Government announces major overhaul to the EMDG

Austrade has announced that its Export Market Development Grant (EMDG) scheme will undergo changes that are set to fundamentally alter the way in which the program is administered.

On 10 September 2020 Federal Trade Minister Simon Birmingham announced that the 35 year old scheme will be undergoing a major reform, with the intention of simplifying the application process and adapting it to the needs of Australian exporters.

The program overhaul comes as a direct result of the review of financial assistance to SME exporters, which culminated in ten recommendations which have all been accepted by the government in principle and make up the basis of the proposed reform.

To view the official review, click here.

There are five key ways in which the program is set to change, each of which expected to come into effect as of 1 July 2021:

  1. Grant payments to be made in advance

The EMDG has always been paid out in arrears, which has meant that applicants needed to incur the expense and apply for the grant as a reimbursement.

However, as part of the revamped program, grants will be paid out in advance, which will make it easier for businesses that do not have access to the required capital to maximise export opportunities.

  • Applicants to be divided into two categories

Austrade will begin grouping EMDG applicants into two different streams, with varied rules for each:

Category 1: New to Export

This category will be for businesses that are established and ready to begin exporting their products or services. They will need to go through an ‘export readiness’ test, and assuming they pass this test, they will be able to access a grant of up to $80,000, which will be payable to them to cover 50 percent of their eligible export expenses over a two-year period.

Category 2: Expanding Exporters

To be classified as an Expanding Exporter, a business will need to have established revenue in at least one export market and be looking to further expand its export activities (either within the same export market or others).

Upon meeting these criteria, the business will be able to access two grant payments, each of which will be paid out over the course of a three year period (i.e. six years in total).

The first payment will be up to $240,000, and the second, which will be contingent on the SME making a strategic shift in its export efforts, will be up to $450,000.

In total, the maximum amount of grant funds payable to a business throughout the eight-year period will be $770,000.

  • Turnover threshold to be tightened

Historically, businesses with up to a $50 million annual turnover were eligible to access EMDG funds. However, since the review found that the support was far more effective for smaller businesses, the turnover threshold will drop to $20 million in annual revenue to better target businesses in need.

  • Two-tranche payout system to be dropped

Due to the program’s popularity, Austrade developed a system where it would pay out an initial amount of funding, which was 50% of eligible expenses, capped at a certain amount. Any grant funds beyond this cap would then be prorated based on the amount left in the EMDG kitty each year and paid out toward the end of financial year.

This system gave Austrade flexibility in its payout process, but also left many applicants in the lurch – not knowing how much of a rebate they would ultimately receive.

As part of this reform, the two-tranche payout system will be discontinued, giving applicants clarity on the exact amount of grant funds they will be entitled to.

  • Legislation to be amended

One of the key challenges in applying for the EMDG is that the legislation (the Export Market Development Grants Act 1997) is complex and lengthy, making it difficult for applicants to be comfortable with their compliance levels.

To remedy this challenge, the government will be amending the Act to reflect the above changes, and while doing so, it will work to simplify and streamline the Act’s wording.

Transitional arrangements

As the government works towards finalising these changes, it has confirmed that the current legislation and program rules will remain in place for the 2021 financial year.

So for those incurring eligible export expenditure throughout the 2021 financial year (i.e. until 30 June 2021) they will be able to claim the standard reimbursement under the under the current legislation during the 2021 claiming period.

However, as of 1 July 2021, all export businesses will be subject to the rules of the revamped system.