estimate—­and I am happy to take it on notice—I would say, of that 40, maybe 30 would be full time. In the smaller offices, because they are smaller they would have to also be working on some of the competitive grant programs as well.

Senator COLBECK: Okay. That will do me on that. We will go to the jobs plan. Was the final version of the industry and innovation statement approved by cabinet prior to its public release on 17 February 2013?

Mr Kennedy : I would have to take that on notice. I can respond and say the statement went through cabinet processes, but I cannot recall here in front of you exactly how it went. But certainly the statement went through cabinet processes and would have been approved in the normal way. Is there another dimension to the question you are seeking?

Senator COLBECK: No. I just want to know whether the final version of the statement was approved by cabinet prior to its public release.

Mr Kennedy : The industry and innovation statement's release was approved by cabinet.

Senator COLBECK: Yes, but was the final version of the statement approved by cabinet?

Mr Kennedy : I will take it on notice for you. Typically these processes involve—because we have to do publishing and various other things—that sort of change. I am also being mindful not to discuss cabinet deliberations. But the release of the statement went through cabinet in the normal way, and all ministers at cabinet would have seen the statement. It was a standard release of a statement that went through cabinet for processes that, as long as I worked through government, have been fairly usual.

Senator COLBECK: But was it the final version or was it modified after cabinet had their discussion?

Senator Lundy: I think the officers have answered your question.

Senator COLBECK: They actually have not answered my question; that is why I continue to press. Was the final version of the Industry and Innovation Statement approved by cabinet prior to its public release on 17 February 2013?

Senator Lundy: I distinctly heard that to be the question that you asked previously.

Senator COLBECK: It is the question—I am reading the same question.

Senator Lundy: So you got an answer.

Senator COLBECK: No, I did not. That is the point.

Senator Lundy: You can ask the same question lots of different ways, but I would say that you have got an answer and to persist is just being unduly repetitive.

Senator COLBECK: All I am trying to do is get an answer to my question.

Mr Kennedy : There is one aspect perhaps that is helpful. All the policies that were announced in the Industry and Innovation Statement went through cabinet and were announced as considered by the decisions of cabinet. Whether the publication itself had some sort of minor modifications for charts or something is the bit I cannot assure you of. But there was the normal cabinet process and the final set of measures went through cabinet in the usual way.

Senator COLBECK: So nothing substantial changed in the final version of the Industry and Innovation Statement from what went through cabinet?

Mr Kennedy : Yes, you could say that. I will take it on notice to confirm because it was some time ago, but that is my understanding.

Senator COLBECK: In one of the media releases that accompanied the announcement of the statement, Minister Combet said: 'This bill is expected to see Australian industry win extra work,' worth up to $6.4 billion a year. How was that figure calculated, when and by whom?

Mr Kennedy : You are referring to the Australian industry participation aspect of the policy, I think. I will ask those officers to respond.

Mr Lawson : The calculations were done by the department on the basis of our analysis of projects that would be subject to the program and on information from the Industry Capability Network, which they publish on a regular basis, about the impact of a well-implemented AIP plan on opportunities available to Australian industry. So it is based on the Deloitte Access Economics published information about future projects, our analysis of that and the rate, being the estimate from the ICN, the state based agency that has over 20 years come up with a number on the implications. All of that was published and the methodology was explained in our regulation impact statement.

Senator COLBECK: What accompanying modelling has been done on the specific regulatory impact of the bill financially?

Mr Lawson : Through the regulatory impact statement, there is a regulation cost analyser. That was applied, so the normal regulation impact statement process was gone through, and it is up on the Finance website.

Senator COLBECK: Is there a specific dollar attached to that?

Mr Lawson : There were some figures around the cost of various elements. Specific amounts were calculated and are on the RIS. My colleague might be able to provide some of the numbers.

Senator COLBECK: We could not find anything in the RIS in respect of a dollar figure in relation to the regulatory impact.

Mr Wilson : A total figure?

Senator COLBECK: Yes, please.

Mr Lawson : In terms of compliance costs, it is my understanding that the sorts of figures in there were numbers on how much it costs a firm to do an AIP plan and the amount of time spent by people who are paid this sort of rate. That is the way the regulation impact analysis works. It is not a theoretical number in that sense. It looks at what your costs of complying are. That means: what people do you need to employ and how much do you have to pay them and for how long?

Senator COLBECK: So you do not have a specific dollar figure for the total cost?

Mr Wilson : We do not have a total cost but there is a breakdown, as Mr Lawson noted, about the costs of developing and implementing an AIP plan and the actions that you would take under that plan. Do you want me to run through those costs?

Senator COLBECK: Yes, put some numbers on the record for us.

Mr Wilson : For developing an AIP plan it was estimated that the cost would be $9,000. That is based on an employee spending two weeks at an annual salary of $200,000. Reporting on the implementation of an AIP plan every six months would be $9,000 a year, taking one week to prepare that report every six months. Then the estimated cost of implementing an AIP plan was put at $29,000 per year. The information we received from EPBS clients was that the estimates were between five to 20 per cent of a procurement manager's time. So we took the halfway point of 12½ per cent to calculate the $29,000 a year.

Mr Lawson : Those sorts of figures are based on our experience of the Enhanced Project By-law Scheme, the EPBS. Over the years we have discussed with companies how much it cost them to comply with the AIP requirements in that scheme.

Senator COLBECK: So for each project, they are the sorts of costs: $9,000 for the plan and those annual costs to implement and administer the plan as the project proceeds?

Mr Lawson : Yes, that is the sort of additional cost, based on that EPBS experience, that a requirement for an AIP plan imposes on the firms. It should be understood that the good firms are already doing much of that sort of activity. They do marketing of these sorts of things. Some do not. This obligation is about making sure that they have done that and reported it.

Senator COLBECK: What has been the response from industry more generally in relation to these proposals—those that are having this additional red tape imposed on their businesses?

Mr Lawson : We did a public inquiry. We did confidential consultations as part of the original consideration. We did some subsequent inquiries. The Senate has conducted two inquiries into the bill. It is fair to say that some companies that have been subject to this will complain about the additional red tape and those companies that potentially benefit from the increased opportunities welcome the—

Senator COLBECK: They are not being subjected to red tape, so they do not need to worry about that; they effectively just look forward to the potential opportunity.

Mr Lawson : All companies do not like red tape. Those companies are very conscious in their discussions with us about not wishing this to be overly burdensome on those who are subject to it. So it is not true to say that those companies that see some benefits from this are unconcerned that this is a regulation, therefore people have to comply with it. I think that the figures we have put forward show that it is a relatively modest compliance cost that is estimated. It is expected to occur to about 23 projects a year. They are large projects and—

Senator COLBECK: The Queensland Resources Council says:

We do however strongly disagree with the mechanisms proposed in the policy to achieve this. We would urge government to pursue a far less costly, and more effective way of achieving these policy objectives.

The Australian Petroleum Production and Exploration Association say:

Without addressing these core issues of capability and competitiveness, the Bill will not significantly increase local content outcomes—

and that compliance costs will increase again.

The Australian Mines and Metals Association says that the government's proposals do not contain rigorous cost-benefit analysis and do not provide adequate justification for increasing costs. The Business Council of Australia says:

The Bill does not pass the test of good legislation - the problem is poorly defined, the costs and risks of the Bill are understated and the costs and benefits of sensible, alternative policy options have not been properly assessed.

CCI Western Australia say:

… the bill should not proceed in its current form. The government has not presented a persuasive case for a legislative instrument on local industry participation.

Even the Industry Capability Network says the proposed legislation could be improved in some areas, is broadly open to interpretation, and lacks a strong government provision. Are they right?

Mr Lawson : Some of those submissions were based on misapprehensions. For example, they made explicitly made comment about a requirement for public servants to be embedded in large companies—no such provision exists in the legislation. So there are some errors.

Some of those comments were related to the first form of the bill and I think that through our consultation process, we did revise some trigger proposals to help make more clear the arrangements. Other people, the Australian Institute of Steel and other organisations, put in supportive submissions. It is a matter for government to balance out the range of views that are put to it and come to a conclusion about an appropriate response.

Senator COLBECK: But fundamentally we are talking about Australia being a high cost-of-business nation, and what we are doing here is effectively adding to that, aren't we, with additional regulation?

Mr Lawson : There is a certain burden-of-compliance cost on the 23 projects that would be done. The analysis indicates that based on investigations with the Enhanced Projects By-laws Scheme, a large majority of participants in those AIP plans say that the use of an AIP plan has actually opened their eyes to alternative competitive Australian suppliers, and has had benefits for their programs.

I think that it is wrong to say that because there is a compliance cost then there is a net cost to society. There is a compliance cost, but the benefits of requiring this process has, by direct experience in the past, shown that the companies subject to those compliance arrangements actually have benefits from it in reducing their cost structure. Currently there is a lot of discussion about the cost structures that the resources sector have put themselves in with the investment boom, and that they really need to take out costs from the investments that they have made. The whole notion of AIP and having local suppliers will enable them to have a better understanding of the capabilities and innovations that are around in Australia to help them pull costs out from their structures.

It is alongside with those AIP requirements that the government has supplier advocate processes; a resources forum with the large resources companies and potential suppliers brought together to sort of try and build the understanding of what innovative capabilities are in Australia to help people reduce their cost structures.

Senator COLBECK: So in their submission to the exposure draft, when CCI Western Australia said they expected the number of affected projects to climb from the current six per cent to 26.2 per cent—

Mr Lawson : That is not correct.

Senator COLBECK: I was actually going to let you off the hook. That goes back to your comment before about being based on a miscomprehension, and something that has been resolved through the cycle of the bill to this date.

Mr Lawson : I do not know if the CCI accepts that it has been resolved, but their calculations appear to us to be made on the basis of the size of projects that may or may not already have to do AIP plans, so they misunderstood the baseline.

Senator COLBECK: You said in the explanatory memorandum that detailed consultations took place with at least five key stakeholders. Could you tell us what that consultation entailed?

Mr Lawson : As part of the RIS process, there is a consultation process. In this case, because it was a bill that was going to be part of an industry statement, it was a confidential consultation process. A number of organisations and companies, including some of the ones you have commented on, were provided with a confidential consultation document, and we had a conversation—either me or the then general manager—with them about their views on those issues. That fed into the government's consideration of the original bill. Then, once the exposure draft of the bill was released, there was a public consultation process about that exposure draft, which led, as I mentioned before, to certain changes.

Senator COLBECK: How would you characterise the consultation? Would you say it was extensive or token? Was it, 'Here's a bill we are going to put in and we're telling you about it,' or was it an iterative process?

Mr Lawson : It was an open exchange of views, seeking people's views about the issues. Some participants were very strongly supportive of arrangements and would have actually liked lower thresholds and more requirements. Some participants said, just on principle, that there should not be any further regulation. So there were a range of discussions. We reported those to government. It is up to government then to make a judgement about the balance.

Senator COLBECK: So did you have face-to-face meetings with, say, BCA and BlueScope?­

Mr Lawson : We provided them with a written document and had an arranged teleconference.

Senator COLBECK: That is effectively what that process was? They were provided with a document and a teleconference was arranged to have a conversation about that document you provided?

Mr Lawson : Yes, and they were invited to provide us with subsequent written feedback. Some of this material is up on websites. Some of the participants wanted to maintain confidentiality of what they had said.

Mr Wilson : Senator, it is in the regulation impact statement, at the back.

Mr Kennedy : Senator, it is probably worth noting—I will ask Mr Wilson to comment on this—that the department has that engagement with industry around these issues on an ongoing basis, but not the specifics of the proposal that you are discussing with Mr Lawson. Mr Lawson, it may be worth reflecting on the longer engagement you have had around these issues.

Senator COLBECK: I am just trying to get a sense of the process around this piece of legislation. I understand that the agency would be talking to industry all the time, but I just wanted to get something specific around this piece of legislation. Mr Lawson has told me that the document was forwarded to them, there was an arranged time for a telephone conference and then they were invited to put their views, either at that process or back in writing.

Mr Lawson : Correct, and that was the confidential phase, which fed into the RIS—

Senator COLBECK: And some of those documents have been posted where companies were happy for that to occur and have not where they were not happy.

Mr Lawson : I think summaries of that material are included in the RIS. Then the subsequent process was a very public process of an exposure draft of the bill. So the exposure draft was put out, written submissions were requested by the department, we got submissions back and the Senate did two inquiries, one of which has reported today.

Senator COLBECK: The government said that, for its plan to work, it intends requiring Australian industry opportunity officers to be embedded in the procurement teams of individual companies. Did you rule that out a moment ago?

Mr Lawson : That was never part of the legislation. That is a separate issue. It seems to have caused some confusion. There is a voluntary scheme called the Enhanced Project By-law Scheme to which companies apply for a tariff concession. For large projects, that may be worth tens of millions of dollars. The government has decided that, under the Enhanced Project By-law Scheme, if projects of $2 billion or more want to get tens of millions of dollars of tariff concession, an additional criteria will be made—that is, to require them to have an Australian industry participation process. That is based on a program that has been in Defence for some time; I believe it is called the Global Supply Chain Program. It came up in the Prime Minister's Taskforce on Manufacturing and the Manufacturing Leaders Group. People proposed to the government that that was a successful program in Defence, requiring companies to appoint their own people to try to find out if there are opportunities for Australian industry in their global supply chains. The Defence companies that had had experience of that thought it was a successful program and suggested that it be expanded to the broader economy. One way of doing that that the government decided upon is, in this particular case, an enhanced project by-law scheme where people get a tariff concession only for projects over $2 billion; therefore they are getting tens of millions of dollars of concession, not a small amount. If they want that they would be required to have these offices. A mistake in the media seems to have been some allegation that it has got to do with the legislated requirement for projects over $500 million, and it has not.

Senator COLBECK: But it still effectively forms part of the broader jobs plan?

Mr Lawson : Yes, it is certainly part of the former jobs plan, the industry statement, but not part of the legislation. A number of those submissions referred to it. There was a concern that it was a legislated requirement; it is not. It is a requirement that companies apply for—

Senator COLBECK: It is an access requirement of the program.

Mr Lawson : Yes.

Senator COLBECK: So it still has to happen; it is just that, to access the program, you have to take this up. But it is just not legislated.

Mr Lawson : But if you wish to get this tariff concession—

Senator COLBECK: I understand that. So how is it going to work in practice? What would these embedded public servants do all day?

Mr Lawson : Sorry, Senator; they are not embedded public servants. Just as in the Defence arrangements, the companies appoint a person somewhere within their local or global process to have an understanding of the Australian industry capabilities that have been provided to the local project and to try to discover whether there are opportunities in the global supply chain for those projects.

Senator COLBECK: So we are saying to them: if you want to access this program you have to appoint someone or employ someone within your business, give them the title 'Australian industry opportunity officer', and they need to have the understandings that you are talking about?

Mr Lawson : That is what has been successfully applied in the Defence Global Supply Chain Program, where my understanding is that about $600 million worth of overseas opportunities have been made available to Australian companies in the global operations of Boeing, Thales and the like.

Senator COLBECK: Because they employ an industry opportunity officer?

Mr Lawson : Members of the manufacturing leaders groups said it had been a successful program. Large global companies are complex beasts. They have a number of different groupings. If a supplier has been found capable by an Australian operation or one part of an operation, it does not mean that that information is automatically spread around the rest of the large global company. The government's decision was that, on the basis of the fact that if you have a $2 billion project in Australia getting tens of millions of dollars' worth of tariff concessions, it was a reasonable obligation to ask of those companies to do something about getting Australian companies into the global supply chain. Australian companies will not be successful if they are just involved in local projects. They will need to be part of a globally integrated program. The companies that do this do have alternatives to get tariff concessions. They can go to the tariff concession scheme or, if they are importing their material from a free trade agreement country, go through the processes to meet the rules of origin. So if companies want tariff concessions there is a tariff concession scheme, there is an Enhanced Project By-law Scheme which imposes a new and additional obligation for very large projects or there are free trade agreement processes. Companies make a decision about which is the most effective for them.

Senator COLBECK: Do those other programs have a similar requirement to have an Australian industry opportunity officer embedded into their procurement—

Mr Lawson : No. Each of those programs are different.

Senator COLBECK: I understand that they are different. I am just looking at the implementation of the concept into the policy process. That is all I am looking for. So it applies to the process we are talking about but not the others?

Mr Lawson : Correct. It has been from the Defence Global Supply Chain Program.

Senator COLBECK: Is there any sense of what rank or level of responsibility in the procurement process these officers would have?

Mr Lawson : We have a consultation process that has either just started or is about to start.

Mr Wilson : It has started. It closes on 18 June. On the location of the Australian industry opportunity officer, is up to the company to decide what is best for them and to work with the department. We are not being prescriptive about that.

Senator COLBECK: That is good of us!

Mr Lawson : We have put out a consultation document to the companies that are involved in the Enhanced Project By-law Scheme seeking their feedback on effective implementation of this measure.

Senator COLBECK: So you do not have it completely designed yet?

Mr Wilson : No, we are consulting with industry. Just going to your other point about the competencies for an Australian industry opportunity officer, that is covered in the consultation paper—possessing experience or knowledge in areas of Australian industry capability and procurement of goods and services for major projects and also significant standing within the organisation so that they are able to deliver the intended activities.

Senator COLBECK: You have identified that 24 ASL need to be assigned to establish the legislation and bureaucracy of the Australian Industry Participation Authority and also will be set up to oversee these rules. Where will the authority be based and how did you arrive at the number of 24 ASL?

Mr Lawson : The authority will be based in Canberra. A process will be gone through to appoint the CEO of the authority. It outlines in the legislation the sorts of qualifications that person would need to have. Then the authority will include a transfer of some functions that already occur within Canberra, and the creation of new functions. Some of the functions that are being transferred are terminating programs and some are ongoing programs. So there is a relatively complex process of calculating the net requirements for what will be around a 50-person organisation. My colleague can take you through some of the elements.

Senator COLBECK: How do we get from 24 to 40 or 50?

Mr Lawson : There are new persons plus the transfer of existing functions. That might well be the difference. For the legislative AIP plans and the Enhanced Project By-law Scheme program, which are new elements, it is five ASL in 2013-14 and eight thereafter. For the continuation of AIP plan requirements that are for government procurement, which is a terminating program with five ASL. So those five ASL have to be funded in the future.

The Supplier Advocates program—I should explain that this authority is not just about the requirement to do the AIP plans; it is also some efforts to facilitate work with the local supply chain to improve their capabilities and get them to be more competitive and do some introductory work to the large projects. The Supplier Advocates program has 10 ASL in it from this financial year, when it otherwise would terminate.

The Resources Supplier Advocates envoy and forum process is currently nine ASL, but that terminates at the end of 2014-15, so it is nine ASL afterwards. Then the corporate costs—because it is a separate authority, although will be embedded in the department to reduce some of the separate costs—start at 6.5 people in 2013-14 and will steady out at 11.5 people. They are set up this financial year and next at four people. So getting new ASL of 30 in 2013-14, and new ASL of 43 or so in 2016-17. That is the additional funding and costing for programs, some of which are new and some of which are existing ones that would otherwise terminate.

Senator COLBECK: Effectively, at the end of the day, we will have about 40 or 50 people administering the program.

Mr Lawson : There are about eight people administering the program we have been talking about. There are other programs that—

Senator COLBECK: Will roll into this organisation—

Mr Lawson : Will roll into this. There are the AIP things, which are about projects—being clear about the opportunities available for Australian industry—but then there is a bunch of programs around lifting the capabilities of small and medium enterprises so that they are better able to win those opportunities when they are made available.

Senator COLBECK: If you could give us on notice all the programs that will be rolling into the administration under that agency. The government has announced that it is going to spend $10 million of taxpayers money advertising the plan. Can you tell us how specifically the money is going to be spent, and when and if it is all going to be spent before the election?

Ms Watson : Yes, you are correct that $10 million has been set aside for an information campaign to promote the plan for Australian jobs. At this stage it is a campaign that is under development, so we do not have any details we can share. But it is certainly under development and the department is leading that.

Senator COLBECK: What is the time frame? Can you give us a profile of the expenditure under the program?

Ms Watson : Yes. The expenditure is for 2012-13, so it is this financial year.

Senator COLBECK: So you have four weeks to get it out the door.

Ms Watson : Absolutely.

Senator COLBECK: And the program is still under development?

Ms Watson : The campaign is under development. That is right.

Senator COLBECK: That is $10 million to spend before the end of the financial year on a program that is still under development? Time to go to lunch!

Proceedings suspended from 13 : 31 to 14 : 32

CHAIR: The committee will come to order. We continue on Outcome 1 and will so continue until 3.15 when we switch to small business.

Senator BIRMINGHAM: Can I go to the suite of clean technology programs. My understanding is a large sum of the money in those programs has been brought forward and, to an extent, some of it put into the one year. Can you give us an outline, please, of the sum total; how much is being front loaded; how much will be actually paid out, according to the government, in the 2013-14 and 2014-15 financial years; and how much of that payout is currently contracted versus still to be subject to an approvals process?

Ms Peterson : Perhaps I could begin with giving you the administered funding amounts and current commitments. For the current year, 2012-13, the budget is $54.815 million and the total commitments are $53.518 million. Going to 2013-14, the budget is $166.746 million and the current commitments are $69.325 million. In 2014-15, the budget is $376.400 million and current commitments are $40.616 million. In 2015-16, the budget is $185.750 million and the current commitments are $6.545 million. In 2016-17, the budget is $25.068 million and the current commitments are $661,000. In 2017-18, the budget is $880.973 million and there are zero commitments in that year currently.

Senator BIRMINGHAM: Thank you for that. In terms of the uncommitted funds over the course of next year, you go into the next year with close to $100 million uncommitted at present.

Ms Peterson : Yes.

Senator BIRMINGHAM: Obviously the expectation is to fully commit that sum in the next financial year.

Ms Peterson : That is correct.

Senator BIRMINGHAM: What will the time line be for contracts and applications in terms of making those commitments?

Ms Peterson : We would expect to commit all of those funds within the course of 2014.

Senator BIRMINGHAM: Is there an accepted round of applications underway at present, or is there a time line for the next round of applications in terms of when you are going to start to commit that $97 million? When would you expect to starting to make those commitments?

Ms Peterson : We have a continuous assessment process, so it is not rounds based. The figures that I have given you were current as of 30 April 2013, so there would be additional commitments which would be made for grants approved in the remainder of this financial year, and further commitments made from approvals that occur during 2013-14.

Senator BIRMINGHAM: Who has the final sign-off on grants to be approved?

Ms Peterson : The program delegate makes the final funding decisions on advice from Innovation Australia.

Senator BIRMINGHAM: The program delegate—that being an official within the department?

Ms Peterson : Correct.

Senator BIRMINGHAM: Are there current applications as part of the continuous assessment program that are pending approval?

Ms Peterson : Yes, there are.

Senator BIRMINGHAM: What is the quantum in terms of number of applications and value of those applications?

Ms Peterson : I do not have those figures with me. I would have to take that on notice.

Senator BIRMINGHAM: Do you have any indication? Is it just a handful or a lot? Does it make a big dent in the $97 million?

Ms Peterson : In terms of the numbers of applications currently under consideration, there are about 68, I think, which were considered by members of the department who have the delegation to make recommendations to the delegate for grant amounts up to $300,000. The delegates are yet to review those recommendations. There are further applications being considered by Innovation Australia committees during June.

Senator BIRMINGHAM: In terms of the value of contracts to date, are you able to give us a breakdown as to the different size of grants that have been allocated, by whatever metrics you may have them easily broken down?

Ms Peterson : Certainly. The smallest grant amount, I think, that has been approved to date is $25,000 and I think the largest grant is about $9.8 million so far. I do not have full details in front of me in terms of the size of grants across the number approved.

Senator BIRMINGHAM: Could you break that down. As a continuous assessment process, what is the process the department has and continues to undertake in terms of inviting applications?

Ms Peterson : I am sorry. Could you repeat that.

Senator BIRMINGHAM: In terms of inviting applications for funding. given that this is a continuous program without a defined period for putting applications in, what process has the department undertaken and what are you doing to encourage companies to apply?

Ms Peterson : Customers are encouraged to apply through information that is available on the AusIndustry website. We have an online application form which customers are asked to complete, and they can submit that at any time. There have been a range of marketing and promotional activities that have taken place over the life of the program, which have generated a significant amount of customer interest. I can talk you through some of that in a bit more detail if you wish.

Senator BIRMINGHAM: Have you directly written to companies or directly utilised industry associations or otherwise to try to solicit applications?

Ms Peterson : Yes, we have certainly done that. Just prior to the launch of the program, we wrote to around, I think, 4,000 individual companies that we thought were potentially customers for the program. We have a stakeholder list including around 400 individual industry associations and we provide them with regular content and updates on the program, which they then distribute to their networks.

Senator BIRMINGHAM: Are the grants given in one lump sum or are there milestone targets to be met before payments are made?

Ms Peterson : Payments are made in arrears, on achievement of milestones, so customers would have a funding agreement which outlines each of the milestones and the relevant evidence that is to be provided by the customer to provide assurance that the milestone has been completed, and payments are made on receipt of evidence of those milestones.

Senator BIRMINGHAM: What is the average cost per tonne of abatement under the programs?

Ms Peterson : For projects that have been approved up to 30 April, for the Clean Technology Investment Program it is $19.16; for the Clean Technology Food and Foundries Investment Program it is $13.53; and for both programs it is $15.55. But I should emphasise that that is the cost just in relation to the grant; it is the fiscal cost rather than the resource cost, if you will.

Senator BIRMINGHAM: And what proportion of funding is the Commonwealth usually contributing on average?

Ms Peterson : The average grant ratio is two to one, so that is $1 from the Commonwealth and $2 from the customer.

Senator BIRMINGHAM: I think I got the number that had been considered. Can I get a total number of grants that have been committed to date?

Ms Peterson : As at 31 May the number of grants approved is 335.

Senator BIRMINGHAM: Has the department been asked to undertake any analysis of what electorates those grants are in?

Ms Peterson : We record the address of each of our customers, so we do have that information.

Senator BIRMINGHAM: Have you been asked by the minister's office or simply provided of your own volition breakdown information in relation to what electorates those grants are in?

Ms Peterson : Yes, we have.

Senator BIRMINGHAM: Do you have that information such that you could table it?

Ms Peterson : I do not have it, not that I could table, but I can provide it.

Senator BIRMINGHAM: Do you know how many are in coalition seats versus in Labor seats?

Ms Peterson : No, I do not have that specific breakdown.

Senator BIRMINGHAM: If you could present that information when possible, that would be great.

Ms Peterson : Certainly. Can I also add that, in accordance with the Commonwealth granting guidelines, once we execute an agreement with one of our customers, information is published on the departmental website.

Ms Butler : Which includes the electorate; I am pretty sure it does.

Senator BIRMINGHAM: I am not sure that it does, actually.

Ms Butler : No. I thought it did. Sorry, my apologies. But we do collect that information and our customers are aware that we collect that information as part of the application process.

Senator BIRMINGHAM: Why would you collect electorate information as part of the application process?

Ms Butler : We collect their address.

Senator BIRMINGHAM: Have you had referrals from the minister or members of parliament for funding?

Ms Peterson : Are you asking whether we—

Senator BIRMINGHAM: Has the minister or members of parliament said, 'You should get in touch with this company—they look like a worthy recipient—and see whether they would like to apply.'

Ms Peterson : There have been instances where we have been asked to make contact with customers and discuss the opportunities under the programs, yes.

Senator BIRMINGHAM: How many instances?

Ms Peterson : I do not have that information with me.

Senator BIRMINGHAM: Instances that have come from the minister's office?

Ms Peterson : Yes.

Senator BIRMINGHAM: And from other members of parliament?

Ms Peterson : No, typically I think any such request would come through the minister's office.

Ms Butler : And quite a number of those requests will come through ministerial correspondence that the company has directed to our minister and then our minister would pass that through to us for us to action.

Senator BIRMINGHAM: Thank you.

CHAIR: Senator Colbeck has some questions.

Senator COLBECK: In relation to the Steel Transformation Plan, how much of the $300 million has been spent and is the remainder fully committed

and, if so, how much of the $300 million has been committed to BlueScope and how much to Arrium?

Mr Sexton : Senator, as you know, it is a $300 million program. So far we have committed $164 million. Those payments were made in the 2011-12 year. Of that, $100 million was paid to BlueScope and $64 million was paid to Arrium, formerly OneSteel. There are no further payments until 2014-15.

Mr Lawson : I would just like to clarify that, because it is a legislated special appropriation like the Automotive Transformation Scheme, it is all committed; $164 million has been paid.

Senator COLBECK: So it is all committed. How much of the remaining $136 million is committed to BlueScope and how much to Arrium?

Mr Sexton : The remaining committed to BlueScope is $83 million, and the remaining committed to Arrium is $53 million.

Senator COLBECK: What is the rest committed to?

Mr Sexton : Those two amounts—$164 million and $136 million—should add up to $300 million.

Senator COLBECK: Okay, thank you.

CHAIR: Thank you. Could I just go back to the line of examination that Senator Birmingham was pursuing. Ms Peterson, you were having a discussion with Senator Birmingham about costs. Could you just explain to the committee the difference between resource costs and fiscal costs?

Ms Peterson : I will have a crack, but I would like to also ask my policy colleagues to assist.

CHAIR: Yes.

Ms Peterson : In terms of fiscal costs, I was just looking at the cost of carbon abated in terms of the grant amount. In terms of resource cost, it would be calculated based on all the costs and benefits associated with the project.

CHAIR: So one is a simple outgoings cost and the other is, as you say, the total cost involved in the project.

Ms Peterson : Indeed, and I am not sure—

CHAIR: Does anyone else wish to add or supplement to that?

Mr Kennedy : That is a reasonable representation. Resource costs represent, if you like, the full economic costs associated with such a calculation, whereas a fiscal cost estimate, as I understand it, is simply calculated by the moneys paid by the emissions. So that is not a cost, for example, that would be easily compared with a carbon price, which is of a resource-cost nature.

CHAIR: No, I understand the difference. With these grants that you were discussing with Senator Birmingham, how do the recipients receive the grant? Is there some sort of committee? Is it independent? Is it decided by public servants? Is it decided in the minister's office? What is the process?

Ms Peterson : In the approval process for applications, the first step is that AusIndustry undertakes some due diligence on each application to confirm its eligibility and completeness.

CHAIR: Who does that due diligence?

Ms Peterson : AusIndustry—officers of the department—to confirm application eligibility and completeness. Then the applications are considered against the program merit criteria by Innovation Australia. Innovation Australia is a statutory organisation established by government—I think originally to assist with the administration of some innovation and venture capital programs. Innovation Australia has a number of expert committees, including a committee for the general investment program and the food and foundries investment program. Expert members of the committee assess each application and make a funding recommendation to the program delegate. The delegate makes the final decision based on the recommendation from Innovation Australia and taking into account available funds.

CHAIR: And the program delegate is a senior SES-level public servant?

Ms Peterson : Yes. I am the program delegate.

CHAIR: On the basis of that assessment and advice, you personally then make an assessment and it goes through the system then. Is that correct?

Ms Peterson : Yes.

CHAIR: Thank you, Ms Peterson.

Senator McKENZIE: I have some industry assistance questions to ask—hopefully just some quick statistics, given the time. I know Senator Colbeck has a lot of questions. What value of assistance, measured as a percentage of industry output, has been provided by the federal government to the motor vehicles and parts manufacturing sector?

Mr Lawson : The Productivity Commission trade and investment annual review publishes so-called effective rate of assistance data. Currently, the effective rate of assistance, which is the assistance as a percentage of value added, is 8½ per cent for the automotive industry, compared with, back in the mid-eighties, 150 per cent. So there has been a decline in the effective rate of protection as the tariffs and quotas have been taken down.

Senator McKENZIE: Can you give me a similar figure for the federal government assistance to the textile, clothing and footwear manufacturing sector?

Mr Lawson : The figures are quite similar, but I do not have them to hand.

Senator McKENZIE: That is fine. I am happy to take that on notice—today hopefully. Hopefully that will not be far away.

Mr Lawson : Yes.

Senator McKENZIE: What about the assistance, measured as a percentage of industry output, that the federal government has provided to the wood and paper products manufacturing industry?

Mr Lawson : Again, I would have to just check. We use this stuff from the Productivity Commission. It is published in the trade—

Senator McKENZIE: My understanding is that it is 4.7 per cent. Can you just check that?

Mr Lawson : Yes.

Senator McKENZIE: Similarly, for metal products manufacturing, can you give me the federal government assistance using the Productivity Commission's figures? Please correct me if I am wrong, but my figures are 4.3 per cent.

Mr Lawson : They sound about right. They are predominantly tariff based.

Senator McKENZIE: What value of assistance, measured as a percentage of industry output, has been provided by the federal government to the agricultural sector?

Mr Lawson : Again, the Productivity Commission publishes those numbers. I would point out that, in these comparisons, the Productivity Commission's measures do not always include everything. They include the tariffs and quotas and those sorts of things and nominated budget—

Senator McKENZIE: Do we have tariffs on our agricultural products?

Mr Lawson : Yes. The five per cent basic tariff is still there for many things. Then there is the debate, the argument, about things like diesel fuel rebates and, for the banking sector, the value of the government guarantee on banking, and the value of the government's requirements for compulsory superannuation, for the superannuation industry. Those things are not counted in the Productivity Commission's measures.

Senator McKENZIE: But you are happy with how the other industry sectors are measured?

Mr Lawson : Yes, absolutely. The PC is the official measure of effective—

Senator McKENZIE: Why don't we stick with the PC figures then?

Mr Lawson : Yes.

Senator McKENZIE: In terms of industry assistance, what was the federal government's response in May 2011 to the Heinz relocation of Golden Circle beetroot production from Brisbane to New Zealand, with the loss of 150 jobs? What assistance was offered at the time?

Mr Lawson : I would have to take that on notice.

Senator McKENZIE: Thank you. That is fine. Rosella entered into voluntary administration in December 2012. What government assistance was offered when it shut, with the loss of 70 jobs, this year? Do you want to take that one on notice too?

Mr Lawson : I would have to.

Senator McKENZIE: Okay. Windsor Farm, a business that fed Australian and US troops in World War II, went into voluntary administration in March and dismissed 70 workers. Could you also take on notice the government assistance that was provided to that company? Similarly, Mondello Farms, which employs 140 people in the potato processing industry, called in the receivers in March. I am wondering what the government assistance is to save those jobs. You can take that one on notice too, Mr Lawson. That is fine.

Last month SP exports, once Australia's largest tomato grower, folded, with the loss of 50 jobs. I would like to know what incentives the government offered to stop that failure, and also the federal government's assistance to Grain Products Australia and the 46 jobs lost there; the 64 jobs lost last year from Murray Goulburn's milk drying operation in Rochester; and the 146 jobs lost in Girgarre and 38 in Wagga with the closure of Golden Circle. This brings me to my point, Mr Lawson: I am really keen to know what government industry assistance is going to be available to another iconic Australia brand, SPC Ardmona, and the 870 employees in Shepparton, in addition to the 160-plus growers that support that iconic Australian business.

Mr Kennedy : That would be a matter for government.

Senator McKENZIE: The department is not in discussions with government? There has been no communications from government to the department around this particular issue?

Mr Kennedy : We discussed the economic circumstances around a number of industry developments, including the ones you are referring to, and we would advise government on them all the time. I can inform you that there have been some discussions around one of the programs with the department, ministers and SPC Ardmona, I believe.

Ms Butler : Yes, we have been in discussions with SPC around their eligibility for a number of the AusIndustry programs.

Senator Lundy: I can also advise you that I understand Minister Combet met with representatives of both SPC and the AMWU yesterday to discuss their issues.

Senator McKENZIE: Are you able to advise us of the outcome of that meeting?

Senator Lundy: No, I am not, but I will take it on notice.

Senator McKENZIE: Thank you; I appreciate it. And you have no idea around the timeliness, given that the company wrote to the Prime Minister over a month ago? It is quite time sensitive, as you would appreciate.

Senator Lundy: I certainly do, and I think the fact that the minister did meet with the representatives yesterday shows that we are obviously in a position to progress things, but I am not able to give you any detail today.

Senator McKENZIE: Was this in specific reference to the application for emergency safeguard measures?

Senator Lundy: I am not aware of that specifically. As I said, I will take it on notice, but I think in the context I would reasonably expect so.

Senator McKENZIE: Thank you.

CHAIR: Ms Peterson, we were having that discussion about resource costs and fiscal costs. Could you just put on the record the kilotonne abatement figure involved in that process? Do you have it available?

Ms Peterson : Are you asking for the total tonnes of carbon abated across all projects currently approved?

CHAIR: Yes I am.

Mr Kennedy : Perhaps I could just add that one does need to interpret these types of numbers carefully, because within a capped emissions trading arrangement, as you go forward, you get in a sense what cap you put on the economy. So, granting programs of the nature that Ms Peterson is talking about tend to change where you might source abatement. But your net emissions targets are achieved through your capped arrangements—the net of your domestic abatement and any international purchases you might make. One should think about these as kind of partial equilibrium, or a partial contribution. The effective contribution to overall abatement is within that capped arrangement, so really the emissions trading scheme sits at the centre of your emissions reduction.

CHAIR: Thank you for that, Mr Kennedy. Now, do you have a bit of meat to put on that bone, Ms Peterson?

Ms Peterson : Yes I do. In terms of the numbers of approved projects current as at 31 May, the total tonnes of kilotonne abated is 11,917.32.

CHAIR: Sorry—11.9 million tonnes?

Ms Peterson : 11,917.32 kilotonnes.

CHAIR: For all of the projects?

Ms Peterson : Correct.

CHAIR: Was it concentrated in any particular area? Or is there an even spread across the projects?

Ms Peterson : The tonnes of carbon abated will vary depending on the nature of the emissions reduction measured to be undertaken in the project that has been funded. For instance, typically projects that involve reduction of direct emissions and projects that involve switching to a cleaner fuel source are more likely to generate larger tonnes of carbon abated than projects that are simply about modifications to manufacturing processes. I would say that is generally the case, but there are always exceptions.

Senator BIRMINGHAM: Over what period of time?

Ms Peterson : That would be over the effective life of all of those projects. The effective life will vary for each project, depending on the nature of the plant and equipment. In determining effective life we use ATO depreciation values. Where we have projects that involve a number of different bits of kit we would use a carbon weighted average to calculate the effective life.

Senator BIRMINGHAM: Ranging from? Just to give us a time line.

Ms Peterson : Ten years to 30 years.

Senator CAMERON: I would like to go back to the Plan for Australian Jobs—Australian Industry Participation. This plan is about trying to maximise the capacity for Australian companies to access the goods and services that arrive from the significant investment in the mining industry and other major projects. Is that correct?

Mr Lawson : Yes.

Senator CAMERON: Recently the Minerals Resource Rent Tax inquiry had both BHP and Rio Tinto, and I think Xstrata, appearing before the committee. Each one of those companies could say how much they had sourced their goods and services within Australia. There were figures for local resourcing, but when I asked them none of those companies could tell me what was the value of and what type of goods and resources were sourced overseas. Does he department have any idea?

Mr Lawson : A lot of that data is not available, because there has not been a requirement for AIP plans to be reported. I think one of the things that will happen out of this legislated AIP plan is that we will be collecting data not just on where the contracts were laid. It will go to whether that was sourced in Australia, or otherwise. I think there are estimates around on those proportions. The Reserve Bank actually published some material recently, much of it based on input/output analysis—and consulting with companies in a similar process to the way we do. It varies. It has tended to be the case that the very large gas projects have less local content than small, hard-rock mining projects, for example. There is some evidence to suggest that globalisation opening up those supply chains means that there is some actual reduction in the local content of even the smaller hard-rock mining processes. Also, it depends on whether you measure the investment/construction phase or you look through the life of the project, because there is obviously a stronger content in the ongoing maintenance and supply. So any numbers between 30 and 70 per cent would be the range of numbers that I would see for different resource projects.

Senator CAMERON: So is that a range of 30 to 70 per cent sourced overseas?

Mr Lawson : Local—well, either way; it is a symmetric of that range.

Senator CAMERON: If it is the bigger projects that would be more sourced overseas, does not it follow that they would be the ones that probably are 70 per cent sourced overseas?

Mr Lawson : Yes, they are the ones that tend to have in the construction phase a larger overseas sourced—

Senator CAMERON: These are projects worth billions of dollars?

Mr Lawson : But it will be highly variable between a floating offshore platform and one land based construction phase. I am being a bit equivocal in the numbers, but they are so variable.

Senator CAMERON: What was the Reserve Bank's assessment?

Mr Lawson : Those sorts of numbers that I just quoted are similar to our—

Senator CAMERON: Did they do it by value? Did they do it by lost job opportunities? What did they do it by?

Mr Lawson : No, it was a value of local content. It was a sort of measure of value.

Senator CAMERON: Was that a dollar value or a percentage?

Mr Lawson : Yes, dollar.

Senator CAMERON: What was the dollar value?

Mr Lawson : The percentage terms are the numbers that exist in my head, I am afraid. I would have to take on notice the dollar—

Senator CAMERON: But there is a Reserve Bank dollar value?

Mr Lawson : I cannot remember. I would have to take that on notice to get that.

Senator CAMERON: Take that on notice, and maybe one of your officers might know that figure off the top of their head, given that this is what you guys are all about.

Mr Wilson : I have the percentages but not the numbers.

Senator CAMERON: You had them but you do not have the numbers?

Mr Wilson : No, I have the percentages.

Senator CAMERON: That is the 30 to 70 per cent?

Mr Wilson : Yes, that is 70 to 80 per cent for iron ore projects.

Senator CAMERON: Is that local?

Mr Wilson : That is local, yes—and around 40 to 60 per cent for LNG projects.

Senator CAMERON: Is that 70 per cent by value of the project?

Mr Wilson : Yes.

Senator CAMERON: Does it provide any details about the engineering input?

Mr Wilson : Not with what I have before me, no.

Senator CAMERON: This is the same as you get from the companies as well. It is all a big secret about what is happening. If 70 per cent of a multibillion-dollar project is being sourced overseas, that is a fair loss in job opportunities for Australian workers, isn't it?

Mr Lawson : I think that is the government's position and why they have introduced the Australian Jobs Bill and Australian industry participation requirements, which—

Senator CAMERON: It is not only the government's position; it is a fact, isn't it? It is not whether it is the government's position. I am asking you about a factual position. The factual position is that, if 70 per cent goes overseas, then that is the loss of job opportunities in Australia. Surely you cannot argue with that? Is that a yes?

Mr Lawson : In the direct implications, yes. If you want to go general equilibrium, it is a different story.

Senator CAMERON: The Australian Industry Participation plan is to try and deal with these lost job opportunities—correct?

Mr Lawson : Correct.

Senator CAMERON: The ABS are appearing later. Have you any idea why the ABS do not keep statistics on the amount of local content versus overseas sourced product in goods and services?

Mr Lawson : No, I think one should ask that of the ABS.

Senator CAMERON: I thought maybe you guys would have asked them at one stage or another. No? Have you ever spoken to the ABS in relation to keeping any of these figures?

Mr Lawson : If you use the input-output tables, you are able to do an analysis of what flows offshore. Even for the government procurement processes, the history has been collecting, if it is an Australian ABN that has had the business. But, in the end, whether they are selling an imported product has not been collected. It is an additional piece of information that is certainly proving of additional interest. We hope, through the AIP plan arrangements, to have a better collection of that sort of data. The companies are not keeping it secret, but companies just do not directly collect; they want to know who they bought the product from and how much, not where it originally came from. That is not specifically an interest of business.

Senator CAMERON: The companies might want to do that, but—for economic efficiency and job creation—surely we want to know.

Mr Lawson : Yes. So the input-output tables are a way of doing that in an aggregate way.

Senator CAMERON: But the AIP plans will open up that veil of secrecy that surrounds this industry, will it?

Mr Lawson : It will certainly give us more information. That is part of the process. We will be able to determine what those local contents are. One of the issues that we have to be careful on in all those things is our WTO obligations.

Senator CAMERON: Why are we the only ones that are concerned about WTO obligations? Why are we Marquess of Queensberry and everyone else is in the cage kicking, gouging and belting us up? Do you have any idea? I might ask Minister Emerson about that.

Senator McKENZIE: Yes, please do.

Senator CAMERON: Now, on standards: the complaint I get continually from local fabrication workshops, steel workshops and engineering workshops is that the standards that are set out in some of the contracts are either not Australian standards or international standards and they are designed to actually ensure that local companies cannot make a bid on the projects. Have you heard this?

Mr Lawson : Certainly, we have had allegations made to us along those lines. We have done some investigations of specific tender documents that have been provided to us. It is a bit of a mixed response. In some cases, the tender document has prescribed Chinese testing standards, for example. But that actually had occurred after an expressions-of-interest process had failed to identify any Australian bidders. In that circumstance, that was tendered to us as evidence of them being locked out, but the company was able to explain. In other cases, the best that the procuring company has been able to say is, 'Oops, that was a mistake.'

It has certainly been the case that tender documents sometimes express a specific country; it is either the standards for the type of product or, more importantly often, the testing standards. The identifying of whether people have been doing that or not, in the absence of wide-ranging AIP plan processes, has been hard to do. We would expect that the legislated AIP plans will have an obligation on companies to explain what they are doing if they do not use Australia or generally available overseas standards. We think that will make sure that people think about what they are doing and do not make mistakes.

Senator CAMERON: Given this position—that, as you say, some companies having looked at Chinese standards after they have called for the bid, have you also heard that the bids are put out in such volume—these are monstrous projects—that no Australian company has the capacity to actually make the bid? This is another ruse and another way of ensuring that Australian companies do not get access?

Mr Lawson : Yes, it is certainly an issue about the size of requests for tender. That is part of the reason for this AIP process, which is to make sure that the tendering company understands the capabilities in Australia. It is in their interest to get the best available bids. If they are not efficiently structuring their tender documents because they do not understand the local situation, that will reduce their capacity to get efficient production. But equally, it is not a charity exercise. The companies do have to be competitive and do need to achieve the scale—

Senator CAMERON: I am not asking you whether it is a charity exercise. I think these value judgements are a bit condescending to Australian industry, but that is okay.

Mr Lawson : Could I say just that our steel supplier advocates are working with steel companies to try and see if they can get joint-venture agreements together so they can achieve the scale that will make them more able to compete on some of those things. For companies, it is quite a legitimate exercise to say, 'I want to have a single point of responsibility', and that can set the size.

Senator CAMERON: Okay. The analysis conducted by the government indicates that, if we can get these industry participation plans working well, it would see an additional $1.6 to $6.4 billion of extra work. Can you just take us to how that came about, and how many extra jobs that could create?

Mr Lawson : The analysis was reported in our regulation impact statement. It is based on the department looking at the numbers of projects in the pipeline based on the publicly available Deloitte Access Economics Investment Monitor. We investigated that, and we had looked at information provided to us by the Industry Capability Network about the additional opportunities that can be provided by a well-prepared, well-implemented Australian industry participation plan. It was on that basis that the analysis of the value of additional work was calculated. I do not believe we have converted those numbers into an employment number, I am not sure. I do not think so.

Senator CAMERON: Well, there is a standard approach to this—that there are certain values and certain outcomes in various industries. Could you take that on notice and see if you can provide us with some analysis of the jobs that could be available through this program?

Mr Lawson : Yes, we can take that on notice.

Senator CAMERON: Thanks.

Mr Lawson : There is some variability between sectors.

Senator CAMERON: Yes, that is what I said.

Senator COLBECK: On page 29 of the budget portfolio statement there is an item totalling $30.335 million in 2012-13 out to 2016-17. How much of that is for the Food Plan?

Mr Lawson : Senator, is that on page 29 of our PBS?

Senator COLBECK: Yes. It is about halfway down: Decisions taken but not yet announced; 2.5, 6.3, 5.9, 7.9, 7.5.

Mr Lawson : Okay. The National Food Plan is not in our portfolio.

Senator COLBECK: Well, DAFF told me that there was some funding in your portfolio when I spoke to them last week.

Mr Lawson : I think it is possible that the Food and Beverage Supplier Advocate that has since been announced—

Senator COLBECK: Which is about $500,000 I think.

Mr Lawson : Yes. Senator, we do not have that breakdown in front of us. We can take on notice your specific question about how much of the National Food Plan monies are inside the 'Decisions taken but not yet announced' line.

Senator COLBECK: And about how much of that funding—that $30.34 million—remains unannounced.

Mr Kennedy : Okay. We will take that on notice.

Senator COLBECK: So there has been no announcement since the budget out of that funding?

Mr Kennedy : Not as far as we are aware, Senator. We will confirm that at the same time as we confirm the information about the National Food Plan.

Senator COLBECK: Okay. Can you tell us what you are doing to ensure that the assistance promised to Australian clothing and household textile manufacturers is fully expended, so that they receive the full amount of $112.5 billion promised through the BIC scheme? My understanding is that this year it is projected not to reach its full expenditure—and won't in the out years if the current parameters stay the same.

Mr Sexton : That is the program over five years with an annual appropriated amount of $22½ million.

Senator COLBECK: Yes, I understand that.

Mr Sexton : There is no indication that we are not going to spend that money at this time.

Mr Lawson : I should point out it is a special appropriation and there is a modulation rate that applies. If the spend is over the rate then people are modulated down to only spend the $22.5 million that is available each year. If, per chance, the actual expenditure by the companies to earn the money is below that rate then it rolls over into the next year.

Senator COLBECK: So, if it is underspent in one year it can be rolled over to be spent in the following years.

Mr Sexton : That is correct.

Senator COLBECK: And there is capacity to do that within the system.

Mr Sexton : But in 2011-12 the modulation rate was only 0.71. It has moved this year to higher but it is not at one.

Senator COLBECK: But at the end of the day it can be rolled over into future years, so it will be spent through the program.

Mr Sexton : It is available to subsequent years in the program.

Senator COLBECK: Yes. Can you tell me how many ASL are currently specifically dedicated to administering relationships in relation to the Manufacturing Technology Innovation Centre?

Mr Lawson : The Manufacturing Technology Innovation Centre funding was rolled into the innovation precincts, so the centre does not exist.

Senator COLBECK: So how much of the $29.8 million to the centre has been spent to date?

Mr Lawson : The full commitment was rolled over into the innovation precinct.

Senator COLBECK: Has any of that money yet been spent?

Dr Green : Yes, some of that money has been spent.

Senator COLBECK: Can you tell me how much and what on?

Dr Green : Expenditure up to the end of April has been $295,371 on departmental expenditure and $14,924 on administered expenditure.

Mr Lawson : Half of that is for staff and half of it is for various consultancies to contribute to the establishment of the precincts program.

Senator COLBECK: From what dates will the advance manufacturing precinct and the food precinct, respectively, be operational?

Dr Green : We are expecting the manufacturing precinct and the food precinct to be established from 1 July.

Senator COLBECK: How will the money that has been allocated to the food precinct be specifically spent?

Mr Lawson : While my colleague is working through that: these precincts are to be industry-led. The precincts are currently in the process of establishing themselves, establishing boards, and establishing a legal structure with which to receive funding from the Commonwealth, and then they will be in a position to choose the services that they wish to deliver. So essentially the Commonwealth will have an agreement with those precincts, will provide grant funding to an agreed set of arrangements and they will spend the money as their board determines but seeking agreement from the Commonwealth as the funding agency.

Senator COLBECK: I just want to go back to the Manufacturing Technology Innovation Centre. That is a specific line item in your jobs plan. You are saying that that is now being rolled into something else.

Mr Lawson : No. In the jobs plan it identifies that the precincts have incorporated what was previously going to be done as the Manufacturing Technology Innovation Centre. Remember that the Manufacturing Technology Innovation Centre was announced at a previous budget. The Prime Minister's Taskforce on Manufacturing said that we should give a lot more consideration to what we are going to do. So they went through a rather extensive consultation process. That contributed to the government's Industry and Innovation Statement, which included precincts. Within the precincts, two were announced—manufacturing and food processing—with eight yet to be selected. And it is in our portfolio budget statements. The funding for the precincts includes the thing previously announced as the Manufacturing Technology Innovation Centre. So it did not occur.

Senator COLBECK: How much of the $1 billion in the jobs plan was already announced money, and how much was new?

Mr Lawson : The MTIC money was not re-announced. It was not included in that billion dollars. So there has not been a re-announcement of the MTIC money. It is declared in the portfolio budget statement that those numbers are added to the manufacturing precinct.

Senator COLBECK: So there was no already-announced money in the $1 billion in the jobs plan?

Mr Murfett : I will talk just about the precincts. It had a package of $504.5 million under the plan. Within that there was new money of $238.4 million directed towards industry innovation precincts. There was $29.8 million of the MTIC funding which was previously announced, and it also included $236.3 million of ARC ITRP funding.

Mr Lawson : Senator, that is identified in the jobs plan on page 15. There are footnotes there explaining which numbers are new numbers and which numbers were previously announced.

Mr Kennedy : There may have been some confusion earlier, Senator. Just to correct Mr Lawson's earlier comment: you asked the question, 'Was the money inside the announced jobs plan?' and it was inside the announced envelope.

Senator RYAN: I have one last question on manufacturing before we move on to small business. With respect to the grant to Alcoa, are there any clawback clauses in the contract regarding the funding to Alcoa—that was announced a year ago, I think—if Alcoa shuts down or scales back its operations at Point Henry in the foreseeable future?

Mr Lawson : I cannot remember what has been announced specifically about that issue. It has been announced what they can spend money on. But it was announced that they were to remain in operation on to July 2014.

Senator RYAN: So it only until July 2014 and anything that happens after that period does not have any impact on the payments in the contract?

Mr Lawson : That was what was announced.

Senator RYAN: I am just clarifying, because I do remember the announcement. Thank you.