This report examines the issues affecting the competitiveness of Tasmanian business as they relate to shipping, port, road, and rail infrastructure and services. It also focuses on the effectiveness of the freight and passenger subsidy schemes and assesses the alignment of their objectives and outcomes.

Key points:

• Tasmania, like mainland Australia, is an island economy. It is serviced by high quality but relatively high cost containerised domestic shipping services. The viability of direct international shipping services is affected by the cost of coastal shipping. Given its reliance on sea transport, Tasmania is particularly affected by inefficiencies embedded in coastal shipping regulation. This regulation should be reviewed and reformed as a matter of priority.
• Tasmania uniquely receives (Federally) subsidised freight services via longstanding arrangements in recognition of the relative cost 'disadvantage' of Bass Strait transit. The Tasmanian Freight Equalisation Scheme (TFES), Tasmanian Wheat Freight Scheme (TWFS), and Bass Strait Passenger Vehicle Equalisation Scheme (BSPVES) were designed to partially offset these costs. The term equalisation misleadingly implies 'full' compensation for the cost disadvantage but that is not inherent in the design and operation of the schemes. Further, securing 'true' equalisation is inevitably a policy chimera.
• The Australian Government has outlaid more than $2 billion since the inception of the schemes, and without change a further $2 billion can be expected over the next 15 years. In 2011 12 total outlays for the schemes were $128 million.
• There is no coherent economic rationale for the TFES and it falls well short of what is needed to improve the lagging competitiveness of the Tasmanian economy — which the Commission considers should be the policy imperative. It has a high fiscal cost, eligibility is arbitrary; and the direct recipients are concentrated notwithstanding the unclear incidence of the subsidy. Further, the TFES is inherently complex and leads to unintended consequences.
• There is no clearly articulated objective for the BSPVES. At least some of the subsidy is being captured by the Tasmanian Government-owned and sole provider of Bass Strait passenger and vehicle shipping services — TT Line.
• The Australian Government has stated its current intention to retain the TFES and the BSPVES. The recommendations related to the schemes in this report are made on that basis.
• A flat rate of subsidy per container (adjusted for King Island and the Furneaux Group of islands) would offer significant advantages over the current parameter based regime — increasing incentives to minimise transport costs, improving transparency and simplifying administration.
• The Tasmanian Government has initiated a process to secure the return of a commercially viable direct international container service, albeit involving some transitional assistance. This raises an intractable sequencing obstacle for considering the relative merit of moving now to extend the scope of the TFES to all eligible northbound commodities transhipped through the Port of Melbourne.
• Several efficiency issues relating to Tasmania's shipping and freight are the responsibility of the Tasmanian Government. These include: rationalising infrastructure assets such as ports and rail; private operation and ownership of freight infrastructure assets where this would improve their efficiency; and developing a sustainable integrated freight strategy.
• Tasmania faces broader economic and social challenges and the Australian Government should put less emphasis on freight subsidy schemes in favour of reforms that have national and Tasmanian benefits (such as coastal shipping reform) and those that directly enhance the competitiveness and productivity of the Tasmanian economy.