Tuesday was a sad day for the EMDG Program! The Federal Coalition Government Treasurer presented the Annual Budget and advised that a modest additional $60m has been allocated to top-up the EMDG at $20m per year (3 years).
For several years the EMDG program has run out of funds with more and more claimants receiving significantly less than the 50% expected. In 2017/18 some 1,407 claimants whose approved grants exceeded more than $40,000 each, received their initial $40,000 but just 29.24% of the remaining grants due. For claimants due to receive the $150,000 maximum received just $32,164 of the $110,000 balance.
The shortfall in funds for 2017/18 was just over $45m. The final payouts during 2015/16 were 72.66% and 64.5% for 2016/17. The reduction to 29.24% during 2017/18 was extraordinarily low and totally unexpected. But the news is a lot worse for 2018/19. Estimates are that the final payout in June '19 ranges from 10% to 20% with many experts believing it will be closer to 10%.
How did this happen, why has it been allowed to happen?
For several years the Export Consultants Association Incorporated (ECAI), the members of which are EMDG Consultants assisting in excess of 70% of all EMDG claimants, has been lobbying the Federal Government for more funding for exporters. The success of the program over many years is well documented, generating export sales revenue in excess of $31 per each $1 grant paid and as reported by KPMG in their study, which reads:
"KPMG found that each EMDG dollar generates an economic benefit of $7.03 when industry spillovers and productivity gains are taken into account. The scheme effectively redistributes productive resources from Australian taxpayers (including firms) to new and emerging exporters".
The success of the program is growing year on year. The number of claims lodged for 2015/16 increased 6.6% on 2014/15 , 6.6% in 2016/17 on 2015/16 and 8.1% in 2017/18 on 2016/17.This growth is expected to result in a funding shortfall exceeding $60m by the end of June '19. ECAI plus several industry groups, exporters and individual EMDG Consultants made representations to the Federal Government during recent months all detailing the same message.......more funds are needed to pay 100% of approved grants.
Nothing has been approved for this financial year. The sad fact remains that at the end of June '19 there will be an expected funding shortfall exceeding $60m and if this year can be compared to last year, at least 1,407 claimants will miss out receiving 100% of their approved grants.
Going forward the position is helped marginally by the extra $20m per year over three years. If the number of claimants increase as in the past then a similar $60m shortfall will be the result for 2019/20 potentially increasing to $100m plus by 2021/22.
Added to the above is the likely outcome that Austrade will be forced to decrease the initial grant payment from 1st July '19 to spread the reduced payments over a larger number of claimants. At present all approved grants for less then $40,000 receive 100% payment once the claim is approved. Those claimants due to receive in excess of $40,000 receive the $40,000 and wait until the end of June '19 for their second and final payment. A possible outcome is that Austrade will reduce the $40,000 maximum initial payment from 1st July '19 to between $20,000 and $30,000. A total of 940 claimants received grants of between $20,000 and $40,000 during the 2017/18 year. This means that 2,357 claimants would receive less then their approved entitlements but at least the 'bad result' is spread over a much larger base previously shared by just 38% of claimants.
The only good news, if it can be called that, is the additional $60m allocated at $20m per year over the next three years. What happens after that is unknown as the forward estimates show that the grant funds set aside revert to current levels.
With the Federal Election next month there has been no indication by Labor that they will change the $60m, up or down, should they win power. It appears to be a done deal unless exporters current plight is revisited soon.