Trade and Assistance Review 2018-19

• Australian Government net assistance to industry fell for most sectors of the economy from 2017‑18 to 2018‑19.
  • Net industry assistance was $12.1 billion (consisting of about $2 billion tariff output assistance, $4.5 billion in budgetary outlays and $7.4 billion in tax concessions, less $1.7 billion in tariff input penalties), down from $12.6 billion in the previous year.
• The decline is the continuation of a long‑term reduction in assistance for the manufacturing and agriculture industries, which commenced in the 1970s and mostly stems from lower import tariffs. As a result, Australia has become a more globalised and competitive economy, generating vast benefits for consumers.
• Budgetary assistance (through direct outlays or tax concessions) has grown in recent years, from $9.1 billion in 2013‑14 to $11.8 billion in 2018‑19, driven mostly by new tax concessions for small businesses. Overall, most budgetary assistance is provided to the services sector (which makes up over 80 per cent of the economy) or is unable to be allocated to any particular sector.
• The Commission has highlighted four areas where domestic industry assistance has increased over the past year.
  • Defence procurement from domestic industry has risen, but lacks transparency about costs and a clear policy framework explaining its benefits.
  • Assistance to farmers and farm businesses expanded further with the continued drought and stresses of severe flooding in North Queensland.
  • Government investment in private projects continues to proliferate, carrying with it risks to the Australian taxpayer.
  • Concessions in Australia’s alcohol tax system widened further after the introduction of new supports for craft brewers, adding to an already complicated system.
• Progress on international trade policy has faltered.
  • Multilateral and plurilateral agreement negotiations continue, but are slow, with few prospects for their timely finalisation.
• One of the World Trade Organisation’s (WTO) key functions, dispute resolution, has ceased because judges have not been appointed to the Appellate body, severely compromising the WTO’s role. A temporary dispute body has been set up by 17 members (including Australia).

Rules-based trade remains a high priority for Australia

The rules-based global trading system is at risk due to the failure to appoint new judges to the World Trade Organisation’s Appellate Body, leaving it unable to rule on appeals, the Productivity Commission finds in its latest Trade and Assistance Review.

“It is important that Australia continues to promote open trade practices and seeks to revive the rules‑based system,” Productivity Commission Chair Michael Brennan said.

“Even before the outbreak of COVID-19, the era of the world’s rules-based trading system that led to open, prosperous global economies since the end of World War II had stalled. This is bad for business, and bad for jobs and income,” Mr Brennan said.

In the absence of the WTO’s rules-based system, Australia should continue to work to promote alternative dispute resolution bodies, and continue negotiations on multilateral, plurilateral and bilateral agreements.

“In a post-COVID economy, trade will remain vital to economic growth. The promotion of open trade in goods, services and investment is going to be particularly important for economic recovery,” Chair Michael Brennan said.

The report shows there has been a long-term reduction in tariff barriers across the Australian economy, as Australia has become a more globalised and competitive economy, generating benefits for consumers and exporters.

Levels of industry assistance were an estimated $12.1 billion in 2018-19, down from $12.6 billion the previous year. This consisted of about $2 billion in tariff output assistance, $4.5 billion in budgetary outlays and $7.4 billion in tax concessions, less $1.7 billion in tariff input penalties.

The main assistance developments in the past year were rising assistance from defence procurement favouring local industries, the continuation of assistance to farmers and farm businesses, government investment in private projects, and concessions to alcohol tax.

The Trade and Assistance Review 2018-19 can be found at: www.pc.gov.au/tar2018-19