Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Hansard source

The environmental and natural resource management guidelines, the subject of this disallowance motion, are required under section 40.1010(3) of subdivision 40-J of the Income Tax Assessment Act 1997. The guidelines commenced on 3 July this year. The coalition have come to the view—and I am summing up on their behalf—that disallowing the guidelines would not materially affect the operation of the act. It would see the remaining provisions of the section continue to operate, and the effect would be fewer restrictions on establishing and operating carbon sink forests. The guiding principle of course is that regulations by their nature must be subordinate to an act.

But I do acknowledge the differing opinion that disallowing the guidelines would see subdivision 40-J of the act rendered inoperative. I acknowledge that there are differing views. Whilst the coalition do not consider this to be the case, as I have just mentioned, either outcome would in our view be far from optimal and therefore the coalition cannot support the disallowance motion. In our view, carbon sink forests are an important tool in the fight against climate change and in reforesting areas of Australia that, arguably, should never have been cleared in the first place. That said, it is important that the provisions of the act are supported by guidelines, as originally intended.

Firstly, I will provide a little bit of history, very briefly. The Treasurer, the Hon. Peter Costello, announced the carbon sink forest tax provisions in his budget speech on 8 May 2007. Due to the November 2007 federal election, the bill introducing these measures lapsed. The Labor government reintroduced the provisions in the Tax Laws Amendment (2008 Measures No. 2) Bill 2008. The bill passed the Senate on 17 June 2008 and received royal assent on 24 June 2008. On 26 June this year, the Senate referred the implementation, operation and administration of the legislation underpinning carbon sink forests and any related matter to the Senate Standing Committee on Rural and Regional Affairs and Transport for report. The report was handed down on 23 September 2008. It was after that that Senator Milne moved a disallowance motion on the guidelines, on 24 September 2008.

As I just mentioned, there was a Senate report. The majority Senate report concluded:

The committee considers that the tax deductions for carbon sink forests under the Income Tax Assessment Act 1997 (ITAA) represent a valuable policy addition that will promote greenhouse gas reductions. The structures and processes outlined in the Act provide for a sensible legislative and administrative framework relating to the tax treatment around the establishment of forest carbon sinks.

I note and acknowledge concerns expressed by Senator Milne and several of my colleagues in the dissenting report. Let me now turn briefly to that report. In the dissenting report senators recommended that carbon sink forests should be registered on the property title, that native vegetation should be protected and water resources considered, that the forests should not be harvested or cleared and that carbon sink forests should not be planted on prime agricultural land. Some of these issues were already covered in the original guidelines. Following discussions with the coalition, the Minister for Climate Change and Water addressed matters not in our view already adequately covered in the guidelines and provided proposed amendments which address the issues of water resources, agricultural land use and legal recognition of carbon sink forests on land title.

It is fair to say that the nub of objections to the guidelines is the contention that ‘prime agricultural land’ is not adequately defined where there is no applicable land use legislation to refer to. Land use zoning is of course a state and local government responsibility. But defining the meaning of ‘prime agricultural land’ for the purposes of eligibility for carbon sink forest establishment in the tax law could be inconsistent with state and local regulation for land use. Moreover, it would be impractical for the Commonwealth to make assessments, for example, as to what parts of a farm might and might not be prime land. So we accept that precise definition is not necessarily appropriate in the tax act.

The minister also provided advice that the use of the term ‘felling’ in the act is a broad term that ensures that trees cannot be destroyed and tax incentives still claimed—that is, trees cannot be harvested, cleared or ploughed in consistently with a tax deduction still being claimed. I do thank Senator Wong for her cooperation in this matter and for provision of the amended guidelines, which I think do provide some significant improvements, which of course the coalition supports.

One of the main criticisms of the carbon sink forest provisions canvassed in the Senate report is that they will encourage the planting of carbon sink forests on prime agricultural land. The coalition does not accept this proposition because the economics simply do not support it. As part of the Senate committee inquiry, ABARE was commissioned to ‘assess the circumstances in which it may be financially attractive to replace agricultural land uses with carbon sink forests’. The conclusion was that a high carbon price in excess of $100 per tonne of carbon dioxide equivalent would be required to make it attractive to replace agriculture with carbon sink forests. Furthermore, the coalition noted that carbon sink forests do not offer high returns over a short period of time and that there are a very limited range of deductions that can be claimed. Let me turn to them. As the Australian Taxation Office guidelines indicate, costs that you are able to deduct may include the costs of acquiring the trees or seeds; the costs of planting the trees or seeds; the costs of pots and potting mixtures where the potted plants are being nurtured prior to being established in their long-term growing medium, in the ground, in a permanent way; the costs incurred in grafting trees and germinating seedlings; the costs of allowing seeds to germinate, whether by broadcasting, deliberate regeneration or planting seeds directly; any costs incurred in preparing to plant for the purpose of establishing trees for carbon sequestration; and the costs of surveying the planted area.

Equally, the expenditure you are not able to deduct is very clear, and that is where I must take issue with Senator Milne’s earlier contention where she says, as we understand, that there is advice that has been received by the Greens that, because the cost of purchasing land is not mentioned in the act under section 40.1020, the cost of the land may be deducted 100 per cent upfront. This is simply inconsistent with the Australian Taxation Office statement on what is and what is not deductible. The tax office clearly states that the expenditure that you are not able to deduct includes the costs of purchasing land to be used for establishing the trees and costs attributable to the land rather than to the establishment of trees. For the purposes of the record I should also set out what is not able to be deducted, which includes costs incurred on other plants, for example trees for felling or horticultural plants; cost incurred on assets separate from the trees, such as fencing, water facilities for trees of a carbon sink, roads within the carbon sink forest and fire breaks; costs incurred to drain swamps or low-lying land; costs incurred on rights to allow you to access the land to establish the carbon sink forests or for carbon credits to be traded in the future; and, relevant to the issue that has been raised, the costs of purchasing land to be used for establishing the trees and costs attributable to the land rather than to the establishment of the trees. It is clear that this is rebutted in the guidelines set out by the Australian Taxation Office. The coalition believes that it is highly unlikely that farmers would allow agricultural land capable of producing a crop or livestock for profit to be planted to a carbon sink forest when essentially all they can claim is a tax deduction for the trees.

It has been said that these provisions are managed investment schemes in disguise. The coalition is confident that this is not the case. These provisions are not a managed investment scheme. Managed investment schemes have a specific range of conditions and benefits attached to them that do not attach to carbon sink forests. For example, amongst other differences, only investors can claim the managed investment scheme benefit. This is not the case for carbon sinks. Under managed investment schemes 100 per cent of contributions can be claimed provided that at least 70 per cent of the MIS manager’s expenditure is direct forestry expenditure—that is, attributable to establishing, tending and felling trees for harvesting in the first year. This is not the case for carbon sinks—only a very limited number of deductions may be claimed, as I have specifically outlined.

So this act and the supporting guidelines are, in the view of the coalition, an important tool in the battle against climate change. The minister has given an assurance that the government will closely monitor carbon sink forestry establishment activity under the legislation, and we see no reason other than to accept that assurance. Carbon sink forests are an important carbon sequestration technique and tool. As the coalition has previously noted, carbon sinks have the potential to reduce our carbon footprint and, alongside a properly designed emission trading scheme, which we all await with interest, and a strongly supported renewable energy sector, which we all encourage, are part of Australia’s environmentally sustainable future.

These regulations are an important element of our broader environmental agenda and should, in our view, stand. Australia’s food security remains a key policy focus for the coalition. I have listened very carefully to Senator Nash’s comments and I understand the passionate sentiments behind her concerns, but I am confident that Australia’s food security can coexist with green initiatives such as carbon sinks. I have taken a bit more time than I intended. For those reasons it is very important that this chamber and the broader public understand the basis on which the coalition will not be supporting the disallowance motion.