Tariffs to cost more to collect than the revenue they raise: Productivity Commission

Tariffs to cost more to collect than the revenue they raise: Productivity Commission

Trade agreements already in place, plus changes in government policy over the past half-century, mean about 90 per cent of imported goods come into Australia tariff-free. The remaining tariffs hit just 10 per cent of products, mostly on knitted cloth, car parts and furniture.

Tariff revenue is expected to fall further as Australia signs trade deals with Britain, India and the European Union in the coming years.

Former prime minister Scott Morrison and British Prime Minister Boris Johnson last year agreed on the principles of a free trade deal between Australia and Britain. The deal will reduce tariff revenues by more than $100 million.Credit:Getty Images

The trade deal with Britain is expected to cut tariff revenues by between $106 million and $134 million. A deal with the EU would cut revenues by between $704 million and $774 million.

The decline in revenue will mean the cost of raising tariffs on remaining goods will climb, reaching up to $4.81 for every dollar of tariff revenue.

The commission found businesses importing goods faced significant compliance costs, partly due to the various FTAs ​​Australia is party to, as they “exert effort” to access preferential or concessional rates of customs duty. That effort can include changing how they make goods to qualify for a particular trade deal.

“Compliance costs come in two forms: the costs of the ‘paperwork’ needed to demonstrate eligibility for a preference or concession, and the costs of adapting production to make the imports eligible for the preference,” it found.

“Some foreign producers may adapt their production processes to meet preference eligibility. Australian businesses and consumers bear the increases in costs that this might involve when they are passed along the supply chain.”

Separate research from the commission found overall assistance to businesses jumped by 25 per cent, or $4.2 billion, in 2020-21.

Most of the increase was driven by new spending on COVID-related programs aimed at helping businesses through the pandemic.

Commission deputy chair Alex Robson said the pandemic and the global surge in protectionism over recent years meant there had to be a renewed focus on winding back government handouts.

“During the early stages of the pandemic, government assistance to Australian businesses and households rose. Many needed support at that time. The challenge is to roll back this assistance as conditions improve to avoid overheating the economy,” Robson said.

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“The task now is to make sure every dollar of assistance is efficient, effective and remains absolutely necessary. This includes making sure we aren’t creating trade barriers through costly and obsolete tariffs.”

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