Leading business adviser Grant Thornton Australia is calling on the Federal Government to revaluate its policy of cutting out funding for the Export Market Development Grant (EMDG) for manufacturing companies that make $50 million.
The EMDG scheme is the Australian Government’s principal financial assistance program for aspiring and current exporters. Current regulations state that Australian businesses with annual income in the excess of $50 million are not eligible to apply for EMDG.
“There might be a magic number for Australian manufacturers to hit before they start really optimising profitability, and its sings to the tune of $50 million according to our latest benchmarking analysis,” reads the press release by Grant Thornton.
“So we question ahead of the Federal Budget next week, why Government support cuts out at this crucial point, where Australian manufacturers are on the verge of contributing vast amounts back into the Australian economy.”
Mark Phillips, National Head of Manufacturing, Grant Thornton Australia, says it is “this magic number” where Australian manufacturers achieve efficient economies of scale and start contributing larger amounts of tax dollars back into the economy, along with job creation.
“Mid-sized businesses contribute substantially to the total tax revenue generated in our country. In this sense, our desires are aligned with that of the Australian Government; we want our mid-sized businesses to operate profitably and sustainably,” Mr Phillips says.
“Currently the EMDG ceases to be available at that crucial moment a business hits the threshold of $50 million. We would like to see this threshold lifted to at least $100 million, and preferably up to $250 million, such that manufacturers are supported to reach and continue to operate in the most profitable size category.”
Michael Climpson, Partner, Grant Thornton Australia, is responsible for the firm’s benchmarking analysis of Australian mid-sized manufacturers and the one who uncovered the magic number for Australian manufacturers.
“Our latest benchmarking analysis of Australian mid-sized manufacturers clearly shows that on average, manufacturers substantially benefit by operating with annual sales revenue in excess of $50 million. Reaching appropriate scale ensures the gross margin achieved is sufficient to cover a fixed overhead structure, and the profit achieved represents an attractive return on investment,” Mr Climpson says.
“We’ve found from our analysis, that profitability for manufacturers in the size threshold above $50 million sales revenue (average profit margin 7.8% in 2014) is substantially higher than those below that threshold (2.3%),” said Mr Climpson.