Service exports

• The total value of Australian service exports was $62 billion in 2014-15 — about 20 per cent of the total value of exports. The six service sectors covered in this study — tourism, education, financial, professional, information technology and health services — accounted for around 85 per cent of the total value of service exports.
  • Rising household incomes in Asia have been an important driver of demand for service exports from Australia. Visitors from Asia accounted for much of the growth in Australian tourism and education exports over the past decade.
• The priority for Australian governments should be domestic policy reform that promotes competition and provides incentives for firms to innovate and lift their productivity.
  • Growing service exports is not an end in itself — domestic production is no more or less valuable to the community whether it is consumed in Australia or exported.
• Specific reforms to reduce domestic barriers to service exports that should be pursued by the Australian Government include:
  • implementing visa processing arrangements for short-term visitors and international students that are no more onerous than is necessary to meet a single policy objective of immigration integrity
  • liberalising air services arrangements for the major gateways of Brisbane, Melbourne and Perth and, following this, Sydney — unless a published assessment shows the costs of liberalising access to Sydney Airport would outweigh the benefits to the community
  • simplifying Australia's regime of withholding taxes through greater uniformity in the rate applied to different types of investment and reducing the range of exemptions
  • implementing consistent screening thresholds for Foreign Investment Review Board examination of foreign investment proposals across investors from different countries.
• International barriers to services trade can be costly:
  • Restrictions on setting up a commercial presence abroad are particularly high in key markets in Asia, notably China, India and Indonesia. These restrictions affect the education, health and professional service sectors, but are especially costly for financial services.
  • Licensing requirements and regulation are used to maintain standards of quality, consumer protection and safety but can impose unnecessary restrictions on services trade, particularly for professional services.
  • Service providers seeking to export rely on the ability to move data across borders, making data restrictions costly. The financial service sector can be especially affected by restrictions on data flows, as are exporters who rely on cloud computing services.
• Realising benefits from trade depends on governments committing to further reducing barriers at and behind the border. No one mechanism will be sufficient to address international barriers to services trade.
  • Trade agreements can be a precursor to market access, including establishing a commercial presence abroad, but realised benefits may be limited without supplementary measures, such as mutual recognition agreements. The Australian Government can help by putting in place a framework (that includes clear actions and timeframes and involves an adequately resourced implementation working group) to support the development of mutual recognition agreements through trade or other agreements.
  • The Australian Government is well-placed to help facilitate cross-border data flows through trade negotiations and other international forums, and as leader of a project on harmonising standards for the movement of data across APEC economies.

Domestic reform is key to unlocking service export opportunities

Prioritising domestic reform could see Australian services exporters capture a larger share of global demand for services such as financial services, tourism and education according to a report released today by the Productivity Commission.

'Policy reforms should look to enhance competition and encourage businesses, including exporters of services, to innovate, boost their productivity and lower their costs,' Commissioner Angela MacRae said.

Australia's service exports continue to grow and are now worth $62 billion or around 20 per cent of Australia's total exports. Rising household incomes in Asia have played a large role in the demand for service exports from Australia particularly in tourism and education.

The report recommends domestic policy reforms across a range of areas, including the taxation of financial services, aviation policy, the provision of public infrastructure, review processes for foreign investment into Australia and student visa arrangements.

Where reforms are expected to provide a net benefit they should not be delayed on the basis that they may provide leverage in trade negotiations.

'Pursuing policy that encourages competition in our services sector will deliver benefits to the community', Commissioner MacRae said.

International barriers to services trade can also be costly, including restrictions on establishing a commercial presence abroad, licensing requirements, and restrictions on the flow of data. Addressing these barriers requires commitment from governments of other countries.

The report includes recommendations directed at the mechanisms that the Australian Government can use to encourage other countries to reduce barriers to exports.