The small business community is furious over the Federal Government’s decision to scrap $25 million a year from the drastically underfunded Export Market Development Grant, in yet another reduction in the scheme’s power and reach.
The cut comes alongside what the government calls a “retargeting” of AusTrade, which industry insiders believe to be a focus on more nations in the Asia-Pacific and a closure of offices in North America.
Warren Cross, a legal expert and director of Export Incentives, says it’s “frustrating and disappointing” the scheme has been put on the chopping block yet again.
He argues Trade Minister Craig Emerson “doesn’t have a clue”.
“He’s never been interested in this scheme from day one, so this isn’t a surprise. They’ve been cutting back this grant for years.”
Cross says, according to government sources, the retargeting of AusTrade will see more resources taken out of North America and placed in the Asia-Pacific region.
Adrian Spencer, chief executive of grant consultancy firm GrantReady, says this retargeting was flagged in a report last year outlining drastic recommendations to the AusTrade program. The shift, he says, is a reflection of the government’s policies.
“Whenever a government moves money from one area to another, it’s always a reflection of policy. Here, this change is a reflection of the government’s policy.”
The change to the EMDG was announced as part of the mid-year budget update. The grant will lose $100 million over the next four years, out of an original budget of $600 million.
The grant works by reimbursing companies for expenses worth more than $10,000 – but only for expenditure made in the previous financial year.
There are two key problems with taking money from the EMDG.
The first, according to experts, is that it’s erasing the capacity to generate revenue. Warren Cross points out when exporters do well, they generate revenue above and beyond the money provided by the EMDG.
A review of the scheme conducted by AusTrade in 2000 found that for every dollar granted through the scheme, it generated $12 in return.
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Cutting that money reduces the government’s opportunity to collect new taxes.
“For every dollar you spend, you’re getting as much as seven back in export earnings. When you cut back assistance, you’re effectively cutting back the government’s own revenue.”
“If you want to increase revenue, then you should be increasing the size of the funding, not cutting it back.”
The second problem is that the scheme is already underfunded.
The most recent cut to funding came in 2011, when the government announced that companies receiving grants in a second batch of payments would only be paid at between 45-65 cents in the dollar.
The EMDG works by paying out grants in two tranches. The first tranche is usually paid out in full, but the second tranche has been paid out at lower rates for years. Erasing a further $25 million means those payments could dwindle even further.
Ian Murray, executive director of the Australian Institute of Export, says the cuts are “enormously disappointing”, especially considering the pressures facing exporters and manufacturers.
“Exporters are facing a higher dollar, with a continuing economic crisis. They’re finding it a really tough time, and this is one of the few areas of support they get.”
“It’s hurting a sector that’s already hurting, very badly.”
While Adrian Spencer says there are state-based grants available for businesses to access, the reduction in funding is still a disappointment.
“It’s just a shame; it was a good support for export.”
Warren Cross says the move is especially damning when taking into account the way exporters work – they establish multi-year plans.
“Moving into a country like North America is possibly a five-year plan. Having assistance taken away is a blow to that.”
“To deliver increased revenues, we need to keep supporting exporters. The Minister doesn’t seem capable of understanding that.”
A spokesperson for the Trade Minister was contacted this morning, but a reply wasn’t available before publication.