NO.011

PRODUCTIVITY COMMISSION TO REVIEW CONTAINERISED AND BULK SHIPPING BETWEEN THE AUSTRALIAN MAINLAND AND TASMANIA

The Treasurer today announced that the Productivity Commission will undertake

a public inquiry of the current arrangements for containerised and bulk shipping

for Tasmania.

The Tasmanian Freight Equalisation Scheme, introduced in 1976, and the Tasmanian

Wheat Freight Scheme, introduced in 2004 to replace the previous scheme, aim

to assist in alleviating the freight cost disadvantage incurred by shippers

of eligible goods moved between the Australian mainland and Tasmania by sea.

The schemes have been subject to regular review and a number of changes over

time, however it is timely for a major inquiry with the aim of developing more

efficient long term solutions.

The inquiry will examine the effectiveness of the subsidy scheme arrangements

as a mechanism for addressing freight cost disadvantage to Tasmania, taking

into account the costs and benefits of the arrangements.

The Australian Government has consulted with the Tasmanian Government in formulating

the Terms of Reference for the review, given the significance of the schemes

to the Tasmanian economy.

The Productivity Commission will shortly release an issues paper and invite

expressions of interest from anyone wanting to participate in the review. Anyone

with interest in the inquiry is encouraged to make a submission to the Commission.

The Terms of Reference for the inquiry are attached. Further information about

the inquiry is available from the Productivity Commission at

www.pc.gov.au or by phone

02 6240 3239.

MELBOURNE

21 March 2006

Contact: David Alexander

03 9650 0244

Terms of Reference

INQUIRY INTO THE SUBSIDISATION OF CONTAINERISED AND

BULK SHIPPING BETWEEN THE MAINLAND AND TASMANIA

Productivity Commission Act 1998

I, CHRIS PEARCE, Parliamentary Secretary to the Treasurer, pursuant to Parts

2 and 3 of the Productivity Commission Act 1998, hereby refer the current

arrangements for subsidising containerised and bulk shipping between the mainland

and Tasmania to the Commission for inquiry and report within nine months of

receipt of this reference. The Commission is to hold hearings for the purpose

of the inquiry.

Background

1. The Tasmanian Freight Equalisation Scheme (TFES) was introduced in 1976.

   The Government’s objective was to establish a cost equalisation scheme

   to alleviate the freight cost disadvantage incurred by shippers of eligible

   non-bulk goods moved between the mainland and Tasmania by sea. Since its introduction,

   the TFES and its subsidy rates have undergone review on several occasions,

   in particular in 1985 and 1998. A key recommendation of the 1998 review of

   TFES was that the key assistance parameters for TFES should be reviewed annually

   and indexation adjustments applied as sea freight disadvantage changed over

   time.

2. The Tasmanian Wheat Freight Subsidy Scheme (TWFSS) was introduced in 1989,

   coinciding with the deregulation of the Australian domestic wheat market and

   replacing the Tasmanian Wheat Freight Levy which had existed since 1959. In

   the 2004-05 Budget, the TWFSS was ceased with eligibility criteria for the

   TFES being extended to include containerised shipments of wheat. The Government

   subsequently introduced the Tasmanian Wheat Freight Scheme (TWFS) for bulk

   wheat shipments from 1 July 2004, with containerised wheat to remain eligible

   for assistance via the TFES.

3. The Government wishes to undertake an independent review of these arrangements

   to consider the extent of the continuing benefits as well as costs of these

   schemes.

Scope of Inquiry

4. The Commission is to report on the merits and weaknesses

   of the current arrangements for subsidising containerised and bulk shipping

   between the mainland and Tasmania and provide recommendations on an appropriate

   future approach and/or arrangements.

5. In making assessments in relation to matters in paragraph 4, the report

   of the Commission should:

   1. Report on the characteristics of the freight

      task for containerised and bulk goods between Tasmania and the mainland

      of Australia, including a comparison with the freight task between regional

      centres and metropolitan centres on the mainland and related costs.

   2. Quantify any comparative freight cost disadvantage for goods eligible

      under the TFES and the TWFS, identify its primary causes and assess the

      impact of that freight cost disadvantage on Tasmanian business in terms

      of the cost of business inputs and access to markets on the mainland.

   3. Assess the effectiveness of the current scheme arrangements as a mechanism

      for addressing any freight cost disadvantage, including identification

      of the costs and benefits, the impact on stakeholders, and any unintended

      consequences or distortionary effects of the current arrangements.

   4. Identify any alternative mechanisms that could more effectively address

      any freight cost disadvantage, including assessing the full economic costs

      and benefits of any alternative mechanisms.

6. In undertaking the inquiry, the Commission is to advertise nationally, consult

   with key interest groups and affected parties, and produce a report.

7. The Government will consider the Commission’s recommendations, and

   the Government’s response will be announced as soon as possible after

   the receipt of the Commission’s report.

CHRIS PEARCE