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1999
THE PARLIAMENT OF THE
COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
BOUNTY (SHIPS) AMENDMENT BILL
1999
EXPLANATORY
MEMORANDUM
(Circulated by
authority of Senator the Honourable Nick Minchin,
Minister for Industry,
Science and Resources).
ISBN: 0642 38875X
BOUNTY (SHIPS) AMENDMENT BILL 1999
The purpose of this Bill is to amend the Bounty (Ships) Act 1989
(the Ships Act) to give effect to the following support measures
for the Australian shipbuilding industry:
a) to extend the existing
shipbuilding construction bounty; and
b) to introduce the research and
development expenditure bounty.
The key provisions of the Bill
will:
• extend the payment of the shipbuilding construction bounty
from 1 July 1999 until
31 December 2000 at a rate of 3%;
• establish
a phasing arrangement for vessels which are contracted for sale on or
before
31 December 2000, and are delivered on or before 31 December
2003;
• provide transitional arrangements;
• provide for the
payment of a research and development bounty to registered shipbuilders, for
eligible research and development expenditure, at the rate of 50% of
innovation expenditure up to a total of 2% of the eligible construction costs of
a bountiable vessel; and
• provide for the research and development
expenditure bounty to apply only to the construction and modification completed
on or before 30 June 2004.
In addition, the Bill contains provisions
which take account of the Administrative Arrangements Orders issued since the
commencement of the Ships Act.
The total cost of this package is $82.0m over 5 years. Of this amount, it
is expected $28.3m will be required for construction bounty payments. The
research and development expenditure bounty is expected to cost $51.5 million
over the period 1 July 1999 to 30 June 2004. Additional administrative
expenditure of $2.2m over five years is expected to be required to implement the
shipbuilding assistance arrangements.
The issue faced was to formulate arrangements to support the Australian
shipbuilding industry pending the establishment of an effective international
discipline to eradicate distortions in the market for ships. Australian
shipbuilders compete on world markets against firms which are heavily subsidised
by overseas governments. There is a need to put in place transitional measures
until there is an effective international agreement to dismantle those
subsidies. A subsidiary issue was to provide the support in a form which would
encourage the industry to secure its leading position in the lightweight
shipbuilding market into the longer term.
The Government established a
review of the shipbuilding industry in January 1998. The Review examined the
long term strategic direction of the industry under various scenarios. This
examination took into consideration the assistance arrangements of competing
nations and progress in implementing the OECD Shipbuilding Agreement.
The objective of the proposed approach is to provide transitional support
to the Australian shipbuilding industry while international measures are being
developed to phase out subsidies to the industry. This is to assist the
industry to overcome impediments in an international market place which is
heavily distorted by non-tariff trade barriers and where assistance provided to
overseas competitors is far greater than that provided to Australian
shipbuilders. The support is to be limited in duration, and to provide
incentives for production and innovation in the industry.
The main options to provide support to the shipbuilding industry are
through fiscal measures - an outlays scheme or taxation arrangements. A tariff
based scheme to limit the flow of imports would be ineffective as there is very
little import competition in the Australian market, most of the industry's
output is sold on overseas markets. It would also mean Australian industries
which use shipping services would face higher costs.
There are two
basic forms the assistance could take - a production incentive or an incentive
on productive inputs, such as on capital, innovation, labour, and materials.
Support for research and development in particular would have pay-offs in terms
of the Australian industry's longer term competitiveness, and reflect the
significant spill-over benefits of innovation.
Major parties affected by the decision are shipbuilders, suppliers to the
shipbuilding industry, other industries, and the Government. Precise estimates
of the size of the benefits and costs involved are difficult to
obtain.
Continuation of support will enable the Australian shipbuilding
industry to maintain its current leading position in the international market.
The phase-out arrangements for the period
1 January 2001 to 31 December 2003
closely parallel those adopted in the European Union and mean the Australian
industry will not suffer through a comparative misalignment of adjustment
measures.
By directing a significant proportion of the support available
to innovative activity, shipbuilders will be encouraged to integrate research
and development into their competitive strategies. The performance of
well-directed research and development is a crucial element in sustaining the
Australian industry's current market position as a world leading supplier of
lightweight shipping, such as fast ferries.
The major benefit is that it
should ensure that Australian shipbuilders are not disadvantaged in
international markets, and do not suffer unnecessary adjustment costs as the
major shipbuilding economies move to lower assistance regimes. This will mean
the Australian industry is better placed to compete in the world market for fast
ferries and luxury yachts and defend the leading position it has developed over
the past 15 years.
Regional areas will also be major beneficiaries of a
financially viable and internationally competitive shipbuilding industry.
There are significant clusters of shipbuilding activity in Western Australia,
Tasmania, and Queensland.
The regulatory burden is low. There are
currently 11 firms which are registered as eligible for bounty payments, and
realistically there is a limited pool of potential new entrants. The
administration of the construction bounty will remain as at present, so for
existing participants there will be no added burden. New entrants will need to
make an assessment of the cost and benefits of registering under the Act. There
will be significant benefits to the industry from the simplification of the
phase-out provisions, to apply from 1 January 2001, compared with the current
arrangements. The administration of the eligible research and development
expenditure bounty will involve some additional administrative burden on firms
as they will be required to maintain records of eligible research and
development and other eligible expenditures to claim the benefits.
Consultation was very broad under the Shipbuilding Industry Review Panel.
The Review involved significant public consultation with stakeholder groups.
The Review received 47 written submissions. All major shipbuilders were
interviewed and agencies from the Tasmanian, Western Australian, and Queensland
Governments made representations.
The shipbuilding industry is a small but significant player on the world
market, with a very high percentage of its output being exported. The industry
has relatively low levels of assistance, compared with its overseas rivals. It
is internationally competitive but selling into a global market which is
corrupted by subsidies and other trade distorting measures. This legislation
forms part of a package of measures to maintain the industry on a sustainable
competitive footing. The transition measures to phase-out the construction
bounty recognise the intense competition in world markets and the distorting
practices of overseas governments. The introduction of a research and
development expenditure bounty to encourage investment in new vessel designs and
production processes will underpin the industry's future.
Benefits will be delivered through the Ships Act. The research and
development expenditure bounty will be reviewed prior to its expiry on 30 June
2004.
This clause provides for the Act to be cited as the Bounty (Ships)
Amendment Act 1999.
The provisions of the Bill will commence on the day it receives the Royal
Assent.
Each Act specified in the Schedule(s) is amended as set out in the
Schedule(s).
This clause provides for the registration of applicant shipbuilders
who would otherwise have been disadvantaged by the construction bounty
cessation provisions of the Ships Act. It allows the Minister to register
applicants as registered shipbuilders for all or part of the period commencing
after 31 December 1997 and ending on the day the Ships (Bounty)
Amendment Act 1999 (the Act) commences (the commencing day).
This provision is necessary to remedy any injustice which would
otherwise occur as a result of the extension of the construction bounty.
From 1 January 1998, some unregistered shipbuilders may have completed
the construction or modification of bountiable vessels. In addition, some
unregistered shipbuilders may complete, after the commencement date, the
construction or modification of bountiable vessels which were commenced prior
to the commencing day of the Act. If the shipbuilders were not able to
satisfy the requirements of the Ships Act at the relevant time, they
may not have sought registration, or renewal of registration, to cover the
entire period of construction or modification. Alternatively, for business
reasons specific to their company, they may have structured their business in
such a way as did not comply with the Ships Act.
Under section 17 of
the Ships Act, the Minister may register an applicant for a period of one year
commencing on such a day as is specified in the notice (issued pursuant to
paragraph 17(3)(a)), which may occur before, on, or after the day of issue of
the notice. This means that the commencement of an applicant’s
registration can be on a date earlier than the date of the notice issued
pursuant to paragraph 17(3)(a).
However, a period of more than one year
will have elapsed between 1 January 1998 and the commencing day. A
shipbuilder, therefore, may need to be registered for two, or more, one year
periods in order to be registered at all times during the construction or
modification of the bountiable vessel. While the provisions of subsections
17(3) and 17(4) provide for the Minister to issue a further registration
notice, a further application must be made.
This clause provides
for a person to make a one-off application, after the commencing day, to be
registered for a period commencing on the first day on which the applicant was
not a registered shipbuilder, during a part of, or all of, the period of
construction or modification that occurred before the commencing day; and ending
on the day of issue of the notice of registration. The application must however,
be made within 30 days after the commencing day of the Act.
This clause provides for the payment of claims for costs incurred by
shipbuilders, registered pursuant to clause 4 of the Act, who would have been
otherwise disadvantaged by the cessation provisions in the Ships Act.
Paragraph 11(2)(d) of the Ships Act provides that a claim in respect
of the construction or modification of a bountiable vessel shall be lodged
within 12 months of the construction or modification being completed. With the
extension of the bounty for vessels completed on or after 1 January 1998,
however, it is possible that some vessels may have been completed more than 12
months prior to the commencing day. Under these circumstances the registered
shipbuilder will not satisfy the time limit for lodging claims for the
bounty.
This clause provides for a claim to be lodged under section 11 of
the Ships Act, for construction or modification which was completed after 31
December 1997 and more than 12 months before the commencing day. The claim must
however, be made within 30 days after the commencing day of the Act.
This clause removes the firm commitment requirement, set out at
paragraph 8(3)(a) of the Ships Act, with effect from 1 January
1998.
The consequence of this amendment is that, where a
bountiable vessel has been completed on or after 1 January 1998 and before the
commencing day of the Act, or is completed at any time after the commencing day
and on or before 31 December 2000, and all other eligibility requirements are
satisfied , the registered shipbuilder is entitled to bounty whether or not
there was a firm commitment in place before 1 January 1998.
This clause defines commencing day for the purpose of the Ships
(Bounty) Amendment Act 1999.
This item takes account of the responsibility for the Ships Act now
residing with the Minister for Industry, Science and Resources. This item
provides for the Secretary of the Department to have the general administration
of the Ships Act.
This item takes account of the Secretary having general administration of
the Ships Act.
This item clarifies the meaning of “approved hydrographic testing
facility,” and provides for the Secretary to approve such facilities for
the purposes of new subsection 10(3).
This item defines “authorised officer”.
This item redefines bounty to include the “eligible research and
development expenditure bounty”.
This item takes account of the Secretary having the general
administration of the Ships Act.
This item takes account of the Secretary having the general
administration of the Ships Act.
This item clarifies the meaning of “eligible
costs”.
This item clarifies the meaning of “eligible costs
bounty”.
This item clarifies the meaning of “eligible research and
development expenditure”.
This item clarifies the meaning of “eligible research and
development expenditure bounty”.
This item defines “forecast eligible costs”.
This item defines “officer”.
This item clarifies the meaning of “other Commonwealth
assistance”.
This item extends the period to which the Ships Act applies to 30 June
2004.
This item provides for the definition of registered shipbuilder to
include shipbuilders registered under the transitional registration provisions
at new section 4.
This item defines “Secretary”.
This item takes account of the Secretary having the general
administration of the Ships Act. It provides for the Secretary to determine
the date on which the construction or modification of a vessel is complete.
The date of completion of the construction or modification of the vessel
determines an applicant’s right to claim the bounty.
This item takes account of the removal of the firm commitment requirement
under paragraph 8(3)(a) of the Ships Act, and the removal of the requirement,
under subsections 8(3A) and 8(3B) of the Ships Act, for business plans as
evidence of such a firm commitment.
See also Clause 6 and Item 28.
This item sets out provisions relating to eligible research and
development expenditure; eligible research and development activities; and other
Commonwealth assistance.
New section 5A:
• defines eligible
research and development expenditure;
• limits expenditure incurred to
the period commencing on 1 July 1999 and ending on 30 June 2004;
and
• provides that where expenditure is incurred by a registered
shipbuilder in carrying on eligible research and development activities on
behalf of another registered shipbuilder, the expenditure is not eligible
research and development expenditure.
New section
5B:
• defines eligible research and development activities. The
interpretation of research and development is to focus on the innovation
requirements of the shipbuilding industry, and provide for increased innovation
within firms;
• provides for eligible research and development
activities to be carried on by, or on behalf of, a
shipbuilder;
• provides that the eligible research and development
activities must be carried on during the period commencing 1 July 1999 and
ending 30 June 2004;
• provides for eligible research and development
activities to be carried out overseas; and
• provides that where the
eligible research and development activities are carried on at an approved
hydrographic testing facility, the activities must be for design and testing
purposes.
New section 5B also provides for the Minister to determine, in
writing, that a class of activity is not an eligible research and development
activity. Such determination is a disallowable instrument for the purposes of
section 46A of the Acts Interpretation Act 1901. This Ministerial
discretion is necessary to ensure that a focus on innovative activities is
maintained, and to prevent leakage to peripheral activities which are
inconsistent with the purpose of the eligible research and development
expenditure bounty.
New section 5C provides:
• that a
shipbuilder has received other Commonwealth assistance if the shipbuilder has
received and is entitled to Commonwealth financial assistance (other than
bounty) for eligible research and development activities;
• for the
Minister to determine that a specified form of assistance provided by the
Commonwealth is, or is not, financial assistance for the purposes of the
section. Such determination is a disallowable instrument for the purposes of
section 46A of the Acts Interpretation Act 1901; and
• that where the Minister determines that a form of assistance is
financial assistance for the purposes of the section, the Minister may also
specify the method by which the amount of assistance received is to be
calculated.
The amount of other Commonwealth assistance received by a
shipbuilder is relevant to working out the amount of eligible research and
development expenditure bounty to which the shipbuilder is entitled, (as
explained at item 32, new subsection 10(2)).
This Ministerial
discretion is necessary to ensure that the Government can respond quickly to
prevent the same eligible research and development activities, from attracting
multiple Commonwealth financial assistance. It is not possible, at this point
in time, to specify the Commonwealth assistance measures which may exist in
future years.
See Item 2.
This item provides for the Secretary to determine expenditure which is
to be taken to be the eligible research and development expenditure incurred by
a shipbuilder in relation to the construction or modification of a bountiable
vessel. The provisions mirror existing provisions at section 6 of the Ships Act
for determining the eligible costs of construction or modification of bountiable
vessels.
See Item 2.
This item extends the provisions at subsection 6(2) of the Ships Act to
include eligible research and development expenditure.
See Item 2.
This item extends the provision at subsection 6(3) of the Ships Act to
apply to new
subsection 6(1A).
See Item 2.
This item repeals the existing bounty phase out provisions, and
introduces new Arrangements.
New subsections 8(2) and 8(3) provide for
payment of the eligible costs bounty to be extended to construction or
modification of a bountiable vessel, completed on or before 31 December
2003.
New subsection 8(3A) provides for payment of the eligible research
and development expenditure bounty where full or part construction or
modification of a bountiable vessel is undertaken, and, eligible research and
development expenditure is incurred before the completion of construction or
modification of a bountiable vessel.
New subsection 8(3B) limits the
payment of the eligible research and development expenditure bounty to eligible
research and development expenditure incurred in relation to construction or
modification of a bountiable vessel, on or before 30 June 2004.
New
subsection 8(3C) provides that the shipbuilder must be a registered
shipbuilder at all times during the construction or modification of a bountiable
vessel which is completed on or before 31 December 2000, in order to be entitled
to payment of the eligible costs bounty in respect of that construction or
modification.
New subsections 8(3D) sets out the conditions a shipbuilder
must satisfy to be entitled to payment of the eligible costs bounty on the
construction or modification of a bountiable vessel,
which is completed in
the period after 31 December 2000 and on or before 31 December 2003.
New
subsection 8(3E) sets out the details which must be included in the approved
form (see new subparagraph 8(3D)(d)(ii)).
New subsection 8(3F) provides
that the shipbuilder must be registered at all times during the construction or
modification in order to be eligible for payment of the eligible research and
development expenditure bounty with respect to the construction and modification
completed on or before 30 June 2004.
See Item 2.
These items provide for the addition of new dates and rates for the
eligible costs bounty.
New subsection 10(1) extends the bounty period to
31 December 2003.
New paragraph 10(1)(g) reduces the rate of bounty
payable for the period 1 July 1999 to
31 December 2003, to the product of 1.2
x 3% x the amount of eligible costs incurred in this period.
New
paragraph 10(1)(h) provides that where the construction or modification of a
bountiable vessel is completed between 1 January 2001 and 31 December 2003, the
rate of bounty payable will be the lesser of:
a) the construction bounty
entitlement, with actual incurred costs; and
b) the construction bounty
entitlement, with forecast costs.
This item provides for the payment of the eligible research and
development expenditure bounty.
It repeals the existing phase out
provisions in the Ships Act and inserts provisions for calculating the
eligible research and development expenditure bounty.
New subsection
10(3) incorporates carryover provisions where the amount of eligible research
and development expenditure incurred by the shipbuilder is more than the
product of 1.2 x 2% x the amount of eligible costs as defined at section 5 of
the Ships Act. The carryover provisions enable the registered shipbuilder to
ameliorate the incurred eligible research and development expenditure, over
subsequent bountiable vessels where the shipbuilder builds more than one
bountiable vessel.
For example:
• A shipbuilder claims
bounty based on eligible research and development on the first bountiable vessel
the shipbuilder completes after 1 July 1999. The shipbuilder’s research
and development costs amount to $1,000,000 and the eligible costs are
$10,000,000. 1.0 x 50% of the research and development costs is equal to
$500,000 and 1.2 x 2% of eligible costs is equal to $240,000. Since 50% of the
cost of the eligible research and development is more than 1.2 x 2% of the
eligible costs of the vessel, the bounty payment is equal to the 2% of the
eligible costs ie, $240,000.
• The shipbuilder then completes a
second bountiable vessel, and conducts research and development directed to the
second vessel in the amount of $50,000 and the eligible costs are $10,000,000.
50% of the research and development costs is equal to $25,000 and 1.2 x 2% of
eligible costs is equal to $240,000. Therefore, on a straight calculation of
the rate of bounty, therefore, the shipbuilder would only be entitled to a
bounty of $25,000 (as this is the lesser of the two amounts that flow from the
calculation).
• This is, however, where the special arrangement
will apply. Where the amount of research and development on the second vessel
is less than 2% of eligible costs, or where there is no research and
development cost on the second vessel, the shipbuilder will be entitled to carry
over the balance of the research and development costs on the first vessel.
The bounty calculation will then be applied to this composite amount to
determine the amount of bounty payable.
• In the above example, the
carryover amount is $520,000. (This figure is the balance of the research and
development on the first ship which did not have the bounty paid on it. As
$240,000 of bounty was paid, bounty was in effect paid on $480,000 of the
original $1,000,000 of the amount spent on eligible research and development.
The carryover balance, therefore, is equal to $1,000,000 minus $480,000 =
$520,000.) This is added to the $50,000 of research and development on the
second vessel so that the research and development costs become $570,000 and 50%
of this amount is $285,000. Since this amount is greater than 1.2 x 2% of
eligible costs of the second vessel, the shipbuilder is only entitled to bounty
of $240,000. There is, therefore, still some research and development costs
from both the first and second vessel which may be carried over to a third
vessel completed by the shipbuilder.
• The shipbuilder completes a
third vessel and does not conduct any research and development directed to this
vessel. The eligible costs on the third vessel are $10,000,000 and 1.2 x 2% of
this is $240,000. 50% of research and development costs is $0 which is less
than 2% of eligible costs. The shipbuilder will therefore be entitled to carry
over the balance of the research and development on the previous two vessels to
the third vessel.
• The carryover amount is now equal to $90,000
and 50% of which is $45,000. As 50% of the cost of the research and development
is equal to only $45,000, and this is less than 1.2 x 2% of eligible costs, the
shipbuilder will only be entitled to bounty of $45,000. There is also no
balance of research and development to be carried over to any further vessels
completed by the shipbuilder.
Where eligible research and development
activities have attracted other Commonwealth assistance, the amount of
assistance is included in the calculation of the shipbuilder’s adjusted
eligible research and development expenditure. This ensures that the
shipbuilder does not receive multiple benefits for the same eligible research
and development activities.
New subsection 10(3) also provides that the
amount of eligible research and development expenditure incurred in relation to
eligible research and development activities carried out overseas, on behalf of
the shipbuilder, which can be claimed as eligible research and development
expenditure bounty, is limited to 20% of the eligible research and development
expenditure incurred in relation to eligible research and development activities
carried out in Australia.
New paragraph 10(3)(a) provides an exception to
the 20% limit, where the research and development activities carried on
overseas, are design and testing activities conducted at an approved
hydrographic testing facility.
See Item 1.
See Item 2.
See item 2.
This item incorporates new terminology.
See item 2.
See item 1.
See item 2.
See item 2.
See item 1.
See item 2.
See item 2.
See item 2.
See item 2.
This item repeals the existing bounty phase out provisions in the Ships
Act. It removes the requirement for registered shipbuilders to submit business
plans for construction or modification work during the period 1 January 1998 to
30 June 1999
See item 2.
See item 36.
This item provides for the Secretary to specify, by way of a notice
published in the Gazette, the particulars relating to the incurring of
eligible research and development expenditure for which eligible research and
development expenditure bounty is or may be payable. These provisions mirror
existing provisions at subparagraph 18(1)(a)(i) of the Ships Act concerning
particulars relating to the construction or modification of bountiable
vessels for which bounty is or may become payable.
See item 2.
See item 1.
This item extends the existing provision, with respect to the
construction bounty, relating to entry on premises occupied by a registered
shipbuilder, to include the power to inspect any bountiable vessel in respect of
which an eligible research and development activity is being or is intended to
be carried out.
This item extends the existing provision, with respect to the
construction bounty, relating to entry on premises occupied by a registered
shipbuilder, to include the power to inspect any step in the carrying out of an
eligible research and development activity.
This item extends the existing provision, with respect to the
construction bounty, relating to entry on premises occupied by a registered
shipbuilder, to include the power to inspect and take copies of or take extracts
from the accounts, books, documents and other records relating to eligible
research and development activities.
This item extends the existing provision relating to entry on other
premises, to apply to eligible research and development activity.
See item 55.
See item 55.
See item 55.
See item 55.
See item 55.
This item extends the existing provision, with respect to the
construction bounty, relating to the power to require persons to answer
questions or produce documents, to apply also to an eligible research and
development activity.
See item 2.
See item 2.
See item 2.
See item 1.
See item 2.
This item removes a condition of the existing phase out provisions of the
Ships Act.
This item extends the existing provisions, with respect to the
construction bounty, relating to an applicant’s right of review, to also
apply to transitional registration decisions made by the Minister pursuant to
new subsection 4(3).
This item extends the existing powers of the Administrative Appeals
Tribunal, to also apply to eligible research and development
expenditure.
See item 2.