Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Hansard source

I acknowledge the contribution of various senators to the debate. I want to start by saying that the government has sought to take into account the concerns about these guidelines that were expressed in the dissenting report of the inquiry conducted by the Senate Standing Committee on Rural and Regional Affairs and Transport. As has been referred to in the discussions, I have discussed a range of proposed changes to the guidelines with the opposition as well as with Senator Milne. If the Senate votes down this disallowance motion, I do undertake to remake the guidelines in the form circulated to the opposition and other senators. On that basis, I table some draft revised guidelines and an explanatory memorandum to inform the chamber of my intention.

Senators may recall that there were a number of changes that the government proposed to these guidelines. The first was to take account of the concerns in relation to water availability, and there is a specific reference to surface and groundwater activity to take into account some of the issues raised. I note that some senators have said that the government should, through this process, require an entitlement or a water allocation. In relation to this issue and a range of other issues, it is important to recall that we are talking about guidelines under taxation law. There is a limit to how much broader natural resource management can be effected through that mechanism. So, whatever people’s views are about the natural resource management frameworks and policies which are in place either federally or at state level, the reality is that it is difficult for the federal government to effect an entirety of a natural resource management framework through this measure. What we have sought to do is to reference the issues which are of concern. I also note that we have amended the guidelines to require that they include adherence to applicable legislation regarding the establishment of alternative land uses. We have also noted the recommendation raised in the Senate committee report in relation to registration on the land title. Those changes are included in the indicative guideline that I have tabled today.

We are of the view that carbon-sink forests provide an immediate and medium-term opportunity for Australia to reduce its greenhouse gas emissions whilst also meeting broader environmental sustainability objectives. The government has provided a tax deduction to give an incentive for growing forests for the specific purpose of taking carbon dioxide out of the atmosphere and to assist national efforts to reduce greenhouse gas emissions. A carbon-sink forest is defined in the legislation as a forest established for the purpose of carbon sequestration. The tax deduction is not available for a forest established for the purpose of felling, for harvesting wood products, for clearing or for any other purposes. I also make the point again that the legislation excludes managed investment scheme activity. The tax deductions provide incentives for investment in carbon-sink forests prior to the implementation of the government’s carbon pollution reduction scheme, thereby maximising early contributions to reducing greenhouse gas emissions. Unlike other forest activities—for example, commercial plantations for harvest and landcare plantings—the costs of establishing carbon-sink forests was not previously tax deductible

I will not go through the detail of the measure. I would like to briefly remind the Senate that the tax measure provides that establishment costs are deductible in the year of expense for a five-year period from July 2007 to give an incentive for establishing carbon-sink forests. I also note that the environmental and natural resource management guidelines for the tax measures seek to promote complementary environmental and natural resource outcomes.

There has been some discussion—and this was an issue Senator Milne raised with me—about the clearing of vegetation. I make the point that the issue of clearing vegetation to establish carbon-sink forests is addressed in the legislation. Section 40-1010(2)(c) of the Income Tax Assessment Act provides that, to obtain a tax deduction, the area occupied by the carbon sink-forests must have been clear of trees on 1 January 1990. So the clearing of forest cover is addressed in the legislation in a direct way. Forest cover cannot be removed to establish a carbon-sink forest or to generate a credit under Australia’s Kyoto protocol account.

I also want to refer to the water issue, which has been raised by a number of senators. As I said, there is reference now in the revised guidelines to this issue. I make the point that interception activities in catchments that have been identified as fully allocated, overallocated or approaching full allocation are an area of priority under the National Water Initiative, and the guidelines already require water access entitlements for interception activities in those catchments. I have noted the concerns about groundwater and have proposed to amend the guidelines to include specific mention of groundwater, which picks up a recommendation of the committee’s report.

I simply adopt the contribution of Senator Coonan on the issue of prime agricultural land, in terms of the economic analysis and also the fact that it is significantly difficult to introduce in the context of these guidelines a definition of prime agricultural land where there is no such common definition elsewhere in Commonwealth legislation, nor a consistent method for assessing what constitutes prime agricultural land.

One of the issues raised during the debate was the issue of land deductibility—that is, the acquisition of land and its deductibility. I was going to read from the same ATO advice that Senator Coonan already has. I will not do so, but I simply indicate that my advice is very clearly in accordance with the ATO guidelines that Senator Coonan referred to. I make the point that there is a well-established tax principle that assets with limited effective lives are deductible. Land is excluded from this principle, as land is not considered to have a limited effective life—note section 40-30(1)(a) of the Income Tax Assessment Act. Improvements or fixtures are generally treated as separate assets, not as part of the land, regardless of whether they can be removed from the land or are permanently attached.

The measure before the chamber is modelled on the horticultural plant provisions, and the ATO has determined that the cost of purchasing land to be used for growing a horticultural plant is not establishment expenditure, as the cost is attributable to the land rather than to the establishment of the plant. Both horticultural plants and trees in a carbon-sink forest are covered by division 40 of the Income Tax Assessment Act. It would be internally inconsistent for land to be deductible under this measure. So the government’s very clear advice is that acquiring land is not tax deductible as a consequence of the measure.

Another issue that was raised—I think Senator McGauran may have raised this while I was out of the chamber—was about item 3 of section 40-1005(5). It was suggested that the definition that made reference to ‘use the land for the primary and principal purpose of carbon sequestration by the trees, as a result of holding the licence’ specifically excluded farmers because, as I understood the argument—it is not my argument, so I am having trouble rephrasing it—farmers would not have land that was used for which the primary purpose would be carbon sequestration. The understanding and the advice that I have is that that item refers to the specific land on which the forest is being established and not to the whole of the landholding. Therefore, the criticisms put by some in the chamber are really not on point.

In closing, I thank Senator Coonan for her willingness to engage on these issues. This is an interesting debate. Politics often does make for some rather odd companions. I note that Senators Boswell and Joyce—certainly while I was in the chamber—really used this as a basis to attack action on climate change and identified this as the first line in their opposition to a carbon pollution reduction scheme. I know that is not a view shared by Senator Milne, but I do make the point that that was very clearly the way in which those two senators were articulating these issues. In her contribution, Senator Nash made a range of accusations about this government being disrespectful towards or disregarding particular communities. I assume that, given that this is Mr Turnbull’s legislation from commencement, her suggestion that this legislation disrespects or disregards regional and rural communities is in fact a criticism of the Leader of the Opposition. I do make that point. As I said, I thank Senator Coonan for her willingness to engage in a discussion about these matters.