WITH all the noise happening about our Government's multi-billion-dollar proposals to keep our economy afloat, why not rev up the system of grants we've already got that has been designed to assist exports?
It's a bit of a left-field idea because we're bang in the middle of a "think big" policy spasm on the part of a federal Government focused closely on short-term fixes to restore investor and banking confidence, rather than much cheaper proposals that should have a huge multiplier effect and which would have a direct and positive effect on our battered balance of payments.
It's not sexy but it's logical. First, a few facts.
One, the Export Market Development Grants (EMDG) scheme financed by the Government and run by Austrade has a budget of around $200 million a year and every dollar spent on EMDG generates anything from $13.50 to $27 of exports.
That much comes from the executive summary of David Mortimer's report "Winning In World Markets" that was tabled in federal Parliament in September last year, when we were all busy watching the sky fall in.
A rumble from inside Austrade that can't be officially substantiated is that the Government actually ends up getting almost $2 in revenue for every dollar of EMDG that it spends, which is what Damon Runyon would have said is "like finding money in the street".
Another fact is that Austrade doesn't chuck money at likely lads with no money, a mad idea and a surfboard under their arm: they actually reimburse money already spent on export development, up to 50 per cent above a $10,000 threshold.
It's currently paid in two tranches: $40,000 as soon as the application gets the tick and the rest at the end of June of the relevant financial year.
The only problem the scheme has at the moment is that the demand for grants is growing way faster than the funding so far made available, so the second tranche has in most cases been cut back sharply.
Over the 10-year period to 2006-07 the scheme's real (inflation-adjusted) outlays dropped by 22 per cent, while over the nine-year period to 2005-06 the size of the average grant provided under the scheme fell by 32 per cent. In summary, demand is strong but the funds available are going down a bit in real terms and they're having to be spread more thinly, so the effect is being dissipated.
Do the grants help? Oh yes.
The Mortimer report says grant recipient firms managed a 33.7 per cent average increase in export sales over the previous five years, against an Australian Bureau of Statistics estimate that aggregate exports from this country grew by an average of around 8.5 per cent over the seven-year period from 1998 to 2005-06.
That's not an exact comparison but expressed another way, that's a 220 per cent increase by grant recipients over five years, versus 59.5 per cent over seven years for the nation overall.
So it's clearly not a scam, and as an extra insurance every EMDG claim is audited. It appears that most of the expenditure is on travel, trade shows, etc, which are particularly easy to monitor.
David Mortimer, who knows that politics is the art of the possible, suggested in his report that one way to spread the money further was to crank up the minimum expenditure threshold from $10,000 to $30,000 and reduce the number of grants available to any company from eight to five.
A more expansionist conclusion would be to increase the EMDG scheme using all the same current criteria, but more money. The advantage of that is the scheme's already in place and it works. Last year many small exporters were disappointed when they got a much smaller than expected second tranche payout.
As a one-off stimulus, the Government could do worse than pay them their full entitlement from last year, and then pay the entire grant in full this year as soon as it is assessed ... and maybe even increase it.
Let's remember that the whole genesis of the Global Financial Crisis, as we all know now, was a severe mismatch between the US economy's imports and exports. We're not in the same ballpark as the US, fortunately, but we still run a current account deficit that has to be covered by borrowing. It is going to be around $65 billion this financial year and some estimates are saying it will blow out to $100 billion in 2009-10. Anything the Government can do to head that off, particularly if it's actually good long-term policy, has to be seized with alacrity.
Another possible stimulus which wouldn't be hard to put into effect would be a crank-up of the R&D (research and development) tax offset.
That's a formula based on eligible R&D expenditure in Australia. The basic idea is that the Government will buy an eligible company's tax losses (30 per cent of expenditure) for 100 per cent for interest (30c per dollar spent), 125 per cent for eligible R&D expenditure (37.5c per dollar spent), and 175 per cent for incremental R&D expenditure, which comes out at 52c per dollar spent.
The big problem with the R&D tax offset is that the company needs to find the money first and spend it, and then get a rebate. In a period where it is hard to raise money, this will mean that some good companies will not be able to make use of the scheme. One way to provide targeted money upfront to companies doing R&D is to make a one-off grant to companies that used the R&D tax offset in previous years.
The size of the grant should logically be a proportion of their previous claims. So if a company was paid $100,000 in R&D tax offset, then the Government stimulus might be, say, 50 per cent of the $100,000 payment, or $50,000. This would provide small companies doing R&D with a welcome boost to R&D funds in these difficult times, in a way that targets the most deserving. It's worth a thought.