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Productivity Commission signals cutback in TCF import tariff
11
Jul '08
Productivity Commission's modelling indicates that there would be economy-wise benefits from further reductions in the relatively high tariffs on TCF imports. Assistance reductions would involve some further contraction of the TCF sector, but this would be outweighed by expansion of other industries resulting from cost reductions. Consumers and taxpayers would benefit from a reduction in the $1.5 billion burden they currently bear.

The modelling also suggests that the benefits would be larger under the legislated program of reductions in tariffs to 5 per cent by 2015, than options with lesser reductions. Modelling also confirms that gains accrue even with pessimistic assumptions about employment and price effects.

The Commission's modelling indicates that a significant further appreciation of the Australian dollar, associated with the mining boom, could have a greater impact on TCF activity than assistance reductions. But trying to offset such pressures on the TCF sector through higher assistance would impose costs elsewhere in the economy.

In undertaking its research, the Commission benefitted from early meetings with Professor Green and his Secretariat, and from the feedback of modelling referees and other experts who attended a workshop in May to examine the model and the Commission's preliminary results.

The TCF sector represents a small part of the economy, with sales and services income (excluding subsidies) of $9.2 billion in 2005-06 and value added of $2.8 billion in 2007. The sector accounted for 2.6 per cent of the total manufacturing activity in Australia (under either measure), or just under 0.3 per cent of gross domestic product.

As in various other countries, TCF industries in Australia have long received comparatively high levels of assistance (mainly in the form of tariffs, but also 'voluntary' export restraints and quotas in the 1970s and 1980s). While assistance to the sector has fallen greatly since the 1980s, in net terms it amounted to some $500 million in 2006-07, with an effective rate of assistance of 12 per cent, nearly three times the average for manufacturing. (Tariffs and budgetary support combined currently cost consumers of TCF products and taxpayers almost $1.5 billion a year.)

Tariffs remain the dominant form of assistance, providing around four times the level of support of budgetary programs. Currently, imports of textiles and footwear attract tariffs of 7.5 or 10 per cent, while tariffs on all clothing imports are 17.5 per cent. Except for clothing, all rates are legislated to be reduced in 2010 to 5 per cent (the general rate applying to other manufacturing industries, except for the automotive sector). The tariff on clothing is scheduled to fall to 10 per cent in 2010 and to 5 per cent in 2015.

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Productivity Commission

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