Bob McMullan (Fraser, Australian Labor Party) Share this | Hansard source

I rise to support the Export Market Development Grants Legislation Amendment Bill 2006 and the second reading amendment. It was interesting to hear the remarks by the member for Riverina. They would have led one to believe that the Export Market Development Grants Scheme was a great coalition initiative rather than one which the coalition butchered when it came to office. It slashed it and abolished all the accompanying programs in the biggest cut to assistance to exporters in Australian history.

However, I strongly support the things which the member for Riverina had to say about the merits of the Export Market Development Grants Scheme over the years and the assistance it has given, including to many of the companies which she mentioned with which I had the pleasure of working when I was trade minister—particularly Ricegrowers, which is a truly great exporter. I had the privilege of leading Ricegrowers into the Japanese and Korean markets, which had been closed to them forever until they were opened by the negotiations by my colleague and predecessor as trade minister, the former senator Peter Cook. That was a great initiative. I was pleased to be a part of it; it has enhanced their market and I hope the current round of multilateral negotiations might further enhance access to that market. It would be in the interests of Australia, Japan and Korea.

Having been a great supporter of the Export Market Development Grants Scheme and the associated programs that existed prior to their abolition in 1996, I want to say that I think it is about time we rethought the whole thing. I am not referring to the idea of assistance to exporters; I am sure we should continue to do that. In a moment I will come to what I think the rationale for that is. I do not think it is contested here, but nevertheless, when you are talking about root and branch review, you should go back to first principles—why we support exporters.

Let me start by saying that I do support continuing public support for the activities of people wishing to initiate or expand their exports. But I wonder whether the way we are doing it has perhaps got a bit tired and whether we might need to rethink the whole thing. That is why I am happy with the proposition in the legislation for a review. If it were up to me, I might wish that the review was a bit quicker, but I understand that you have to give companies time to plan and therefore we need fairly long lead times for reviews. When we are putting forward a program to extend assistance to companies that are making commitments for their expenditure based on what the government says, we cannot precipitately change it. That is why I was so worried about what happened in 1996. I would not wish to see an incoming Labor government repeat that mistake. Let me say quickly that I do not recommend going back to the situation that we had in 1996. I will only draw on that as an example of alternative ways in which assistance can be given to exporters and say that we should look at some of those principles and apply them in the modern circumstance, because international trade is changing its character very rapidly.

Prior to the slashing of these programs in 1996, there were more options than just EMDG. There was what was called ITES, the International Trade Enhancement Scheme, which enhanced international business prospects for individual firms, joint ventures, consortia and industry associations, developing programs which had the potential to generate substantial foreign exchange earnings for Australia. The scheme financed market entry and expansion activities. I want to emphasise that: entry and expansion activities. It was not funding what you were already doing, but if you wanted to break into a new market or expand in a new market, you could get assistance, facilitating new investment.

The scheme funded up to 50 per cent of the project expenditure up to a maximum of $2.25 million. And this is the other point that I want to make: funds for that scheme were what I called the ‘revolving fund’—it was expressed differently by others. Funds were provided either as a concessional loan repayable with interest or—and what I preferred and most companies preferred but some wanted the loan—an advance involving a success fee in the form of a percentage of the revenue generated from the project. That is, people got assistance but, if they succeeded, some of the benefit flowed back to the taxpayer. It was a very good scheme and when the government abolished it, it was anticipated that over the forward estimates period it would have provided $118 million support over four years to exporters in an innovative way. I supported that scheme and I regretted its abolition.

There was a smaller but also a very valuable scheme called the Innovative Agricultural Marketing Program, or IAMP—I hate these acronyms, but that is what people knew it as—which provided financial assistance to producers, manufacturers and marketers in Australian agriculture, forestry and fishing industries that had potentially commercially viable projects to broaden the export base of those important industries. Consistent with the principle, the member for Riverina correctly pointed out the situation with regard to rice growers where they do not just export the rice; they do it in a value added way. We saw meat exporters exporting meat pre-cut and ready for specialised catering to the Japanese market. That specialised work was done in Australia and funded by the company with assistance from the Innovative Agricultural Marketing Program. The value added jobs, the quality jobs, were in Australia. That was a smaller program, at its peak estimated to be about $3 million a year. It had a lot of potential and it was about broadening our export base, and that is why I thought it was valuable.

There was also the Asia Pacific Fellowship Scheme, which was abolished, which enabled managers and graduate employees of Australian organisations to work and study Asian markets for six to 12 months. Half the time was spent gaining business experience and half on language training. This was about integrating our economy into Asia. I do not advocate going back to those schemes; the past has gone and we need to move on. But I think we should draw some lessons from the potential which those programs had.

We had the Productivity Commission looking at our export enhancement programs—that was a good thing to do—and I welcome the fact that the Centre for International Economics looked at EMDG and recommended its continuation. That was essentially the catalyst for this legislation to extend the scheme. I welcome the fact that the Senate committee recommended a performance audit and that the second reading amendment by the shadow minister emphasises that, and I regret the fact that performance audit concept has not been taken up.

I think that we need a very fundamental review of how we go about export assistance, a root and branch review. In my view we could provide more support if the support were provided contingent on more return to the taxpayers when the exports are successful, the principle that underpinned the ITES but on a bigger scale. I do not think that we need fragmentation of a number of different small programs; I would like to see a bigger, enhanced Export Market Development Grants Scheme where people who took initiative and went into new markets or sought to expand their operation within existing markets in new ways received assistance from the government.

But there is always a risk, and the export market development grant has always been subject to risk. This is not something new under this government. I am not criticising the current administration; it is inherent in the nature of such schemes. Almost the worst public policy thing you could do is to pay people with taxpayers’ money for doing what they were going to do anyway, and that is a big risk. It is inherent in the nature of this and not totally avoidable if you are going to provide assistance to exporters. Clearly, they are people who have some idea of exporting and when you provide assistance you cannot possibly tell how much of that they would have done if you had not given them any money. But we need to minimise that. It is an example of private capture of publicly funded benefit, which is the principle that underpins HECS, for example. We publicly fund you to go to university but, since there is a substantial benefit that flows to you as an individual from it, some part of that benefit should flow back to the taxpayer if you take advantage of that benefit.

I suggest that we look at a new model for export assistance. I do not want to cut it and I am not looking for savings or to say we do too much. I suspect we do too little. I am also not looking to say, ‘Let’s just throw more taxpayers’ money at it.’ Let us be a bit innovative and try and take apart the underlying principles of why we provide export assistance and look at new ways to do it. Let us look at the idea of some sort of revolving fund—some sort of return to the taxpayers on success.

Let us go back to those first principles. What are the public policy purposes for which we provide export assistance? We are not just trying to buy exports. That would be a totally inefficient proposal. If you did that, you could just subsidise people’s prices and they could go and do it more cheaply. I know it would be a breach of the World Trade Organisation rules but that is not my point; it is just a stupid thing to do. Nobody would wish to do it, and if you start down that road you wind up with a common agricultural policy. Who wants to go there? You have billions of taxpayers’ dollars achieving the purpose of having Europeans pay higher prices for food than they would otherwise pay. No-one wants to go down that road in Australia. So why do we fund exports? It seems to me that there are significant public policy objectives that we achieve. We want a higher proportion of our firms exporting. We want to diversify our export base and broaden the geographical base of our exports.

How can we go about doing that? There is one basic way, which is uncontroversial and cheap and which we do a lot—providing information. That is essentially what Austrade does; it provides information and advice about how you get into markets. That is a terrific role and, while I think we always need to look at the most efficient way to do it, I do not propose any change to that. But we provide financial assistance to companies. I am not a great fan of taxpayers’ money going to companies, unless there is a reason. You have to ask, ‘What is the purpose, beyond the profit for that company, of us doing this?’ I think in exports it is clearly possible to establish the case that there are what in economist jargon we call ‘externalities’—profit beyond that which can be captured by the individual company. When an economy gets an export focus, it drives productivity, openness, efficiency, competitiveness and quality, and all of us benefit from that. Every company in Australia benefits from that. The quality of products in Australia is enhanced. We get better rice in Australia from SunRice because they are an active international competitor. They have to produce the best quality to win in the international market; we get the benefit. That is true in a number of other industries, but I use that example because of the comments of the member for Riverina. She is correct, and it is one of the reasons we should be providing assistance to new companies or to companies wishing to go into new markets.

Why don’t I ask why we don’t go back to 1996? I was, to some extent, the architect of some of those programs and the administrator of others, and I thought they were pretty good, but the world has changed. I do not think we should go back. The whole nature of international trade has changed. Many Australian firms sell without leaving the country. They sell around the world on the internet. The old forms of assistance—even what is in EMDG—are almost pointless to people who sell over the internet. Once again, that is not a particular criticism of EMDG; that is inherent in the nature of it. We fund people to go overseas. That is great, but sometimes we do not want them to leave; they can sell just as well staying here and selling on the net. There has been a communications revolution. The nature of travel has changed. There has been extraordinary change in the international economic make-up of the globe where the traditionally dominant economies are being transformed by those which were dominant a millennium ago. We are going back to the days when China and India were the dominant economies, as they were prior to the industrial revolution. They are surpassing Europe and North America.

We need to see how we can accommodate our export promotion to this wonderful new opportunity. Australia has always had a great barrier to its exports in that we were so far from our export markets. Well, we have not moved, but the export markets have moved closer to us. That is a great benefit, but we are not taking advantage of it. When I looked a couple of years ago at the rapidly growing Indian market—and I apologise to Austrade if these figures are no longer correct, but they are the most recent I could find—the figures showed that Canada was a bigger supplier, a bigger exporter to India than us. The Canadians have to fly over Australia to get to India. Why are they beating us in that market? You as a Western Australian, Mr Deputy Speaker Wilkie, and I as a former Western Australian should have a particular focus on that, because we know that there is no Indian Ocean country better placed to service the growing demands of the Indian market than us. By that I do not mean just selling them natural gas and unprocessed products. I am not against that, of course. They want to buy it; we have got a product: let’s sell it to them. But there is now an enormous Indian middle class with sophisticated consumer requirements—and we should be part of the process of supplying that. Yet, when you look at the allocation of Austrade offices, there are more than twice as many in China as there are in India. There used to be more Austrade activity in India when the ANZ bank owned a big operation there and we were able to piggyback on that. That is no longer possible. Nobody in the government is to blame for that, nor is ANZ; it was a commercial decision. But we need to look at how we enhance our access to that market. So it is about the internet revolution, the general communications revolution and the change in the way the international economy is growing.

The review is to be undertaken in 2010. I hope it might be undertaken a bit earlier than 2010, because it might take longer, but it will be concluded in 2010. This scheme will continue until then. As I said in my opening remarks, while I would like to see it enhanced I think you do need to give people a long time to change. Companies make commitments on expenditure and they need to know what they are going to get back from the government when they do that, so we should not change the scheme precipitately. But I am looking for a new scheme that has the best features of the existing scheme—and the EMDG has many virtues—but which responds to the new public policy challenges, the new circumstance in which we find ourselves, and which takes up some of the principles under which I think we should provide taxpayers’ funds to firms. So if the government assists a taxpayer to gain a private benefit then, to the extent we can, some part of that benefit should flow back to companies.

The most straightforward way to do that is to change some of the grants to loans. I am a bit dubious about that. I was not that happy about that in earlier time because loans have to be paid back by unsuccessful people as well as successful people, so you may wind up penalising people for trying and failing when we want them to try. Not everybody who goes overseas will succeed, but we want them to try. So I am not keen on the simple solution, which is change the grants scheme to a loans scheme. I am much more positive about the idea of some sort of success fee, a contingent grant model that creates a revolving fund so that successful exporters put the money back into the fund and more funds can then be provided in future years to more exporters.

It is very important that we focus on this, because Australia’s export performance in recent times has been a disaster. The true nature of the disaster is hidden by the resources boom, but the size and shape of our exports are quite worrying. Our export volumes in areas other than resources are falling, and in manufactures and exports we are losing market share at a time when the terms of trade are at a record high. So it is shrinking and the shape is changing. We were growing more rapidly in manufactures and services, where the good jobs are in Australia, and now they are dwindling and we are back to a quarry and a farm.

I support public policy to assist efficient sales of our great agricultural and mining industries. I have been proud to be associated with that in the past; I would be proud to assist in any way in the future. But we cannot succeed as a 21st century nation without doing better in the exports of services and manufactures and in added value to our mining and agriculture. That is what the new schemes need to look at. I think we should really have a root and branch review, go back to first principles and have export promotion as a small but necessary part of the response to our current trade crisis.

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