House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Outline and Financial Impact

Outline

The ACIS Administration Amendment Bill 2002 (the Bill) makes a series of minor amendments to the ACIS Administration Act 1999 .

ACIS Administration Act 1999 Amendments

The Bill makes a minor change to the ACIS Administration Act 1999 (the ACIS Act) that will allow eligible motor vehicle producers to claim Automotive Competitiveness and Investment Scheme (ACIS) uncapped production credits for the production of derivatives of passenger motor vehicles such as utilities, panel vans and pick-ups with effect from the date of commencement of ACIS.

Prior to the introduction of ACIS, the automotive industry received uncapped duty credits for the production of these derivative vehicles from the Duty Free Allowance (DFA). In June 1997, when announcing future assistance arrangements for the automotive industry, the Government stated that the DFA would continue and that a new transitional assistance program would be introduced.

ACIS was announced as the new transitional assistance program in April 1998. ACIS was subsequently modified to embody two elements - an uncapped element, and a capped element (limited to $2 billion). The uncapped element is the continuation of the DFA. Motor vehicle producers (MVPs) are eligible to earn incentives under both elements of ACIS for the production of motor vehicles according to the following calculations and definitions:

Uncapped incentives , equal to 15 per cent of the value of production of passenger motor vehicles (PMVs) sold in Australia and New Zealand, multiplied by the current PMV tariff rate; and,

Capped incentives , calculated as follows:

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10 per cent of the value of production of PMVs sold in Australia and New Zealand, multiplied by the current PMV tariff rate; and,

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25 per cent of the value of all other motor vehicle production (other than PMVs sold in Australia and New Zealand), multiplied by the current PMV tariff rate.

Capped production incentives form part of a broader pool of incentives that is limited to $2 billion over five years through the operation of modulation.

The current ACIS definition of passenger motor vehicles unintentionally excludes utilities, panel vans and pick-ups. As a result MVPs are only eligible to claim capped payments for the production of these vehicles. Modulation means that the production of these derivative vehicles receives a lower rate of payment than if they were paid from the uncapped element. This is clearly inconsistent with the Government's 1997 stated intention to continue the DFA.

This Bill makes specific provision in the ACIS Act for the production of utilities, panel vans and pick-ups to attract uncapped incentives from the commencement date of ACIS, in line with the Government's publicly stated intention.

Financial impact statement

The financial impact of the Bill on Commonwealth revenue forgone is expected to be in the order of $5 million, with motor vehicle producers becoming eligible for higher rates of payment for claims made in 2001-02. It is anticipated that the revenue impact will fall in the financial year 2002-03.