Trade and Assistance Review 2012-13

• Government assistance to industry is provided through an array of measures including tariffs, budgetary outlays, tax concessions, and restrictions on competition.
  • This benefits the industry receiving it, but comes at a cost to other industries, taxpayers or consumers. A critical issue is whether the benefits accruing to industry outweigh the costs.
• Estimated tariff assistance to industry was $7.8 billion in 2012-13 in gross terms, accruing overwhelmingly to manufacturing. Budget and tax related support was worth a further $7.8 billion, thus total gross assistance was $15.6 billion.
• After deducting the cost penalty of tariffs on imported inputs ($7.1 billion, two thirds incurred by services industries) net assistance to industry was $8.5 billion.
• Budgetary assistance in 2012-13 was about $2.2 billion less than in 2011-12. The largest reductions were from the winding down of transitional assistance afforded by the Energy Security Fund ($1 billion), the Coal Sector Jobs Package ($219 million) and the Steel Transformation Plan ($164 million).
• Since November 2013, the current Government has announced, amongst other things, that it would:
  • reduce funding to motor vehicle manufacturing between 2015-2017 by $500 million, not provide a debt guarantee or line of credit to Qantas, nor provide assistance requested by processing company SPC Ardmona, but would proceed with support to Cadbury for a tourist facility.
• Australia recently agreed to bilateral trade agreements with Korea and Japan. Trade agreements can distort comparative advantage between nations and consequently reduce efficient resource allocation.
  • The rules of origin in Australia's nine bilateral agreements differ widely, are likely to impede competition and add to the compliance costs of firms engaging in trade.
• Government outlays on defence capability represent one of the largest discretionary items in the Commonwealth's budget.
  • Defence industry assistance includes cost premiums for local purchasing preferences and budgetary support for skilling, research and exporting (with expenditures up to $500 million directly and indirectly benefiting industry).
  • Significant cost premiums can also be incurred by choosing to modify off-the-shelf equipment or pursuing bespoke designs.
• To be justified, cost premiums and defence industry assistance need to be commensurate with any additional security and operational benefits. Publishing these additional costs and benefits would assist understanding of apparently huge cost differentials.
• The efficiency and effectiveness of direct defence industry assistance programs could benefit from independent scrutiny.
• Three short reviews also comment on topical areas of public interest: R&D; Foreign Investment Rules; and Special Economic Zones.

Background information

02 6240 3330 / media@pc.gov.au

Government assistance to industry

The Productivity Commission today released its annual review into government assistance to industry and trade, the Trade & Assistance Review 2012-13.

The Productivity Commission's review found that in 2012-13 Australian industry received $15.6 billion gross in assistance from the Australian Government through budgetary outlays, tax concessions and import tariffs.

After allowing for the cost impost of import tariffs on industries using goods as inputs, the net assistance received by industry was estimated at $8.5 billion. The majority of this is budgetary outlays and tax concessions of around $7.8 billion, while the net tariff component amounted to around $1.1 billion.

'Government assistance to industry is provided through an array of measures that includes tariffs, budgetary outlays or direct payments, tax concessions and restrictions on competition. Obviously such assistance benefits the industry receiving it but it can come at a cost to other industries, taxpayers or consumers. A critical issue in considering assistance is whether the benefits to the industry outweigh the costs to the broader community,' Acting Chairman Mike Woods said.

'This review includes a closer look at industry assistance aspects of defence procurement. Government outlays on defence capability represent one of the largest discretionary items in the Commonwealth's budget and the Productivity Commission believes that the efficiency and effectiveness of defence industry assistance programs could benefit from independent scrutiny,' Acting Chairman Mike Woods said.

The Review also documents recent industry and trade policy announcements, such as changes in assistance to the motor vehicle industry and progress with trade agreement negotiations.

• Preliminaries
  • Cover, Copyright and publication details, Foreword, Contents and Abbreviations
• Overview
• Chapter 1 About this Review
• Chapter 2 Defence procurement and industry assistance
  • 2.1 The nature and extent of defence procurement
  • 2.2 Indications that defence procurement could be improved
  • 2.3 Defence procurement and industry assistance
  • 2.4 The employment and multiplier effects of local defence production
  • 2.5 Closing remarks
• Chapter 3 Selected industry policy issues
  • 3.1 Innovation support
  • 3.2 Foreign investment rules
  • 3.3 Regional development and special economic zones
• Chapter 4 Assistance estimates
  • 4.1 Tariff assistance
  • 4.2 Australian Government budgetary assistance
  • 4.3 Combined assistance
  • 4.4 Effective rates of assistance since 1970
• Chapter 5 Developments in industry assistance
  • 5.1 Research, development and innovation
  • 5.2 Primary industries
  • 5.3 Manufacturing sector
  • 5.4 Carbon emissions reduction and energy efficiency
  • 5.5 Regional assistance programs
  • 5.6 Broadcasting and communications
  • 5.7 Other industry assistance developments
• Chapter 6 Recent developments in trade policy
  • 6.1 Multilateral, plurilateral and regional developments
  • 6.2 Preferential trade agreements
  • 6.3 Rules of origin
  • 6.4 Dispute settlement
  • 6.5 Anti-dumping activity
• Appendix A Detailed estimates of Australian Government assistance to industry
• Appendix B Defence industry engagement programs
• Appendix C Anti-dumping and countervailing activity
• References

The following excel files contain tables of data used to make the charts within the Trade and Assistance Review 2012-13. There is also an extra file with data of Australian Government budgetary assistance by program.

• Overview (XLS - 19 Kb)
• Chapter 2 (XLS - 18 Kb)
• Chapter 3 (XLS - 22 Kb)
• Chapter 4 (XLS - 47 Kb)
• Chapter 6 (XLS - 16 Kb)
• Appendix A - Detailed estimates of assistance (XLS - 298 Kb)
• Appendix C - Anti-dumping and countervailing activity (XLS - 27 Kb)
• Budgetary assistance by program, 2007-08 to 2012-13 (XLS - 21 Kb)