Kerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Primary Industries, Fisheries and Forestry) Share this | Hansard source

The reason I rise to speak in this debate on the Tax Laws Amendment (2007 Measures No. 3) Bill 2007 and the Tax Laws Amendment (Small Business) Bill 2007 is that the bills contain provisions relating to forestry managed investment schemes, and it is the issues of plantation forestry and MIS, managed investment schemes, that I now wish to discuss. In response to these bills I will touch on Labor’s continued commitment to Australia’s plantation forestry industry and I will go on to discuss the government’s consistent failure to consult on the changes to managed investment schemes and failure to understand what the effect of their decisions have been and will be on rural and regional communities.

One of the most exciting aspects for the forestry industry in the past 10 years has been the growth of plantations. Over the past 10 years, plantation forestry has grown at around 70,000 hectares of new plantation area each year. This has resulted in growth in total production from one million hectares in 1994 to over 1.7 million hectares by 2005. This strong growth has been accompanied by strong investment from the private sector in forestry. Many of us will recall the days when plantation investment was largely a government responsibility. This is no longer the case, and the role of the private sector in the forestry industry, and particularly in plantation forestry, has become critical to future expansion. The private sector has not only brought new investment; it has brought with it new ideas, new varieties of trees, new products, new long-term jobs and the prospect of a long-term forestry industry.

One of the most exciting aspects of the emergence of private sector investment in plantations has been the growth in hardwood plantations. Hardwood plantation production grew from a very low base in the early 1990s to almost three-quarters of a million hectares in 2005. This led to a greater diversification of opportunities within the forestry industry, and particularly in downstream processing. A critical factor to consider in this regard is the balance of trade in paper products. While Australia exports about $2.1 billion worth of wood and paper products, Australia imports around $4.1 billion worth of wood and paper products. This represents a trade deficit of around $2 billion, most of which is paper products. The growth of hardwood and the diversification of species opens the opportunity to increase exports and to increase production in wood and paper products to reduce Australia’s reliance on imports. Our main export markets are Japan, Hong Kong, China and New Zealand. A greater diversity of species and value adding will expand these markets and open up new markets to Australia’s wood products.

In relation to other managed investment schemes, and particularly the non-forestry managed investment schemes, the government has been consistently failing Australia. The government has consistently and deliberately neglected to consult with the industries and the rural and regional communities that will be affected by its changes to managed investment schemes. Firstly, the government attempted to bury its decision to end non-forestry managed investment schemes back in February 2007. The Assistant Treasurer, Mr Dutton, issued a press release announcing the government’s decision at eight minutes to seven on the evening of Tuesday, 6 February this year. If the government was comfortable with this decision on this matter, why would it attempt to hide it by issuing the announcement at eight minutes to seven on a Tuesday night? Maybe the government was hoping no-one would notice and it could sneak this one through without anyone having anything to say about it. Maybe the government just did not fully appreciate the impact of its decision. Or perhaps it just did not care.

The February 2007 decision gave the industry less than five months before it would effectively be put out of business. The government undertook no consultation with the industry and in fact discouraged those who sought consultation, saying ‘it was not time for consultation’. It undertook no consultation with affected communities. Haven’t those communities been around Parliament House making members and senators aware of the drastic effects they have been suffering with that decision?

In February this year at Senate estimates it was revealed that the Department of Agriculture, Fisheries and Forestry had undertaken no research on the issue and had provided no advice to the minister. When the government made the decision to end non-forestry managed investment schemes they did not know how many jobs would be affected, they did not know how much investment would be lost and they did not know what the effect on Australia’s rural exports would be. The government used its numbers in the Senate to block a Senate inquiry which would have looked into those aspects of the government’s decision. The inquiry proposed by Labor offered the opportunity to determine what the effects of ending non-forestry managed investment schemes would be, but the government did not want to know and did not care. A few senior ministers in the government were determined to get rid of non-forestry managed investment schemes. Regardless of the merits of the decision they were going to end those schemes.

Then we had the spectacle of Minister McGauran blaming investors for the uncertainty and job losses arising from his own government’s inept decision in an article in the Weekly Times. With no consultation and no examination by government of the consequences of their decision, the managed investment scheme industry and rural and regional communities were rightly outraged.

The government has since given a one-year reprieve to non-forestry managed investment schemes after its own back bench revolted at the decision, but it does little to allay the real concerns about job losses and lost investment for rural and regional Australia. Those communities are now dependent on a test case which the industry will take to determine whether the so-called tax ruling, which puts the industry that their livelihoods depend on out of business, is a valid one. One would have thought that there were better ways to deal with the uncertainty created by this decision. Cynics suggest that, if the tax office is beaten in the test case, the government will take further action to close the schemes down. That is not what the government has said, but there is a strong belief that that will be the case in those communities.

I turn back to the government’s response to forestry managed investment schemes in this legislation. The forestry MIS industry received consultation prior to the December 2006 announcement of the changes to the laws regulating those schemes that are now contained in this bill. However, having spoken to the forest industry, I can tell the Senate that the decision announced in December 2006 was not a component of the discussions that they held with the government. The forestry industry was taken by surprise when the government announced that 70 per cent of expenditure must be attributable to establishing, tending and felling trees for harvest.

During the recent budget estimates, neither the Department of Agriculture, Fisheries and Forestry nor Treasury could indicate where the figure of 70 per cent came from. Indeed, the Department of Agriculture, Fisheries and Forestry indicated that it did not know if the forestry industry could operate under the 70 per cent requirement. It appears that the 70 per cent requirement was plucked from thin air within the minister’s office and not through any consultation process. Certainly, that is the only conclusion that I can reach on the information that has been given to me by the industry and by the departments through Senate estimates.

Concerns have also been raised with me about the four-year limitation before secondary markets can begin. The opposition welcomes the secondary market approach and is quite prepared to support the concept that there ought to be the opportunity to trade in the products of the managed investment scheme before the investment has reached maturity. It is, of course, quite possible for the market to assess the strength of the investment, the potential future value and put a price on it during the interim stage of the growth of a plantation. With proper information that will actually place a discipline on those who promote the schemes to indicate reliable and reasonable rates of return because, if the investments in those schemes are sought to be marketed after four years, then one would expect a commercial rate of return by that time factored against the long-term return of the investment—just as with any other financial product. If the scheme is not returning a reasonable rate, then the investors are entitled to take the view that they have not been properly advised. That might have consequences not only in relation to the future business of certain advisers but also in a legal sense for some advisers depending on how they have represented themselves and the product that they are promoting in those considerations. We support the concept. However, concerns have been raised with me about the four-year limitation before secondary markets begin as this may act as a disincentive to invest in long-rotation plantations.

Representatives of the forest industry have indicated that a four-year period before secondary markets begin may be too short a time frame. It may not give sufficient time for long-rotation trees to reach a sufficient point of maturity to be assessed. So there are varying views about this, and one would have thought that the government would have had a very rigorous basis for the four-year proposal and for the 70 per cent minimum allocation of the funds invested towards the growing of the trees. But that is not apparent from the material that has been made available to the opposition and, indeed, the public through Senate estimates.

So we have a problem, where there is a lack of confidence in the industry in the regime that the government is proposing—or, if it is not a lack of confidence, then a degree of uncertainty about how the industry will be able to operate for the future with those sorts of arrangements. Clearly the government has some work to do to bring the industry along with it, with the regime that is proposed in this legislation.

From Labor’s point of view, of course, we will continue to pay close attention to the way that the regime in this legislation with respect to forest managed investment schemes plays out. We would like to ensure that, if it is possible, longer term rotation plantations are not disadvantaged, because they may create some significant opportunities for high-value processed timber coming from plantations. Some people said, historically, that we were never going to get sawn timber from plantations. We now know that that view was wrong. Sawn timber is being recovered from the Eucalyptus nitens species at the Forest Enterprises mill in northern Tasmania—a development that some of my colleagues back in the early nineties said would never happen. It is happening now. We need to ensure that there is an incentive for long-term rotation plantations, long-term growth, larger trees, better quality timber and the proper milling and seasoning methods to make sure that we get the highest possible value from those timbers. That is a major concern that we need to have factored into any review of this legislation, and that is the approach that Labor will be taking.

Although there are concerns about the forest managed investment scheme aspects of this bill, Labor believes that these changes do provide a degree of certainty to the forest industry which unfortunately the government has denied to the non-forest managed investment scheme industry and the thousands of people employed by non-forest managed investment schemes. In summary, we can say that we will be supporting this legislation. Indeed, we will be supporting the plantation forest industry into the future. It is important to note that this is in the context where this government continues to fail when it comes to managed investment schemes. It has failed to properly consult with the industry. It certainly has failed to consult with the communities affected. It had no understanding of the impact of the decision that it proposed to make in relation to non-forest managed investment schemes—and probably in relation to forestry managed investment schemes. It refused to permit the Senate to inquire to better inform it in relation to the effect of its decisions in both of those regards, and it has a policy clearly driven by a handful of ministers who had an ideological determination to bring to an end non-forest managed investment schemes.

We will be supporting this legislation in relation to the managed investment scheme provisions. We do think the government could have done a lot better for the people in rural and regional Australia whose livelihoods depend upon these schemes. In the future, a more enlightened view of these schemes will provide a better opportunity for these regional economies to gain the benefit of the significant investment that managed investment schemes deliver, basically to rural and regional Australia. I have to say that many Australians believe that what this government has done in shaking off some of that investment will wreak great harm in rural and regional Australia for many years to come.