Trade and Assistance Review 2006-07

The Australian Government assists industries through an array of mechanisms, including tariffs and regulatory restrictions on imported goods and services, as well as subsidies and tax concessions for domestic producers.

• Assistance generally benefits the industry that receives it but can penalise other industries, as well as taxpayers and consumers.
• Some types of assistance, such as R&D funding, may deliver net community benefits if well designed; others entail net costs to the community.

While industry assistance has declined greatly over recent decades, assistance provided by the Australian Government remains significant.

• In 2006-07, the government measures covered in this report provided assistance to industry equivalent to $15.7 billion in gross terms, and $8 billion in net terms.
• The automotive, textiles, clothing and footwear and dairy industries received the highest rates of assistance within manufacturing and agriculture.
• Services industries typically attract negative assistance because tariffs inflate their input prices.

Several factors make it timely to take stock of the principles that should guide the design of effective and efficient industry assistance.

• These include concerns about skills shortages and capacity constraints, heightened budgetary pressures and the recent announcement of several key reviews.

Assistance should be beneficial for the community as a whole, rather than just for a narrow groups of recipients.

• Industry assistance measures are more likely to yield a net pay-off when targeted at significant market failures. However, many assistance proposals are not based on sound rationales.

Assistance measures need to be designed carefully and evaluated, both before and after implementation, using sound data and rigorous methodologies:

• Particular attention is needed to ensure that assistance induces new activity, rather than dissipating funding on much activity that would have occurred anyway.
• Given the interests at stake, evaluations of significant measures should have independent panels and adequate scope for public consultation.

The Commission has identified several areas of assistance that may warrant review, including drought relief, defence procurement, and ethanol and renewable energy.

• Consideration could also be given to instituting a more systematic program of reviews of assistance measures, including at the State level.

Import tariffs, budgetary grants and tax concessions provided Australian industry with nearly $16 billion in assistance last financial year, equivalent to around $8 billion in net terms, according to a Productivity Commission report.

Trade & Assistance Review 2006-07 sets out the Commission's latest estimates of industry assistance provided at the Commonwealth level.

Most Australian industries have relatively low rates of assistance by historical standards, but pockets of high assistance remain.

The textiles, clothing and footwear and the automotive industries remain the most highly assisted manufacturing industry groupings. Assistance arrangements for these industries are currently being reviewed by panels established by the Australian Government.

Assistance to the primary production sector has increased recently. It currently receives a higher average rate of assistance than the manufacturing sector, in part because of substantial 'exceptional circumstances' drought support, which totalled more than $700 million last financial year.

The report notes that some forms of assistance, such as R&D subsidies, can deliver net community benefits if well designed. But it also indicates that industry assistance can entail significant costs to consumers, taxpayers and other industry - for example, tariffs on manufactured imports effectively taxed businesses in the services sector by more than $4 billion in 2006-07.

To ensure that assistance measures provide a net pay-off to the community, the report emphasises the importance of the rigorous design and evaluation of measures, including public scrutiny of proposals.

• Preliminaries
  Cover, Copyright, Preface, Contents and Abbreviations
• Key points
• Chapter 1 Introduction
• Chapter 2 Assistance estimates
  2.1 Tariff assistance
  2.2 Australian Government budgetary assistance
  2.3 Agricultural pricing and regulatory assistance
  2.4 Combined assistance
• Chapter 3 Recent developments in general industry assistance
  3.1 R&D and its commercialisation
  3.2 New technologies
  3.3 Export marketing and international business integration
  3.4 Energy-related assistance
  3.5 Assistance to tourism
  3.6 Automotive assistance
  3.7 Support for film and television production
  3.8 Regional adjustment assistance
  3.9 Small business support
  3.10 Anti-dumping and countervailing measures
• Chapter 4 Selected developments in assistance for rural industries
  4.1 Drought relief
  4.2 The Agriculture - Advancing Australia package
  4.3 Industry-specific assistance
    - wheat
    - pigmeat
    - wool
    - horses
    - forests
    - food
  4.4 Assistance for rural resource management
• Chapter 5 Recent developments in trade policy
  5.1 Trade agreements
  5.2 WTO Trade Policy Review of Australia
• Chapter 6 Some issues in designing and reviewing industry assistance
  6.1 The evolution of industry assistance
  6.2 'Productive' industry assistance
  6.3 Areas of assistance for review
• Appendix A Detailed budgetary assistance estimates
• Appendix B Antidumping and countervailing activity
• References