Simon Crean (Hotham, Australian Labor Party, Minister for Trade) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Rudd government went to the last election with one of its major commitments to improve Australia’s trade performance.

The introduction of the Export Market Development Grants Amendment Bill 2008 represents a down payment on that commitment. In the first 100 days Labor have recalibrated our approach to trade negotiations to give renewed emphasis to the Doha Round and have commissioned a major review of trade policies and programs.

Further reforms will follow on trade policies and programs in terms of the Mortimer review that I have announced, which will report later this year.

But why is this renewed need to focus on our trade performance so important? It is for this reason: over the past five years world trade has grown at twice the rate of world output. The message is clear: if we want to secure our economic future beyond the resources boom we have to engage in the fastest-growing areas of opportunity. If we want to secure the future for Australia and Australian families we have to engage much better on the trade front, because that is where the biggest opportunities are. We have to pursue the policies that, in turn, will further liberalise trade and open up more market opportunities. If the reality is that the growth in world trade has been double the growth of world output over the past five years without a Doha successful outcome, imagine where the future opportunities could be if we actually conclude the round. But we have to make that approach to market access, liberalised trade and a more open trading environment at all levels in a calibrated, sensible and structured way, starting with the multilateral round, reinforcing it regionally and bilaterally.

Not only does the global market outcome, the Doha Round, present the best opportunities for the nation; it also sets the framework for further enhancements to trade liberalisation through regional architecture enhancements and bilateral arrangements. But, in addition to the trade negotiations, we also have to pursue policies of economic reform at home and see them through the prism of improving the nation’s trade competitiveness. The reason for that is that there is no point securing market access at the border if we as a nation are not competitive enough and productive enough to take advantage of those opportunities. And that is why we have been applying our approach to trade policy through what we refer to as the ‘twin pillars’ approach—reform at the border, the market access questions; and reform behind the border, continuing to strengthen and make ourselves a more productive and competitive economy.

For the future, if we get the strategy right, the current efforts of the government to reduce the growing level of inflation can be counterbalanced by growth in the export sector to underwrite employment and maintain an overall robust economy. That is what a government seeking to build a strong future for Australian families should do—and we will. But the previous government did not. Instead of capitalising on the opportunities presented through a sustained period of economic growth and the resources boom, under their leadership we in fact squandered the opportunity. In the last six years of the Howard government, despite the resources boom, total export revenues grew at an average annual rate of only 5.8 per cent, compared to 10.7 per cent in the 18 years following the float of the dollar in 1983.

When you look at the goods component, you see that goods grew under their leadership in the past six years at only 6.4 per cent, compared to an average growth of 10.3 per cent since 1983. Services grew at about one third of their long-term average. Manufacturing export growth collapsed. It rose three per cent a year in those six years, compared to 13 per cent a year since 1983. As a consequence, the Howard government have already bequeathed Australia 70 consecutive months of goods and services trade deficits. No government has presided over such a long period of trade deficits in succession as they did. Our trade deficit for the December quarter, 2007—the last quarter they left us—was at $6.9 billion, the worst quarterly trade deficit on record. I suppose, to put this picture into greater context again, net exports only made a positive contribution to economic growth in two of the 12 years that they were in office. Compare that to Labor’s record when we were last in office, where net exports made a positive contribution to growth in 10 of the 13 years. We have to get ourselves back to that position again.

This was a squandered opportunity by the previous government. How did it come about? It came about because essentially they failed to invest in the drivers of economic growth—in skills, in education, in innovation, in information technology and in infrastructure. Labor’s commitment through the education revolution—through increasing skills, training facilities in schools and the number of training places—to innovation and our establishment of Infrastructure Australia is where we are going to start to turn around that neglect.

The previous government also failed to encourage the diversification of Australia’s economic base. It failed to add value to our resources and was instead content to rely on just the commodities themselves. I accept that our commodities provide us with a great source of income. I do not argue that we should move away from our commodity base; I simply argue that we should do more with it. We should value add to our agriculture sector and our mining sector not just in terms of product but in terms of services. It is in the area of services and export performance that the previous government also let the nation down. In our domestic economy 80 per cent is contributed by the services sector yet the exports from that sector only contribute one-fifth. There is enormous potential for us here if we focus properly.

That is the reason why we have put so much emphasis on getting the strategy right for the future and have commissioned the Mortimer review to review trade policies and programs for the future, to give us strategic direction and to point to the sorts of settings that we should be establishing to improve our trade competitiveness. The review will be headed by that respected businessman and international trade economist John Edwards. We have put this in place in our first 100 days and we fully anticipate that it will set the framework by which we can improve our export performance for the future.

I go through those policy settings to put the context for this bill because I think it is important to understand. This bill should not be seen in isolation. It needs to be seen as part of that whole picture. The Export Market Development Grants Scheme—which we are amending today and, importantly, putting some funds into—has been an important component of getting businesses export ready and helping them access new markets. It was established by a Labor government and, whilst it was retained by the Howard government, as I will explain later it was seriously underfunded by them. The previous government had legislation in place requiring a review of the Export Market Development Grants Scheme by 2010. I have brought forward that review as part of the Mortimer review.

This bill introduces a down payment to that review, important changes to the eligibility of the scheme to operate from next financial year and, significantly, new funding—new funding that the previous government knew was needed but never delivered upon.

The Export Market Development Grants Scheme, which enjoys significant support among Australia’s business community, has been cut in half in real terms since 1995-96. That was despite a promise made back in 2001 and repeated in 2004 to double the number of exporters. The previous government believed you doubled the number of exporters by halving the scheme that helps them export. That was the stupidity of the previous government. Little wonder that they failed to meet their target by almost 50 per cent—their target of doubling the number of exporters. Every time an election time came along they would roll out the same old policy commitment but they never had the commitment to put the resources in place to make it happen.

If you look at the studies associated with the Export Market Development Grants Scheme, one study conducted in 2000 demonstrated that it returns an additional $12 of exports for every $1 of outlay.

The previous government not only halved the Export Market Development Grants Scheme but also abolished another successful trade facilitation scheme. It was called the International Trade Enhancement Scheme. Also they abolished the Innovative Agricultural Marketing Program. These were both axed by the previous government when it won office in 1996.

A study of the ITES, the International Trade Enhancement Scheme, concluded that it returned $18 of exports for every $1 of outlay by the government.

This scheme was available to firms with high export growth prospects that could not access the Export Market Development Grants Scheme either because they did not meet the eligibility criteria or because they had already received the maximum number of grants. They could still get assistance through this scheme, through concessional loans from a revolving fund.

The EMDGS is about supporting significantly small businesses. Of its 4,200 applicants, 75 per cent employ fewer than 20 people and 81 per cent have turnover of $5 million or less. Around a third of these companies are new to export. You can see the importance of this scheme. It is about predominantly small businesses—businesses that do not have an export culture, businesses that need to become export ready, businesses that need to be helped and facilitated in accessing the markets. Schemes like these address the market failures of shortages of export marketing skills and funds for entering overseas markets. These schemes encourage firms to spend more of their own money in seeking out and developing their export markets. There is a direct link between the money they spend and the export results they achieve.

All recent reviews of the scheme have found that the more these companies spend the more they learn about export marketing and the greater the returns per dollar spent. Quantifiable, positive results flow through the balance of payments from additional exports received and to consolidated revenue from tax collected. These schemes are an investment in our future. They provide opportunities for exporters to learn how to market their products and their services overseas by reducing the costs and risks. Austrade research shows that firms that export pay higher wages, provide stronger growth in employment and are more profitable. These are firms worth investing in.

In 1997-08 and in 2004-05 the former government made changes to both the eligibility criteria and the thresholds for the Export Market Development Grants Scheme which made it harder to access, and, as a result, in six of the 10 years following 1997-98 the scheme was underspent. That was the previous government’s view of things—strangle it so that they did not have to spend.

Business called for improved access to the scheme. The government ignored those calls. We did not. We have listened to business and, in the lead-up to the election last year, we announced during the campaign a number of improvements to the scheme. This bill today delivers on that commitment. It does, as I said earlier, represent a down payment, a start on improving the scheme to ensure that it better meets the needs of Australian export businesses.

Measures I am announcing today are unashamedly pro-business. It amused me during the campaign that the Liberal Party ran ads accusing me of being anti business. I have never been anti business in my life. Those who have worked with me know that. I think it shows the lengths that they would go to, in their desperation.

Business has been calling for changes to the scheme, and these measures in the bill represent those changes. I will go through them.

The bill increases the maximum grant by $50,000 to $200,000. This initiative will increase the amount of reimbursement that exporters are able to claim, recognising that many exporters spend a lot more than the $410,000 that will be required to receive a maximum grant. Every exporter faces increased marketing costs in international markets.

The bill also lifts the maximum turnover limit from $30 million to $50 million. It returns access to the scheme to medium-sized businesses to continue to capitalise on new export opportunity and develop and expand their export markets, thus making a real contribution to our balance of payments.

The bill also reduces the minimum expenditure threshold by $5,000 to $10,000, allowing new exporters early access to critical support for their first steps in exporting.

It allows the costs of patenting products overseas to be eligible for grants, in recognition of the need to protect our valuable intellectual property and investment in R&D.

It increases the limit on the number of grants able to be received by a business from seven to eight, supporting businesses by providing time to become sustainable in the development of new markets and grow their existing markets.

The EMDG scheme will be more accessible to service exporters by replacing the current list of eligible internal and external services with a new ‘non-tourism services’ category which will provide for all services supplied to foreign residents whether delivered inside or outside of Australia to be eligible unless specified in the EMDG Act regulations. In other words, it will introduce a negative list to the administration of the scheme. This will provide greater equity in access to the scheme for the burgeoning services sector of our economy.

The bill also allows state, territory and regional economic development and industry bodies promoting Australia’s exporters to access the scheme. This is a provision that will be warmly welcomed by a number of regional bodies which, for the first time, will be able to access the scheme and represent clusters, groupings of businesses, under their umbrella.

Finally, business development programs such as this scheme need good governance measures.

In 2006 the then shadow minister for trade, Kevin Rudd, said in a speech on his amendment to the bill that the removal of the performance test, which the government took out in 2006, was bad policy. He said:

The EMDG should reward those exporters who are genuinely trying to promote their businesses, not provide an ongoing source of funding for exporters unwilling to put in the hard yards and unwilling to subject themselves to proper testing on the question of whether, after an appropriate number of grants, they have in fact begun to export.

Accordingly, the bill restores performance accountability by introducing a net benefit test to Australia.

It is one thing to expand the scheme; it is another to fund the increased demands on the scheme.

This government is committed to increase the funding for the scheme by $50 million for the 2009-10 financial year, when the changes I just referred to will first affect grant payments.

Unlike the previous government, we will fund our commitments.

It is typical of the previous coalition government that two years ago, after all the complaints about the need to make changes to the scheme, when they finally made the changes they took the easy way out: they announced the changes but they did not fund them. In particular, they increased the amount firms can claim for overseas travel by their representatives from $200 per day to $300 per day—a 50 per cent increase—but did not fund it. Also, they removed the accountability requirements that I referred to.

This was not only bad policy. I think it is important to understand how much of a shortfall there was in the funding. It was estimated at the time that increasing the daily rate by 50 per cent would cost close to $9 million per annum and that changing the eligibility requirements would cost almost $7½ million—$7.3 million, to be precise. So they introduced changes to the guidelines, in terms of both eligibility and nonaccountability, but they did not fund them.

They did not adequately fund the changes. Even the most conservative estimates in the first year of those changes were that they were going to cost over $16 million, without any allowance for the growth in claim numbers and value that occurs in the scheme as a result of increased economic activity.

I see that the shadow minister for trade is on the opposition front bench, smiling away. He knows the problem. I read in a newspaper recently that he and the Leader of the Nationals, Warren Truss—what a double; interesting in terms of where the amalgamation might go in the future—said they were hammering the government to put more resources into this fund. What a pair of duds! They knew what was needed but they could not deliver in terms of their own government. This government will deliver because it is not prepared to make commitments to exporters for the future and not fund them.

What they should have done as a government was fund the increase in the daily allowance. The question of this underfunding is one thing, but, when we look at the numbers of underpayments that are now going to occur under this scheme, 27 per cent of the increase in the applications in the scheme occurred because they increased the daily allowance but did not fund it. So they generated demand but no capacity to meet it.

Also, changing the accountability requirements has proved to be a big factor in the growth in claim numbers, because under the previous scheme there was no requirement for people necessarily to perform. We are going to address that—to reintroduce the accountability.

The legacy that this government left us is a $27 million shortfall which will affect 900 claimants who have already spent the money in expectation of reimbursement. Here was a government that conned them. It claimed it was making changes to make it easier for them, but it had no intention of funding them. I am getting letters and I am sure everyone around the country is getting letters from people who are now realising what the problem is. I say this: blame the previous government. Blame it for its deceit; blame it because it had no commitment to Australia’s export industries; blame it because it misled people whom it encouraged in order to claim it was doubling the number of exporters but whom it was never prepared to back with the finances.

There was not a word about this funding shortfall before the election. That was always kept mum. We could not get it out of Senate estimates because the government clammed up in terms of the procedures. They kept saying: ‘We’ve still got to make a decision. You’ll know in due course.’ We now know that due course has come and that there will be a serious underpayment in this scheme. That underpayment needs to be sheeted home to the deceit of the previous government, and we will do that.

As I said before—I quote this from the newspaper article—the shadow minister for trade, the member for Wide Bay and the member for Lyne were ‘in absolute agreement that we needed more money for this area’. In absolute agreement they were—three of them! There were two Nats and one from the Liberal Party in absolute agreement and they could not carry the coalition room. The industry minister, the trade minister and the agriculture minister, all of whom knew where this scheme is supposed to be going, took it into cabinet and got rejected. What a group of duds!

There was not a word in public at the time the changes were made and not a word before the election.

If the former ministers were calling for additional funding, their calls must have been falling on deaf ears.

Unlike the former government we are going to fund the changes that we are making to the scheme, not just to improve it but to actually back it with resources.

I am confident that the amendments contained in this legislation will revitalise the EMDG Scheme. It has been a good scheme. It is a scheme that is necessary to get people export ready.

But this bill is not the end of the story on reform and revitalisation of our export performance or schemes that facilitate trade.

The business community can be assured that, through the Mortimer review, every aspect of the Export Market Development Grants Scheme will be examined.

We will continue to look for ways to improve it and we will look at other export facilitation programs that stack up.

And we will continue to deliver these programs as an important part of our whole-of-government approach to trade policy.

Today Labor delivers yet another election commitment—an election commitment to revitalising the EMDG Scheme to drive the direction for improving our trade performance and, unlike those who have gone before, confirm our commitment to increasing funding of the scheme in 2009-10 by $50 million. I commend the bill to the House.

Debate (on motion by Mr Farmer) adjourned.