A Tax Holiday For Shipping

[First published in The Australian Financial Review 21 February 2012]

Labor will introduce an extraordinary income tax holiday for the local shipping industry as part of a federal government push to reduce the number of cheaper foreign ships operating on the coast.

The package imposes conditions on foreign ships that manufacturers complain will increase costs but also introduces a generous tax exemption for Australian flag vessels on all shipping income, earned domestically and internationally.

The tax component is contained in draft laws released yesterday.

"It's probably one of the broadest packages of exemptions that would be available across industries," Blake Dawson partner Teresa Dyson said.

An associated tax exemption will allow companies to offset losses against other revenue without having to waste them on the exempt income.

Shipping companies will depreciate their vessels over 10 years, down from 20 years, to encourage "cleaner, younger" ships and benefit the shipbuilding industry.

While other industries benefit from accelerated depreciation - oil, gas and transport companies claim $2 billion worth a year - Ms Dyson said the complete package on offer for the shipping industry was unprecedented.

Transport Minister Anthony Albanese said the package was devised to revitalise the Australian shipping industry and should not extend to other struggling industries.

"This is a unique industry which has implications for defence, for agriculture, for the environment," he told The Australian Financial Review.

"It is, by definition, involved in offshore activities either around our coast or trading with other nations.

"The implications for Australians not having a domestic shipping industry are unique and extraordinary across economic, environmental and security considerations."

The number of Australian-operated ships has dropped from 55 to 22 in less than two decades. Of those, only four are international ships - all in the liquified natural gas sector.

While 99 per cent of our international trade is shipped, only 0.5 per cent is carried by Australian flag ships. Mr Albanese denied the measures were protectionism, saying they were "forward looking" and about making the local shipping industry competitive.

"There's a potential for major expansion of the industry, not just its survival," he said. Our geographical location, certain legal system and other advantages over neighbours fed that potential, he said.

The measures, announced in September and due to apply one year sooner than originally planned, went beyond earlier proposals criticised by the industry as failing to catch up to our neighbours, particularly Singapore with its zero tonnage tax.

The government took the simpler option of exempting companies from tax, rather than introducing a new tax and setting it at a nil rate.

Other changes include an exemption from royalty withholding tax for non-resident vessels, forecast to cost $2 million a year, and a tax offset for wages paid to Australian seafarers.

Ms Dyson said the government had relied on simple legislative changes for the measures, which complement other efforts to boost the industry, including a new licensing regime.

Submissions on the draft laws are due by March 5. The government will hold talks with the industry in Canberra next Tuesday before introducing the proposals to Parliament.

The Australian Financial Review

MUA National Secretary Paddy Crumlin said in response: "Criticism of the package is unfounded, mis-informed and undermines the long term viability of Australian shipping."