Export grants scheme in ‘disarray’ with $26m budget shift


Denham Sadler
National Affairs Editor

The government’s popular export grants scheme is now in “disarray” following a series of reforms according to a Liberal Senator, after confirmation that $26 million would be taken from last year’s allocation to cater for increased demand following the changes.

This effectively equates to a cut of more than 15 per cent from the scheme for companies which applied for it in the last financial year.

The Export Market Development Grants (EMDG) scheme was in the crosshairs in a Senate Estimates hearing on Thursday night, with both Labor and Liberal Senators trying to make sense of how government reforms in late 2020, led by former trade minister and current finance minister Simon Birmingham, have led to the value of individual grants dropping by up to 80 per cent, and the number of applicants rising by nearly 100 per cent.

Simon Birmingham
Former trade minister Simon Birmingham

The Estimates hearing also revealed that the reforms have led to a significant increase in the use of consultants to write grant applications, and that these applications are asking for nearly 50 per cent more money from the program.

Major changes to the EMDG program came into effect this financial year, transforming it from a reimbursement scheme to an entitlement one paid in advance of eligible export activities taking place, with the grant to be matched equally by the company.

The changes have led to significantly increased applications to the scheme, but no increase in the government’s appropriation to it. This means the grants on offer to eligible companies will be far lower than had been expected and mapped out in the plans provided to government.

To help cater for the increased demand, Austrade officials confirmed at a Senate Estimates hearing on Thursday night that $26 million of the $157 million allocation for the 2020-21 financial year – before the changes came into effect – would be taken away to pay eligible applicants in the current financial year.

EMDGs are now split across three tiers, with funding also on offer for representative bodies. Tier one is for first-time exporters, tier two is for companies looking to expand existing export activities, and tier three is for firms looking to expand into new markets.

Applications are yet to close for the final year of the scheme in its previous form, but Austrade officials confirmed that a large chunk of this funding – $26 million – would be taken from this group and provided to tier 1 and representative body applications for 2021-22, which will be paid in advance.

“We have appropriation for the last year of the reimbursement scheme and we’re partly paying out the first year of the forward-looking grant scheme…so we have allowed for the payments of tier one and representative bodies to be paid from this year’s appropriation,” Austrade general manager client programs Samantha Palmer told the Senators.

The legislative changes saw the “export ready” test scrapped, making far more Australian companies eligible for a grant under the program. In 2020-21 there were 2734 applications to the EMDG program. In the current financial year, the number is 5384. More than 2500 of these applications will be accessing the scheme for the first time.

Liberal Senator David Van was bemused by these figures and why so many companies are accessing the scheme, bringing down the value of individual grants.

“I’m having trouble reconciling the number of applicants. It seems extraordinary to me that there would be a 100 per cent increase in applicants. That seems to me that either Australia has pivoted to exporting to the world overnight or something else is going on with this scheme,” Senator Van said during the Estimates hearing.

“Exporters have been incredibly confused by this new program…the confusion, the disarray, I can’t tell you how many calls I get about it. There’s an incredible amount of confusion and dissatisfaction about this scheme at the moment. I hope the Department does some really hard looking at it and some proper consultations.”

The total grant funding requested by these applicants is nearly three times more than the annual budget allocation for the scheme.

There are also maximum amounts that can be paid out under these tiers, with the largest tier three offering up to $150,000.

But in an update to industry just two days before Christmas last year, AusTrade revealed that the actual size of grants under the new scheme will be far below the maximum amount promised.

While the tier two cap is $80,000, the average amount to be paid out in 2021-22 will be $23,000. For tier 3, the cap is $150,000, but most companies which applied for it this year will be receiving just $35,000.

This is because the number of applicants to the scheme has skyrocketed, and the set allocation of $157 million per year must be spread across them.

Department officials defended the significant gap between the maximum grant on offer and what will actually be paid to companies, saying these figures weren’t based on how many companies were expected to apply for it.

“The modelling that was done was not really done in order to determine the grant amount for the tiers, it was done to indicate what the demand might be but that demand did not get used to determine the grant amounts for the legislative tier caps,” Ms Palmer said.

“Businesses will make their plans and the flexibility they have under this scheme is they can change them and they have the certainty of knowing what the grant amount is going to be…under the old scheme there’s really no certainty they will get what they have spent the money on.

“Under the new scheme they get an upfront grant agreement over multiple years that tells them how much the government will pay them if they spend double that on eligible expenses.”

There has also been a far higher use of consultants to complete grant applications for Australian companies, and these applications are typically asking for significantly more money than the rest.

Under tier three, there have been 355 applications directly from exporters, requesting an average of $387,000. There have also been 1939 applications by consultants on behalf of companies, requesting an average of $429,000.

From the more than 5300 applicants, there has been a total grant request of $426.8 million, the department officials said, nearly three times as much as is set aside for the program each year.

Labor Senator Don Farrell said the government had vastly underestimated how many companies would apply for the new version of the scheme.

“Is it fair to say you’ve underestimated how much of a demand there’s going to be out there for this grant process? The level of demand has been underestimated and that has resulted in people getting less than they probably wanted to get,” Senator Farrell said.

The reforms to the EMDG program have been labelled “disastrous”, and with the reduction in grant sizes “blindsiding” Australian businesses, including to a number of expert advisors.

Do you know more? Contact James Riley via Email.

2 Comments
  1. Bruce Patten 7 months ago
    Reply

    On 16 August 2021 Trade Minister Dan Tehan released a media statement which included
    “The EMDG program has helped support Australian success stories like the Wiggles, Atlassian and Penfolds to become international sensations. Our Government provided $214.5 million to more than 4,700 Australian businesses to support their exporting activities through the EMDG program in 2020-21.”
    https://www.trademinister.gov.au/minister/dan-tehan/media-release/grants-boost-australian-exporters-global-growth
    Like the grant payout value the number of claimants has also now significantly reduced to only 2734
    The EMDG program was established in 1974 and provided a guaranteed financial incentive to Australian exporters. What was claimed was paid immediately after assessment, in full. When I was CFO of Cochlear some 35 years ago, we would lodge our EMDG claim and receive full payment of $150,000 within a month. It was essential funding to Cochlear’s export success in the early years. The successful Wiggles, Atlassian and Penfolds received the same benefit.
    However in 2012/13 the government limited the maximum grant appropriation to $125m. While the scheme still allowed for a maximum payment of $150,000 with the limited budget the maximum payment was rarely possible. Last year the maximum paid was only $30,000 even if a business qualified for a $150,000 grant.
    The new EMDG program has effectively reduced the total max grant of $1.2m to $200,000 over the 8 years claimable.
    The process of receiving advance approval (not payment) of the grant amount only serves to encourage exporters to reduce their export marketing spend to double the approved grant to receive reimbursement of 50%.
    The new EMDG scheme actually discourages exports while encouraging businesses to relocate their marketing operations offshore. It certainly does not encourage businesses to relocate to Australia.

  2. Allen Roberts 7 months ago
    Reply

    Governments for the 30 years I have been watching EMDG, seem to be unable to help themselves, tinkering with a successful program, albeit with faults.
    The one real problem is the scheme is based on reimbursement, which creates a cash flow problem for SME’s. That was fixed by this latest change, but predictably, change that rule and the number of applications will increase, a problem with a finite and fixed budget.
    The unintended consequence of the change is also that applications are much harder to assess, as they are for future activity rather than being reimbursements against receipts. You therefore need people who can apply real world knowledge and experience to assess applications to separate the real export possibilities from those where the applicant is having a nice holiday somewhere, or scratching a dream at taxpayers expense. There are not a lot of those people in Austrade, or anywhere else in Government agencies.

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