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Australia – Policy, Not Subsidy: Productivity Commission’s Final Report On Tasmanian Shipping Reform.

21 July, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Shipping, Maritime & Aviation

 

What You Need To Know

 

  • The Productivity Commission has released its final inquiry report into Tasmania’s shipping costs and the competitiveness of Tasmania’s freight industry.
  • The final report largely replicates the draft report that was released for consultation in January this year.
  • The final report emphasises the need for Tasmania to move away from expenditure-based schemes and instead adopt cost-effective policies. It also discusses the importance of reviewing the current coastal trading (cabotage) regime and undertaking a commercial assessment of Tasmanian ports.
  • The Federal Government is currently considering the recommendations made in the report and will provide a formal response.

 
What You Need To Do

 

  • Interested parties should review the final inquiry report and monitor the Government’s formal response to the report.
  • Interested parties should then consider the recommendations the Government seeks to implement, andthe implications these changes will have on their business.

 
On 24 June 2014, the Productivity Commission publicly released the final report (Report) on its inquiry into Tasmania’s shipping costs and the competitiveness of Tasmania’s freight industry (Inquiry). The Report was provided to the Federal Government for consideration on 7 March 2014. The full Report is publically available from the Productivity Commission’s website (here).

 
The Report

 
The Report is the result of the Productivity Commission’s Inquiry, which was requested by theFederal Treasurer in November of last year. The Inquiry was conducted in response to concerns raised by a number of Tasmanian businesses and consumers regarding disproportionate costs.

 
The Report explains that there are numerous interconnected drivers influencing Tasmania’s economy, including the policy environment withinwhich Tasmanian businesses operate and whether or not this “stifles innovation and private sector involvement”.

 
Whilst the Report largely replicates the earlier draft report, the Report provides greater detail on areas the Productivity Commission considers to be of the greatest significance. We have addressed some of these areas below.

 
Subsidies

 
The Productivity Commission considers that the Tasmanian Freight Equalisation Scheme (TFES), Tasmanian Wheat Freight Scheme and the Bass Strait Passenger Vehicle Equalisation Scheme (BSPVES) are not the best way to advance and improve the competitiveness of Tasmania’s economy. Despite this, the Federal Government has expressed its preference to retain the TFES and BSPVES.

 
The Productivity Commission considers it disappointing that the policy focus of the Federal Government remains on direct expenditure-based programs. Itrecommends that the Federal Government assess and consider various options for alternative use of thesefunds to provide the fiscal basis for more cost-effective policies and programs.

 
Specifically in respect of the TFES, the Productivity Commission recommends that if the Government retains this scheme in its current form, the rate of the TFES should be based on specific parameters (as recommended by the Bureau of Infrastructure, Transport and Regional Economics), and should only be payable on the basis of evidence of actual wharf-to-wharf costs. This would remove the incentive to over claim, as currently embodied in the door-to-door parameter adjustment.

 
Whilst the Productivity Commission identifies specific anomalies in the subsidy schemes, it considers that merely addressing these anomalies will not “meaningfully improve the competitiveness of the Tasmanian economy – which, …should be the policy imperative”. On this basis, the Productivity Commission considers that the Federal Government should change its focus from subsidy schemes to policy reforms which have national and Tasmanianwide benefits.

 
Coastal Shipping Reform

 
The Report observes that numerous studies have found cabotage restrictions have the greatest effect on Tasmania when compared with other Australian jurisdictions. The introduction of the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Cth) and its licensing regime magnifies the negative impacts of cabotage on Tasmania.

 
The Productivity Commission reiterated in the Report the importance of a review of coastal trading by the Federal Government, and that this review should be expedited and have the objective of increasing the competitiveness of coastal trading in Australia. It should be noted that this recommendation has already been acted on, with the Federal Government and the Department of Infrastructure and Regional Development having released an Options Paper andreceived submissions on a review of approaches to regulating coastal trade in Australia.

 
The position of the Productivity Commission is especially relevant to the Federal Government’s review of Coastal Trading, with it being noted in the Report that:

 

the greatest ongoing benefit for Tasmania would be through realising the efficiencies associated with a more liberalised coastal trading regime Australia-wide.

 
Ports

 
All of Tasmania’s ports are operated and managed by the Tasmanian Ports Corporations Pty Ltd (Tasports). The Report notes that an assessment of Tasports financial performance shows that Tasports is not making a commercial return. The Productivity Commission attributes this in part to ageing port infrastructure and to a lack of investment in new infrastructure. In addition, the state-wide uniform pricing model that has been adopted by Tasports lacks the necessary flexibility in pricing which has likely resulted in cross-subsidisation across Tasmanian ports.

 
Accordingly, the Report recommends the Tasmanian Government assess the commercial viability of Tasports and specifically consider potential changes and alternative models available to enhance its operation. This will partly be informed by the Tasports 30 year ports strategy, which is set to be releasedshortly.

 
Next Steps

 
Interested parties should review the inquiry report and consider the implications for their business after the Government releases its formal response to the Report.


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For further information, please contact:

 

Paul Newman, Partner, Ashurst
[email protected]

 

Shane Bosma, Ashurst
[email protected]

 

David Morgans, Ashurst
[email protected]

 

Homegrown Shipping, Maritime & Aviation Law Firms in Australia

 

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