Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

The committee is considering the Tax Laws Amendment (2008 Measures No. 1) Bill 2008, as amended, and we are dealing with amendment (1).

Michael Ronaldson (Victoria, Liberal Party, Shadow Special Minister of State) Share this | Link to this | Hansard source

I was referring earlier to a situation whereby someone had spent $100 on trees and had got $30 back and had a paddock full of trees. If they then cut them down for no return, they are back to where they started. Quite frankly, there will be minimal return because the value of this timber is minimal.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

Spend $100 to get $30!

Michael Ronaldson (Victoria, Liberal Party, Shadow Special Minister of State) Share this | Link to this | Hansard source

Exactly. As Senator Conroy has said, they have spent $100 to get $30 because, by design, this will be timber that has minimal value. If you have a look at the approval requirement for the Department of Climate Change, it will be quite obvious. So you have a cleared paddock, you are $70 worse off, plus you have lost production from the paddock for however long those trees were in the ground.

The issue of fire was also raised while debating the bill in the committee stage last night. It is correct that natural disasters occur and thus fire is a possibility, but I stress it is an unknown event in relation to when, where and the severity. Any deliberate action to burn the trees down would reasonably be considered an attempt to subvert the Income Tax Assessment Act and thus the commissioner would be able to act under part IVA of the tax act, which of course contains general anti-avoidance provisions.

A further concern was raised: what if the trees are not the right species or do not deliver the carbon credits? That is why the Minister for Climate Change and Water will set out the guidelines for compliance. The Greenhouse Office has been certifying carbon sink forests for some time and it actually has world-leading experience in this. So if the species are wrong then people will not get the tax deduction. And if they do not get the certification then they will not be able to sell the carbon credits; therefore, they will have no income.

A further concern was raised: what if a taxpayer plants the trees for a carbon sink in good faith and then sells his property to someone else who cuts the trees down? Before I get on to that, I will just mention some comments made by Senator Bob Brown in relation to the proposed 100 years. Realistically, it is hard to imagine a situation where anyone could, administratively, keep track of sale and resale, purchase and repurchase over 100 years. It beggars belief that, over 100 years, you could in any way properly manage that. As I said before, a further concern was raised about a taxpayer who plants trees for a carbon sink in good faith and then sells his property to someone else who cuts the trees down. If the person who plants the trees gets the carbon sink deduction and sells the carbon credits, then surely they have a contractual obligation to keep the trees in situ for a lengthy period. They would have to be preserved, even if the property changed hands. It would be like selling a property subject to an easement or whatever.

But what if a person who had planted trees did not sell the carbon credits? Why would you plant a carbon sink forest and then not sell credits? Why would you do that? It is highly unlikely. If they then sell the property, with the trees, the purchaser may be able to, subject to native vegetation rules in their particular state, cut them down. But the vendor would not have received any capital benefit from the trees having been there if the purchaser plans to cut them down, unless they are valuable as timber, in which case the vendor would have used the forestry tax regime when he planted them in the first place. They would still be getting the depreciation over the 14-year period anyway. So what is the advantage in that situation for someone to cut the trees down? They are still getting that depreciation.

We have, again, given this matter due consideration overnight, having been requested to do so, as have both the government and the opposition—and I cannot speak for Senator Conroy, but I assume this matter has again been given due consideration overnight—to ensure that, following concerns that were raised, we are getting this right. We are confident that we are getting it right, having taken the quite unusual step of pulling this legislation out at the eleventh hour to enable these discussions to take place. The reality is that this legislation is a great boon for farmers in marginal country. You can plant carbon-retentive species, typically mallees, which are basically worthless for timber purposes. It aids in the fight against salinity, it improves the productivity of the land adjacent to carbon sink forests, and I understand the way they operate in Western Australia is by having extra wide shelter belts.

The opposition supports the policy of encouraging the early establishment of carbon sink forests through providing immediate deductibility for costs incurred in establishing a qualifying carbon sink forest during the five-year period that commenced on 1 July 2007. It is good for farmers and it is good for the environment. And we believe in the integrity of the government’s legislation, which we readily acknowledge was the former government’s legislation. It was good legislation then and, having given this appropriate consideration overnight, we believe it is good legislation now and we will be supporting it.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I suppose it is very important at the start to say what some of the issues with the Tax Laws Amendment (2008 Measures No. 1) Bill 2008 are. The reason managed investment schemes work is that there is a tax advantage to them, and with the advent of MIS we have had the take-up of prime agricultural land. I refer especially to cane growing agricultural land, which has been taken out of cane production and is now used for timber production. Some might say, ‘So what?’ What happens is the capacity of the mills in those areas is lost because they need a certain economy, a certain size of cane crop to survive and, ultimately, if this keeps on going, the mills get to a stage where they have to shut down. People say: ‘So what? The mill shuts down.’ What happens is that the people who are employed at the mill lose their jobs. The farms that are left over become unviable because they cannot add on the transport component to another mill, so they are put at an economic disadvantage. The school shuts down and the doctor leaves. It is an extremely bad decision.

What is so galling about it is that it is not a decision driven by the market; it is a decision that has been driven by government legislation. We know for a fact that people might say, ‘We’ll put timber there instead.’ Timber does not require the sort of labour component that farming requires. It does not have the same inputs. It does not require the commerce that farming requires. There is a whole major dislocation by reason of this coming into the marketplace.

You also have some other serious issues that come into play. You have this unnatural and unwarranted differentiation by reason of a fence: one person, an individual or a partnership on one side of the fence is not entitled to the deduction, because of the way MISs operate—they need to have a financial services licence, a corporate entity, and the oversight of ASIC. So one person on one side of the fence does not get the deduction and the other person on the other side of the fence—the big corporation—does. It is unnaturally unfair. If you believe in the marketplace, it is a complete dislocation of the so-called market theory that things should happen where they are supposed to happen, not where they are inspired.

In this legislation there are a couple of issues we need to look at. First of all, I quote section 40-10 where it states:

You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests.

What exactly does that mean? It means that I can go out and, if I am a major coalminer, buy $10 million, $20 million or $100 million worth of land and get an up-front tax deduction for it—straight up, straight off the bat. Until 2011-12, that is exactly what I will get. There are obvious ramifications when that happens. We have to look at where there is a sense of commonality. If this is about marginal land and about giving farmers a go on marginal land in areas where they could not use it for other purposes, then we should so prescribe it in the legislation to say exactly that. There is immense capacity. We can see that with the oversight that there is currently—which is actually the bane of so many areas of native vegetation acts—where they can tell you to the square foot what you can do and what you cannot do with land and how it is used. If you want to go down that path, how about we use that to the advantage of farmers and say, ‘If this is prime agricultural land because it has had a return, because it has a certain rainfall, because it is of a certain style capacity’—and we have all that information at our disposal—‘then it is embargoed from being used for tax inspired forestry schemes’? If you want to buy it on the free market like anybody else, go right ahead, but do not use a government inspired tax advantage to get you in the front door. That is an issue. This is one of those crazy things where we talk about the market but we do not believe in the market because we are affecting the market in that we are giving someone an inherent advantage that another person does not have.

Let us go through some of the other issues. We have heard this afternoon about what happens if a person spends $100 on putting in trees and then he gets a $30 tax deduction. The reason he gets the $30 tax deduction is that a 30c in the dollar tax rate is implied. And then he or she knocks the trees down. Let us take the next step. What about if the person buys or spends $100 putting in the trees and they do not go out and sell the carbon credits because there are no carbon credits to sell? They have just put them in the ground. There are no carbon credits there, but they sell them to someone else. All through this legislation, and I refer to clause 40-1005, it talks about the responsibility to you—not the responsibility to anyone else after you have gone or you have sold it. This is obviously a flaw in the legislation.

In this nation we do not want to lose productive lands to a tree crop that will produce no food. Let us think about that. Less food means that we put upward pressure at the grocery store, we put upward pressure on food prices—and I would have thought that we would be trying to put downward pressure on those. Secondly, we destroy the regional economy, and that has a multiplier effect because it makes those who even surround the forests unproductive. They lose their economies of scale and they lose their vital infrastructure that is attached to the quantum of economy that is required. For one farm to survive, it needs to have in place a range of other farms around it to make it work. Take agronomists, for example. Agronomists are not going to appear in town for one farm.

Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

What about the railway line?

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

And the railway line will not work, and all these sorts of things fall down around it. That is why this legislation has inspired serious questioning. The issue has been growing in Queensland and in other areas. To talk about the sentiment that was there in the past as being the same as the sentiment that is there now is, I think, not right, because the resentment against these types of schemes is building all the time. The latest thing is the fear that water rights will also go the same way as everything else, and we tie up water rights. In this legislation, that would be completely applicable. Under section 40-10 I would certainly get an up-front deduction for the purchase of water rights if I say that it is part of the capital deduction of the place.

The questions that I will be asking the minister are quite simple. For example, Xstrata Coal and Rio Tinto have buckets of money—far greater than what we would anticipate an MIS would have. These companies can literally have hundreds of millions or billions of dollars at times of a tax liability, and so they can have billions of dollars to spend to fix it up. What do they get for it? They get an asset. Not only do they get an asset, they get an appreciating asset. They get an asset that, over time, with the use of carbon credits, gets better and better. Let us go right back down to the town and see what the fundamentals of that means. It means that you drive past an area where a certain coal company has an asset—wholesale ownership of prime agricultural land—and the town has gone and the farmers have gone, but the company gets an income stream from that asset. They get an income stream from it for what? It is for the increase in the tonnage of the carbon that is positioned in the structure of the trees on that land. It is a peculiar form of economy where you can make money without actually producing something and, in doing so, take out farmers who produce vegetables, livestock and a whole range of other things. If you start going down that path you are going to come unstuck, because you cannot feed people trees. It is stating the obvious, but people have to understand this. If the market is there for trees then let it be done in the free marketplace, like everything else.

Let us say that I take advantage of this legislation. I chop down the trees that I would not utilise—but of course I would utilise them if I chopped them down. The price for green woodchips at the moment is $92 a tonne or something like that. One thing that I can absolutely assure you of is that the price of woodchips and timber will always be in excess of the price of carbon credits; otherwise, why would you sell woodchips when you have a bigger asset in carbon credits? There will always be a demand for them. So, as with anything that is utilised, there will be the impetus to put it towards timber and milling.

Obviously, we see some serious questions in this legislation. I think there is general agreement amongst everyone that they want to assist farmers on marginal land to make an income stream from something from which they have never made an income stream before. There is no argument about that. If farmers do it planting trees, all the better. If they do it by planting trees that are suited to the environment, that is even better. However, that is not prescribed in this legislation. We are told that the market will work that out. If you believe in the market then you do not believe in this legislation. You cannot believe in it. It is completely oxymoronic to believe in the market. It is like saying, ‘I believe in the market but I’m going to give a complete advantage to one person and the person next door doesn’t get the same advantage.’ You cannot do it. You cannot have it both ways.

These are some of the serious issues that have to be dealt with. So let us put them clearly on the table: Minister, if I were to spend—and I will make a number up—$1 billion in buying agricultural land, for instance, in the Tully region, for the purpose of creating a carbon sink, would I get a tax deduction? What do you think the effects would be on the local economy if that were to happen?

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

In this debate on the Tax Laws Amendment (2008 Measures No. 1) Bill 2008, you have to make a distinction between the arguments surrounding the broad proposal for geosequestration and carbon sink forests and so on and the actual amendment proposed by Senator Milne. I will start with the last first: there are real weaknesses, if I may say through the chair, in the amendment that Senator Milne puts, but there are real strengths in the arguments being put by the Australian Greens, Senator Joyce and Senator Heffernan. I, and also on behalf of the Democrats, put the view that this area has been poorly thought through. This is poor policy. The issue of needing to promote and to get established carbon sinks is an important one; it is a good one. The issue of resolving these issues is an important one and a good one. But I do not think the right mechanism has been found. I think it is a pig’s ear or whatever the expression is: it is the wrong policy for the right reason.

Senator Milne’s amendment is the wrong amendment for the right reason. If I may be so bold as to suggest, Senator Milne, you would be better off putting an amendment to get rid of schedule 3 altogether. That would be better than fiddling around on this basis. The shadow minister has a legitimate criticism: it is difficult to keep the books and records for the tax office and so on with respect to numerous transactions over 100 years. That is difficult to do, and so there are problems with the consequences from your amendment

But I think your central argument is right. It is a good issue. It does need to be resolved, but this schedule 3 is poor policy. The Democrats will in fact support you as much as we can, but do not take that as us supporting every item that you put in this amendment. We are supporting you because we think you have put the right argument and because we think Senator Heffernan and Senator Joyce have a real point. But I would suggest that the cleanest way to do it is just to chop schedule 3 out altogether.

Bill Heffernan (NSW, Liberal Party) Share this | Link to this | Hansard source

I am grateful for the cooperation I have had with the minister’s office in trying to assist me through what I think is a very serious dilemma not only for this parliament but for this nation. I agree with Senator Murray: the thinking behind carbon sinks is sound; the way we are going about it is seriously flawed. Given the fact that the world is now turning its mind to the food task as much as it has in the past to the energy task, this is definitely an attack on prime agricultural land—whether by misendeavour or ill intent or nonpurpose is not the point. That is what will happen.

With great respect to you, Minister Conroy, could I ask of your tax advisers your understanding of the contractual arrangement between a farmer or a leaseholder who receives an up-front tax deduction for a carbon sink and Origin Energy or Country Energy or whoever it is. What is the legal interpretation of a carbon trade? What is the life of the carbon trade? Is it the life of the tree or the first drought or the first fire that comes along? What is the position when I, as Origin Energy, buy a carbon offset for my emissions on your farm and all the trees get burnt? Where does that leave me with my carbon offsets, given that I have actually emitted carbon? I have a series of questions of that nature which I would like answered because they demonstrate the serious lack of understanding of the implications of this bill. I wish there were some way that we could extract from this bill all the other things that are in it and deal with it on its own in a sensible fashion in the best interests not only of Australia but of the global food task, the viability of farmers and the protection of the environment. There are a whole range of very serious issues here. If ever you see a decent appeal in this parliament to common sense, it is when you have the Greens, the Democrats, the National Party and the Liberal Party all saying it. The government is conscious of these issues, and I have had constructive discussions. For God’s sake, let us find a way to fix all of it.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

I think I had better make sure Family First is on the record that you would have to have your head in a bucket of sand to not realise that this is a concern. As I travel around Victoria, farmers have serious concerns about the leg-up that is being given to helping food crop land go to tree crop land. We all need to do more for the environment but we need to do it on a level playing field that does not end up stuffing up our farmers and communities in a very severe away.

I want to help clarify the debate. A few people are talking about taking out schedule 3. That was passed, basically, last week. Senator Murray has gone now, but to clarify the issue technically: schedule 3 has already gone; it went last week. Family First does have an amendment, one that is very similar to that of the Greens, that makes sure that what was passed last week is not, basically, enacted. In actual fact, you take it out of the act immediately. If you pass the Family First amendment, which is the same as the Greens amendment, you will take out the leg-up and incentive given for carbon sinks. I think very early on in the piece you should really get some advice on the amendment that we have given to you. We are about to foreshadow it in this chamber. The amendment we are proposing will take out the schedule that is already in the act. That is the one that we need to get to because it enacts what Senator Heffernan, Senator Joyce, Senator Boswell and the Greens have been talking about. That amendment will get to the crux of the issue and, if we pass that amendment today, knock it out. From these comments I am hoping that we get support for the amendment that will knock it out of the act and look after our farmers and communities. You would really have to have your head in a bucket of sand to not realise that turning food crops into tree crops, and doing it in such a way that gives tree crops a leg-up, is causing problems in those areas.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I hope that the government is prepared to go up to the Tully mill chairman, Dick Camilleri, and tell him why they think this is such a great idea, because he has put his finger on it when he says, ‘If you want a level playing field, get rid of the MISs. Don’t add other MISs on top of them’—which is effectively what has happened. Let us cut to the chase here. What has happened is that managed investment schemes should have been knocked out as tax deductions and were not. They have caused a disaster in rural Australia. They are undermining the social fabric of rural Australia and they are sucking the water out of catchments as we speak. Instead of knocking them out, the government has listened to people who say, ‘They’ve got a tax deduction for cutting down trees. We want a tax deduction for planting them.’ So now we are saying, ‘Okay, let’s have another managed investment scheme for them as well.’ So let us double the problem, not take it away! We have argued for the end to managed investment schemes for forestry, and they should have gone. They are bad policy. Now to put an MIS on steroids, as I have said, on top of that is an even worse position.

I want to unpack some of the deliberate obfuscation that has gone on this morning. For the opposition—which obviously now is going to weaken under pressure from the former minister, Mr Turnbull—Senator Ronaldson said the value of the timber will be minimal. Why? He says, ‘Because these trees will be planted on marginal land.’ There is no requirement in this bill for that. As I said at the beginning, trees, like crops, grow best on the best land with the most water. It stands to reason. So, if your investment depends on those trees growing either for pulp or for carbon credits, you are going to buy land that guarantees you the best return, and you are going to go in there and displace people at Tully, on the north-west coast of Tasmania, in south-west Western Australia and right around Australia.

We have no plan for food security in this country. Yesterday, the Wentworth Group of Concerned Scientists were talking about the water being taken out of the catchments. This is a very bad idea from a purely hydrological point of view. So let’s just get rid of that idea first: there is nothing in this legislation to say that this has to be on marginal land. Secondly, Senator Conroy says: ‘This is a tax bill. It’s up to the Greenhouse Office and the minister for climate change to set the regulations about how this might or might not play out.’ We do not know what those regulations are. I have no assurance whatsoever that even the current requirements for Greenhouse Friendly would apply; I do not know that.

The next thing that Senator Ronaldson said was, ‘Why would you cut down the trees when you’ve gotta make good the carbon?’ That is a deliberate mixing up of the two issues. One is the tax deduction for planting the trees. The other one is that, once you have your tax deduction and planted them, you might then enter into a separate arrangement for carbon credits, in which case if you cut them down you would have to make good the carbon credits. But you do not ever have to pay back the tax deduction. That is the point.

The next point that has been made is: ‘I am a timber company and I’ve got two arms. One is for pulp and one is for carbon sinks.’ So, if I were a timber company, I would busily say my intention is to plant the trees for carbon. However, the price of pulp goes up, so I sell that over to the other arm of my company, my subsidiary company, and I sell it for pulp. So I have the tax deduction to put the trees in; then I sell it, get the high pulp prices and pay no tax difference. Those are the kinds of lurks and rorts that are going to go on. As Senator Heffernan said, once you have planted it and sold it, a week later, once you have collected your tax deduction, you can lease it or sell it to somebody else.

Since when in legislation is it enough to say to get a tax deduction, ‘I intended when I planted that that it be a carbon sink; therefore it is one.’ Come on! Why can the forest industry and the big end of town, with the cement industry, the aluminium industry, the coal industry and the airlines, just say, ‘It is my intention at this time,’ but two weeks later or a year later, after they have their full tax deduction, they can say, ‘I changed my mind’? Then we are told the tax commissioner could take action. Well, we have seen how often that happens. It would be years before you got through the courts, so that argument is completely wrong.

As to the argument, ‘It’s very, very hard to legislate for 100 years,’ what nonsense! Our amendment is that the easement be registered on the title. That is what covenanting is about. There are plenty of schemes at the moment where you put a covenant on the land and then you resell it. The covenant is on the title; the person buying it knows the covenant is there. It is not complex, it is not difficult and it is happening now. I would have thought that Senator Ronaldson would have known that and I am surprised that Senator Murray thinks it is complex. It is not complex and it is not weak. Covenanting land is already done right now. That is what Bush Heritage and the Tasmanian Land Conservancy do: they get land, they covenant it and then in some cases it is onsold with the covenant so that that forest is always protected.

So let’s just dump all this nonsense. We are being told: ‘We want to give a tax deduction to people to plant trees and we’ll leave it up to somebody else to determine where, when, how and whatever else. We just want to make sure the money rolls for the people who plant the trees. We’re not interested in whether this carbon is actually sequestered in the long term. We’re not interested in that; somebody else can determine that. All we want to make sure is that up-front these guys get the money, because there is a whinge on at the moment saying, ‘They get it for cutting them down; we want it for putting them in.’ Those who are cutting them down are saying they do not mind because they know if we stop this our next step will be to get rid of managed investment schemes. That is what we should be doing. Bring in legislation here to get rid of them and I will be the first one on my feet supporting it.

Also, bring in legislation here to give a tax rebate for people protecting standing forests or protecting native vegetation. If you wanted to really help farmers who have marginal land you would be saying to them, ‘We will give you a tax break or a rebate for covenanting and protecting on your property the standing trees or the native veg that you’ve got.’ That would be a big help to existing landowners. But this is not about existing landowners. That is why it says in the legislation the people getting the tax deduction do not have to bear any relationship to the land. They do not have to be a farmer or be engaged in any farming activity at all. Why? Because it is not designed for farmers; it is designed for the coal companies, the airlines, the cement industry and the forest industry. That is who this is designed for, as well as the big end of town, Collins Street investors, who want to minimise their income by investing in this way.

So let’s stop the furphies. Just stop it all now and admit what you are doing. Former Treasurer Mr Costello brought this in the May 20007 budget. It was for this very reason: to extend the MISs through another name. He did not act on it until the last day the Senate sat before the federal election, when it was brought into this house. I stood up then and said, ‘You cannot stand up in rural Australia in this election campaign and tell people you are vaguely interested in rural Australia if you dump this on them.’ And within half an hour, it went from essential legislation that had to be gotten through before the election to nonessential and it was dropped, because they and the National Party knew they would not be able to go into rural Australia telling people the last thing they did before the election was to dump more MISs onto them under this legislation, which is so ill-considered.

I am shocked that, having knocked it off last time, the Labor Party in government has brought it back, because it is just as ill considered now as it was then—even more so considering that we are about to have a green paper on an emissions-trading scheme. We are meant to be having level playing fields, not setting up offset programs for companies that should be reducing their carbon at its source—at their cement factories and at their coal factories. Where is the equivalent? As I go on and on about, if you really were serious about greenhouse you would stop the loss of the carbon stores now, not subsidise them through logging and the RFA.

Senator Ronaldson tells me that I can be assured the Greenhouse Office and the climate minister will take care of it. What a joke! We have the Minister for the Environment, Heritage and the Arts, Mr Garrett, and the Minister for Climate Change and Water, Senator Wong, saying that logging in Tasmania is fabulous, that they love it, it is all under proper environmental controls and it is a beautiful thing. When you ask, ‘What about the greenhouse gas emissions from the pulp mill?’ they say, ‘We do not have to consider that under the legislation.’ When you ask, ‘Where is the greenhouse gas trigger for the forests?’ they say, ‘Oh, we don’t have one of those.’ Do not insult our intelligence by suggesting for one minute that Minister Garrett or Minister Wong care one iota about the emissions from the loss of our carbon stores right now. The point is that the carbon stores that are right now being subsidised to be logged and cleared have millions and millions of tonnes more carbon in them than these plantations, which would take a hundred years or more to absorb the carbon that is already there in the forests that are going to be logged. So let us not pretend that this is anything other than a managed investment scheme under another name, with no protection for anybody about anything in relation to carbon. The only people who are excited about this are the people out there offering the product to make their commission, profits and so on in relation to it.

My amendments are sound, but another amendment would be to dump the whole thing. Given what the National Party and Liberal Party coalition said last night, recognising that this is a rort, I suggest the option of getting rid of it completely. So you have several options from me: (1) mixed species; (2) a hundred years; (3) ecological assessment, including hydrological assessment and impacts on surrounding places and communities; or (4) dump the schedule altogether. That is my preferred option. I have a deal for you: put this option to get rid of it all on the table of the Senate. Let us see where the political will exists. I think the political will exists back in the offices of the former Treasurer, Mr Costello, the former Minister for the Environment and Water, Mr Turnbull, and the current Minister for Finance and Deregulation. It has nothing to do with carbon.

Again, I am very keen to hear from the minister representing the government, who is not even listening to what I am saying—that is how little interest the government has in this debate on climate and its impact on rural Australia—on where my guarantee is that these trees are going to be in the ground for any length of time. Where is my guarantee that, if I get a tax deduction for them and on-sell them after I have had my tax deduction, there will be any requirement to make good or any requirement for the area to be an ongoing sink? Is the minister’s conversation with Senator Coonan so interesting that the government is not even prepared to answer the questions? I hope people listening to this in rural Australia feel angry about the lack of interest in this parliament in what is happening to them—people like the dairy farmers pushed off the land at Preolenna and the cane growers pushed off the land at Tully. The dairy farmers were forced to sell out. The factory told the last one to put in greater storage because they were not prepared to come every day to collect the milk. He was driven out of the district. In Tully it is the same. At a certain level, the mill is unviable. Right around Australia it is not just the farmers but the mills and then the whole community that suffer. But apparently that does not matter as long as the big end of town get their tax deductions. The cement industry, the coal industry, the aviation industry and all the other industries that will get on the back of this are happy with the government’s lead to an uneven playing field for an emissions-trading system.

I am pretty angry about this and I never want to hear a backbencher or minister from Labor—or from the coalition, if they support this—turning up in rural Australia and saying, ‘Oh, what a shame. We didn’t know this would be the outcome.’ You knew it would be the outcome; you deliberated on it being the outcome; and I know now that you are going to vote for it to be the outcome. Let us hope we do not have this kind of hypocrisy and let us hope we get some sense out of this. Senator Conroy, would you please tell me now: what are the conditions that the climate change minister is going to put on these carbon sinks? Tell me now before the vote so that people here know what these conditions will be.

Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

Last night we saw an exhibition that we do not often see in this place. The Greens, the National Party and the Liberals were so concerned with this legislation that we sprang into action once it came through. I cannot think of many times in the past 10 years that I have agreed with the Greens, but I suppose a stopped clock has to be right twice a day. I am absolutely concerned with this. I have investigated what has happened with managed investment schemes, and this seems to me to be a managed investment scheme under a different name. I was so concerned with this that a couple of days ago I looked at the legislation and then rang up and found out that this bill had gone through. I thought: oh well, there is not much I can do about it. But when the Greens put forward their amendment and opened up the debate again I saw the opportunity to try and head this legislation off at the pass.

I think the first question Senator Conroy has to answer is whether the money that will be outlaid for the property is a tax deduction. If it is then we are in very serious trouble. I will put it in a more formal way: I ask the minister to respond as to whether the initial purchase of the land to grow these trees for a carbon sink will be a tax deduction.

All the things that the Greens and Senator Joyce have said are totally accurate. We were fortunate enough to head off MISs on strawberries and fruit and so forth. We headed them off at the pass. The people out there were so grateful we did, because people were selling a tax break against strawberries or bananas or some other product. The MISs were going in and glutting the market and driving the prices down on agricultural products. Fortunately we were able to get rid of that. But now we have another type of MIS coming forward. I have seen it with my own eyes. I put forward as an example something that happened in Tully, where a fairly wealthy grower of both bananas and cane decided that he wanted to buy the property next door. This guy was a wealthy grower and he said he was prepared to go to the maximum, and even more than the maximum, to get the property next door. He offered the highest price possible, which would have allowed him no return, to get the land. He told me he was not in the race. He said he did not come within cooee of getting the land.

The implications of MISs are large. If a farmer wants to expand his property, he cannot. If he wants to buy a property for his son, he cannot. He cannot do it because he cannot in any way compete against MISs. Now we are seeing another MIS under another name. People are going to grow a product where the land produces the best trees, the best cane, the best bananas or the best anything. That is where they will put it—in prime agricultural land. In Queensland we have got an even more difficult situation because, under the tree-clearing act, people cannot cut down trees to put another forest in. So the only alternative left to them is to go and buy prime agricultural land. So we are getting the MISs going to prime agricultural land.

Everything Senator Joyce has said is accurate. There is no critical mass. Once the cane industry loses critical mass, the mill cannot work. They have got to work on around two million tonnes of cane. Once that goes down, the mill becomes inefficient and cannot produce at a reasonable cost. I fully understand what happens in the dairy industry. Once trees go all around dairy farms, they cannot get the milk truck out because there is no-one to pick up from in between. You are seeing this all over Queensland at the moment. The last thing we need is another MIS. I am concerned that public companies with lots of money can just go in and buy up this agricultural land.

I think this is probably one of the first debates we have had here where we are talking about carbon sequestration as against food production. This is a debate that is going to come into this parliament more and more as the prices of food and groceries go up. Mr Rudd told people that he would keep an eye on the prices of groceries. He is certainly keeping an eye on the prices of groceries while they are going up! I can tell you that the more agricultural land that goes out of production and goes into trees, the higher the prices of groceries are going to go.

It is not just the odd little farm that is being taken over. Around the Tully mill—just off the top of my head—something like 20 per cent of the land has already gone into trees. You cannot blame the people that are selling the land. They are going for the highest price. I do not mind competing. I am in the competition business. Whether I am growing bananas or sugar, I will compete. But I cannot compete against a tax break. If you want to make it fair and even, take the tax breaks away and let me trade my bananas against cane, trees or whatever. But let it be a flat decision. We have got everything loaded here against the people that are producing our food. We have got everything loaded against farmers.

I just appeal to you. What I saw last night was five people coming from different sectors, for different reasons, all realising that this could be a disaster. We have already got a disaster with MISs. We do not want to encourage it further. Someone told me today, ‘Your first loss is always your easiest loss.’

Bill Heffernan (NSW, Liberal Party) Share this | Link to this | Hansard source

That was me.

Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

That was you, Senator. You are a wise man. Let us not go down this track. The National Party are coming at it in a different way from the Greens but the answer is the same. Senator Heffernan is coming at it in the same way as the National Party. We are interested in rural production. Every time we go back to Queensland, we are out amongst the cane farmers, the dairy farmers or the banana growers. We know what is going on. We can all see the consequences. They may be unintended consequences—no-one is saying that the intention is to go in and do this—but we can tell you, from our own practical experience, because we are around the industries all the time and we see what is happening, that we know what will happen if you get another MIS. I appeal to the government and to the coalition not to go down this track, because we are going to end up in more trouble.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Senator Joyce, before I call you, the minister asked if he would be able to respond.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

We are running out of time—

Bill Heffernan (NSW, Liberal Party) Share this | Link to this | Hansard source

Can we call for an extension of time?

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

No. We have already had an extension. I am not saying the debate is ending. We do not end until the committee stage is finished, but we finish at 20 to two, so I thought I might respond to some of the points before then. Senator Joyce, Senator Heffernan and Senator Milne asked some questions. I do not quite have them in that order but here are some answers.

The company would get a deduction for establishment costs only, which does not include the cost of the land. I think Senator Boswell asked an important question. It is only the planting of the trees and the establishment costs, not the land. So it is highly unlikely that anyone would want to spend a billion dollars on a carbon sink forest because they would be spending it only on that aspect, not the purchasing of the land, which I think Senator Boswell indicated was an important part of it.

Senator Heffernan, this bill deals with establishment expenditure. Issues about contracts, treatment of credits et cetera are not within the scope of this bill. There are already tax laws, rulings et cetera that deal with these issues. Furthermore, the framework for offsets will be appropriately dealt with under the ETS. It should not be included in the tax law. I did mention, and it has come up a couple of times, that there will be a green paper on the ETS, which will set out a range of options. That would be the appropriate place to have this debate. I highlight 8.9 on page 52 of the bill which states:

The primary and principal purpose of establishing the trees must be for carbon sequestration and cannot include the purposes of felling the trees or using them in commercial horticulture. This deduction will only apply to those taxpayers who establish trees as part of a carbon sink forest.

Bill Heffernan (NSW, Liberal Party) Share this | Link to this | Hansard source

Thank you very much. The difficulty is that I know someone who has already contracted 3½ thousand acres to do this. Minister, as you have just pointed out, we do not really know what the contractual arrangements are because the law is silent. We have not got around to sorting out what it, in effect, means. This legislation is putting the cart before the horse. We clearly need to have the courage and political will to say, ‘Sorry, but we’ve all collectively made a mistake here because we do not know whether farmers are included or excluded from the full obligation in carbon.’ At $17 a tonne, every irrigated dairy farmer in Australia will be insolvent. We do not know the answer to that. We do not know the price of the carbon in the offset trading because that would determine what type of land will be used. I hear everyone saying that we should only use marginal land. Well, let me tell you, if I have the best farming land on the Liverpool Plains, and I can get $80 a tonne as a carbon credit every year and live on the Gold Coast, I will not grow wheat. This is an attack on prime agricultural land.

Progress reported.