It's Just Not Cricket

FIrst published in the weekly shipping newspaper Lloyds List DCN

FIrst published in the weekly shipping newspaper Lloyds List DCN

Australians make a national pastime of playing down British success stories - particularly on the cricket pitch - but as the scoreboard for British shipping shows outstanding results some Australians are cheering from the dockside. The poms have based a nine-year resurgence in shipping on the introduction of tonnage tax in 2000, one of the key triggers that are now being considered by the Federal Government for the revitalisation of Australian shipping.

The English seafarers are still fighting to save jobs, have the Government deliver much needed training regimes, and prevent the continued exploitation of foreign seafarers on UK waters and on UK ships.  But the tonnage tax has at least meant  they have vital infrastructure.   

In short if you opt for tonnage tax you pay a fixed tax based on the tonnage of your ship rather than having your profits taxed - allowing for clearer, simpler and more predictable tax planning. In 2008 British shipping's turnover stood at $23.2 billion, up 25 percent from the previous year.  In the just published Pink Book on the UK Balance of Payments from the Office of National Statistics the UK Chamber of Shipping proudly boasts that shipping now earns $2.63 million every hour of every day for the UK economy.

Shipping's net direct contribution to the balance of payments was $7.8 billion, an increase of 40 percent on the previous year, even after the very negative and substantial burden of fuel cost increases during the period. A tonnage tax was introduced by the UK Government when the shipping industry was on its knees.  By 2007 UK-registered ships numbered 646, well above a low of just 379 in 2000. Estimates are that the UK shipping industry is between three and five times larger than it would have been without the tax base change. The tonnage tax has been vital to the transformation of the British industry in a global environment characterised by stiff tax competition, as countries seek to attract investment because of the economic benefits that the shipping industry generates.

While the UK industry has been on the move, the Australian fleet has retreated, care of the non-policy of the Howard Government which chose to neglect the industry under the bizarre notion that we were a "Shipper Rather Than a Shipping Nation". As Transport Minister Anthony Albanese said at the NatShip Conference in June: "It implies that Australia's long term economic interests are best served by limiting its economic activity to that of a farm and a quarry....It incorrectly assumes that resource companies have no interest in controlling their own supply chains......It exposes our economy to fluctuations in global shipping markets, and fails to take into account the need to integrate shipping into national and international logistic chains." Given our enormous commodity export and domestic sector, if anything we are a nation far more reliant on shipping than the UK. The fourth largest in the world actually.

From 1994 to 2008 the median age of the Australian fleet increased from 14 to 19 years, while the international median fleet age dropped from 15 to 12 years. The number of Australian registered ships dropped from 55 to 40, despite the domestic Australian freight task more than doubling over the same period. The share of domestic freight carried by foreign registered permit vessels, mostly Flag of Convenience vessels using tax havens as their competitive edge, increased from 6% to around 30% at the same time.

Tonnage tax is part of a suite of possible fiscal measures being considered by Government including the re-introduction of accelerated depreciation (scrapped by the Howard's Government). Other elements being considered include regulatory changes that could enable increased Australian participation in the coastal trade, workforce development, skills and training reforms and labour reform, including changes in workers' compensation arrangements. Separate from these reforms are the Fair Work Act measures that will result in the modernised Seagoing Award applying to all ships in the coastal trade.  This is an important measure in providing a single competitive market for the domestic Australian freight transport system.

A new fiscal regime for shipping will not by itself result in new investment in Australian ships.  Consequently another consideration for Government is an Australian register for international ships to encourage the business of operating ships in Australia. This type of reform in a number of key countries has resulted in the development of maritime clusters  - business clusters based on a raft of maritime services including ships management facilities, key training and re-skilling centres, ship financing and insurance, repairs and dry docking and providing jobs and economic opportunities.

The UK's commercial maritime cluster - across all activities, from shipping to maritime businesses, ports to sub-sea operations, leisure to manufacturing and fishing - has a turnover of around $100 billion, employing some 400,000 people. 

Shipping reforms cannot happen in isolation. The National Transport Commission's development of a national freight transport strategy and a national ports strategy gives us the chance to integrate all freight modes into national transport planning, which has over recent years been totally dominated by road and passenger transport. It gives the Government the opportunity to co-ordinate domestic shipping policy with port strategy and take a whole-of-supply chain approach.

A revitalised Australian shipping industry will bring significant economic benefits including a boost to taxation revenue and our balance of payments and associated spin-offs.

It will also be important in building our Asia Pacific regional objectives as well us enhancing Australia's national security and defence capability and will reduce freight transport contributions to greenhouse emissions. Many Australians take it personally when the poms beat us at our own game, and on this one they've pulled our pants down.