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

I move:

That the Environmental and Natural Resource Management Guidelines in relation to the establishment of trees for the purposes of carbon sequestration, made under subsection 40-1010(3) of the Income Tax Assessment Act 1997, be disallowed.

This is an incredibly important disallowance motion and an incredibly important initiative for rural and regional Australia and for the Australian environment. The history of this tax amendment, which gives 100 per cent tax deductibility upfront for the planting of trees whether they be plantation monocultures or otherwise, was brought in by the Howard government by the then Treasurer, the Hon. Peter Costello, before the 2007 federal election and was deemed to be essential legislation. However, I got up in the Senate and said that, if they passed it, I would tell rural and regional Australia what they were up to. As if it were not bad enough that the coalition had introduced a managed investment scheme, they were also introducing a provision which was effectively a managed investment scheme on steroids, and rural and regional Australia were going to be significantly distressed by what the coalition were doing.

The legislation then went from essential to non-essential and we went to the federal election without it and I had assumed that that would be the end of it. So I was shocked when the Labor Party not only brought it back but brought it back through the House of Representatives in one tax bill then inserted it into another tax bill as well so that it came to the Senate in two different tax bills. Having identified it in the first tax bill, the chamber was unaware that another tax bill went through, one which was non-controversial, so the matter was not debated in the Senate even though we had grave concerns about it and had noted them.

Now the operation of that legislation to give that tax deduction is contingent upon guidelines being struck by the federal minister. In fact the legislation makes it clear that, for people to be eligible for the 100 per cent tax deduction upfront, the taxpayers must be carrying on a business and the carbon sink forest must meet environment and natural resource management guidelines. Therefore the effect of disallowing these guidelines is to make the legislation null and void—that is, inoperative, because nobody would be able to get a tax deduction as they would not be able to comply because the guidelines would be non-existent. This is critical not only because the legislation needs to go but also because the guidelines themselves are so poor. I will get to why they are so poor shortly.

The issue here is: what is the genesis of this legislation? Who put it up to the coalition when the Howard government was in office? One can only speculate about that but it is very clear that the people who thought up the managed investment schemes were very keen to get a similar provision for trees that were not being cut down. You could get a managed investment scheme for trees to be cut down under the 2020 forest plantation vision but you could not get a tax deduction for planting trees for a carbon market. It was very clear that those Collins Street investors were in there to maximise their returns in the future at the expense of people living and working in rural Australia and at the expense of the environment.

Why do I say these things? Look at what has happened with managed investment schemes. We have seen wholesale conversion of native vegetation and native forest to plantation establishment right across the country. We have seen adverse outcomes in terms of water. Whole catchments have been converted from native forest and native vegetation to plantations, with massive interception of water, and the plantation companies have not had to pay for that water. They have intercepted it and taken it out. They got a 100 per cent tax deduction for doing so and disadvantaged people on the land trying to produce food, and that is still the case.

In spite of the fact that these guidelines make some mention of water, the fact of the matter is that there is no consistent management of water around the country. There is inconsistent and patchy provision and legislation in relation to water and its use. We have a situation in Tasmania in some catchments where the run-off is so significantly reduced that Launceston City Council will probably have to build a new reservoir facility because of the amount of interception that has gone on in those plantations. In other catchments we have hydrologists saying that plantations are going to have to be logged in order to free up some of the water. That is the reality of what has gone on as a result of managed investment schemes.

Only as recently as September this year there was an article in the Land titled ‘Out with the old forests …’ It talks about managed investment schemes, saying farmland, water catchments and 100-year-old trees are falling prey to tax-friendly investor schemes. It points out:

Graziers—

in New South Wales—

are furious that a separate piece of State Government legislation, the Plantation and Reafforestation Act and Code 1998, governs land management for timber plantations, over-riding the more strict native vegetation laws that farmers are bound by.

So, while farmers cannot clear land, the forest companies can clear land under provisions in New South Wales, to the great detriment of the natural environment.

Let me get back to the actual provisions of this legislation’s regulations. For a long time the government argued—and this is up on the Australian tax office website—that the capital cost of land is not included as part of the tax deduction. It was never clear to me how that could be correct. The reason for that is that under this particular provision costs in relation to the establishment of a carbon sink forest are tax deductible. The provision goes on to specify that there are two instances in which tax deductibility would not apply: for the costs of land clearance and for the costs of draining a wetland. If you specify in the legislation the conditions under which you are not eligible for tax deductibility, you effectively lead the courts to interpret in the widest possible way the phrase ‘costs in relation to the establishment of carbon sink forests’. Therefore, every cost except those costs associated with land clearance and draining a wetland would be tax deductible. Because of the way this legislation is written, up to 2012 you can tax-deduct the whole lot in the first year. Imagine what that is going to do to people on the land in rural Australia! It means that the cashed-up coal companies and the cashed-up aviation companies can go in, purchase land and have it tax deductible.

What is even worse, and we know this, is that the best land, the best water and the best climate grow the best trees. But it just so happens that the best land, the best water and the best climate give the greatest returns in terms of agriculture as well. So you are in direct competition with food-producing land in Australia. The coal companies and the aviation companies are not interested in who they displace or the ecological impacts associated with water or biodiversity. All they are keen on is bulking up those trees as fast as possible so that they maximise the standing carbon and therefore maximise the offsets of the emissions at their stacks or, in aviation, as a result of their operations. On the one hand they are there in the negotiations on the Carbon Pollution Reduction Scheme saying: ‘Give us free permits. We need as many free permits as we can have.’ On the other hand they are saying: ‘We will minimise our emissions by cost-shifting,’ such that, instead of the costs applying to those companies, taxpayers will bear the cost of mitigating their emissions through funding the purchase of land by these companies for this purpose.

Not only is this a disaster for rural Australia but essentially it is a land grab. It will lead to very substantial accumulations of land and related assets by energy companies or companies supplying carbon uptake products through carbon sink forests—and managed investment scheme companies will just rebadge themselves, grow a new arm or expand their operations to actually do that. What is more, if you are somebody who needs to minimise your tax, you can employ one of these companies to package up the land, the water rights and all the other associated costs and deduct them in the first year for you. So you have a massive potential, as I said, for incredible rorting of the tax system. In my view, this is not something that either the Howard government or the Rudd government intended, but it is the outcome of this very poorly drafted legislation.

When I made these points before—and colleagues in this parliament from other parties have also made these points—the government stood up and said, ‘No, the cost of land is not tax deductible.’ But it is tax deductible. So, in the end, I went and saw one of Australia’s leading tax barristers about this. He said that it is absolutely clear that the land is tax deductible. He is in the media today responding to this as well, saying that it does not matter what the explanatory memorandum says. He says the High Court have had many such cases. Where there is a difference between the actual legislation and the explanatory memorandum, they will always take the law as it stands ahead of that. So let us get rid of that.

The tax office has a view about this on its website, but the view of the tax office is not the law. The law is the law, and it will be interpreted as it stands. We know that in the committee hearings on this the government said, ‘The cost of leasing will be tax deductible.’ That was bad enough for a start. So you can approach a farmer and say, ‘Let me lease so many hectares of your property and then all of the costs associated with the leasing are going to be tax deductible over time, but now let me talk about water for a minute.’ I asked the barrister, ‘Can you claim the capital cost of getting a water right as well as the land?’ The issue here is: often the water right is attached to the land, and therefore the cost of the land reflects that, so you would get the tax deduction for the water right by virtue of the value of the land. But let us say it is not attached to the land; then the issue becomes: it depends. If you have to buy a water right which gives you the ability to, year by year, pump a volume of water through a permit, the capital cost upfront of the right will be the capital cost with the land and it will be tax deductible. If, however, it is not an upfront cost and it is a permit year by year, then that will not be tax deductible in that sense, but all your leasing costs will be tax deductible. So it depends what you are doing in relation to the water right how it is constructed.

What we are going to have is high-income taxpayers, in a year when they need to minimise their tax, approaching these carbon sink businesses, like managed investment schemes, and they will organise for purchase of the land, they will get all the costs upfront, tax deductible upfront, and then they will come to some arrangement to onsell this property—just like they have with the managed investment schemes. The people who will be doing it will be not only the forest industry but also the coal industry and the aviation industry, because it helps them to minimise their offsetting costs. So they get free permits and they get the taxpayer to set up the offsetting strategy for them, to the detriment of rural and regional Australia. If carbon sink investors eventually do switch to food production—and I believe this will be the case—we are going to see increasing pressure on food production. There will be food shortages because of climate change, because of peak oil, because land has been taken out of agricultural production, because of incursion by subdivision and so on. When that occurs, there will be a temptation for them to go back.

Can they ever cut the forest down? Of course they can. When they onsell a property, the next person can say, ‘It was not my intention for these trees to be a carbon sink. In fact, I can get more money now by converting it to something else,’ and they can do so. In terms of the tax deduction, who pays it back? There are no enforcement provisions. There are no disincentives in this. There is nothing at all in the future to stop you from saying, ‘At the time I planted it, it was my intention that it be a carbon sink, but since then I have changed my mind.’ There is nothing to say you cannot cut those trees down. You can get the tax deduction in the first place only if it was your intention for that to happen. But, in the event that you do, the penalty you will pay will be in relation to the carbon you have given up under any subsequent arrangements you have in selling carbon into the carbon market, and you will have to make good. But with the tax deduction, especially if you have onsold the land, you have no consequences in terms of what benefit you got out of it in the first place, if a changed ownership leads to those trees going.

If the trees are not cut down, there are other ways to kill trees—like not watering them, for example, or bushfires that go through them and so on. It may not be your intention to cut them down, but—oh, dear—they were destroyed, they died, or something happened to them along the way. We have seen plenty of that with the managed investment schemes. In Tasmania there is a plot that was put in on a managed investment scheme which has currently got cattle grazing on it. I have drawn it to the attention of the authorities, because to me it seemed like a rort in the first place.

This is really serious. The guidelines are not really worth the paper they are written on, because they say that you must be in compliance with state legislation and with local government in terms of planning schemes. In the case of Tasmania, there is no land-clearing legislation. So you will comply with this if you do not do anything and you keep on land clearing, because there are no regulations. In Tasmania, there has been not a single assessment of groundwater in any catchment. And there is no requirement in these guidelines for a hydrological analysis before these plantations go in. So we will have the situation where it will suck the water out as interception. And, in a place like Tasmania, without any provision on land clearance and without any provisions in relation to groundwater, let alone water rights, you know what the inevitable outcome is going to be. In terms of land clearing, whilst the guidelines say ‘compliance may be achieved by avoiding clearing land of remnant native vegetation, as determined by the relevant state or territory legislation’, as it is there is no enforcement. Who is going to come and check on any of this? Who is going to look to see what you did in relation to this in the longer term? So what if you complied in the event there is no legislation there in the first place? Yes, you ticked the box to say, ‘I complied. I cleared this area.’ The clearance is an important issue because there will be the Kyoto sink forest definitions about what you can clear or cannot clear, and of course there is plenty of native vegetation that can be cleared that would not fit that definition. So this is a disaster from one end to the other.

I particularly want to talk about the legal advice I received today, which I will deal with in the tax bill as well. It is important that people looking at these guidelines realise that they are going to create the biggest shift in agricultural land and water away from food production, with large-scale impacts occurring in a manner not seen since the introduction of managed investment schemes. The impact of the guidelines will be equivalent to, if not worse than, that of the MIS, and the farmers out there know it. During the Senate inquiry process, we received a lot of submissions from sugar growers, dairy farmers and so on around the country. They have lost their properties and their viability because of the impact of managed investment schemes in their areas reducing critical mass. It will happen again; it will be a disaster. I urge the Senate to support the disallowance motion to get rid of these guidelines. If we want proper carbon sinks then we must make sure that they are biodiverse, that they will go only on marginal land and that they actually fulfil the purpose of being in the ground for 100 years—not this shonky MIS dressed up as something else.

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

I rise to support the motion to disallow the environmental and natural resource management guidelines made under section 40.1010(3) of the Income Tax Assessment Act 1997. I see this disallowance motion as the down payment on a fundamental restructuring of the economy to be achieved by the government’s Carbon Pollution Reduction Scheme. It is because this issue is so important that I join my fellow Nationals in making a stand. Crossing the floor is the longest walk in politics. It should not be done in hubris or for effect or revenge but in sincere commitment and belief that the decision before us is above ordinary gravity, and I believe that is the case today.

The guidelines facilitate a tax deduction for established carbon sinks. If successful, this disallowance motion will render the deduction inoperable. Let me repeat: the new law is completely inoperable without the guidelines that spell out the environmental and natural resources management process in relation to the establishment of trees for the purpose of carbon sequestration. I have received internal advice from the Department of the Senate and external advice from a prominent barrister confirming that, without these guidelines, the legislation is inoperable. It will not be possible to plant trees and incur expenditure for establishing trees in carbon sink forests unless the guidelines have first been made.

One of the conditions for the deduction is that you must meet the requirement of the guidelines—no guidelines, no deductions. Why is this issue so important? Because the tax deduction has the potential to distort land prices in major agricultural regions, moving food-growing land to carbon sink land and undermining food security. This is important because the legislation, which prohibits the management of investment schemes to act as a tax incentive, is being thwarted. Managed investment schemes are already lining up to exploit a loophole that allows them to take advantage of this carbon sink deduction.

Most importantly, this tax deduction represents the first shift of taxpayers’ money and a mammoth structural change to the economy with the government’s Carbon Pollution Reduction Scheme. To give carbon sink forestry operations a significant tax advantage over food-producing operations will inevitably distort the market in favour of carbon sinks. The current guidelines contain nothing to contradict this conclusion. Providing a tax incentive to one sector of the market—in this case the carbon sink investors—will raise the rate of return on their investment. In contrast, traditional agricultural land, void of an equivalent tax incentive, will suffer a comparative decline in rate of return. Consequently, rural land will lose its value as a food-producing resource.

The value of marginal and prime land will be changed under preferential treatment given to carbon sinks over food production. This will have the ongoing effect of weakening the strong farmers, who will not be able to expand the size of their holdings. They will not be able to afford the prices being paid by the carbon sink operators. These guidelines artificially inflate the price of land and put it out of reach of the farmers; therefore, more and more land will be taken from farming and food production and tied up in carbon sinks for generations.

The guidelines create a discriminatory tax benefit with similar effects to those of managed investment schemes. The added downside to the carbon sink tax incentive is that carbon sink forests are supposed to be permanent and, therefore, the market for food land cannot make a comeback even if returns should improve for food producers. The tax incentive and accompanying guidelines are a clear case of distorting the market and creating an unfair advantage for one land user over another.

The importance of food-producing land and food security in Australia is undermined through these tax incentive guidelines. Australia has already seen how a taxation incentive can be used to distort land prices. There has been an invasion of forestry based managed investment schemes into prime agriculture land, which threatens the viability of farming land and food production. The Senate inquiry that looked at this deduction was told by the Canegrowers Association that 14,000 hectares of prime cane land has been lost to forestry managed investment schemes. The sugar industry is concerned that land use will move towards carbon sinks, just as it has moved towards managed investment schemes. But it is not just sugar-growing areas that are being affected; it is everywhere and anywhere that there is good rainfall and agricultural land, including land presently under dairy, horticulture and other cropping.

The legislation attempts to make managed investment schemes ineligible for a tax deduction for the establishment of carbon sinks; however, the MIS industry is attempting to find a way around that. There are already managed investment schemes seeking to change their structure to take advantage of the new tax deduction on carbon sinks and, in doing so, broaden their income stream. The publicly listed Great Southern Ltd or GSL, an MIS, announced to the Stock Exchange in August that they were restructuring, with the main investment objective of capturing the potential benefits of carbon emission trading. One of the sugar processors has written to me, asking that ‘Forestry MISs not be allowed’—in their words—’to double dip; that is, to take a tax advantage to establish trees for harvest and then convert the scheme to allow for sequestration credits’. The concern is that MIS tax incentives extend over years and, in contrast, tax deductions for carbon sinks are over one financial year.

But it is not just the farmers, the millers and the processors who are worried; it is the unions as well who opposed these guidelines in their submission to the Senate inquiry. A third-generation Tully mill worker later commented to the effect that, if this takeover of farming keeps going like it has, there will not be a fourth generation of his family working at the mill. That is because the mill needs a critical mass level of production to keep it viable. If there is less land for farming and less product, the mill cannot operate efficiently and costs go up. It must get a critical mass. That is the same for a dairy factory or any other food processor.

The Australia’s low pollution future report by Treasury refers to the ‘Garnaut-25’ scenario, which sees around 40 million hectares of new forestry plantations established from 2005 to 2050. It is difficult to picture how much land 40 million hectares is. The total area sown for winter crops in Australia in 2008-09 was estimated to be slightly less than 22 million hectares. Double that and you will get an idea of how much land is being forecast for new forestry plantations. Australia’s plantations 2008 inventory update reports that Australia has less than two million hectares of plantations currently. This means that a large amount of food-producing land is projected to be turned into forestry. This raises the question: if we put 40 million hectares into plantations, where on earth do we put those 240 million kangaroos that we are supposed to farm, according to Professor Garnaut?

In March this year, Australian Securities Exchange General Manager Anthony Collins told an ABARE conference that ‘the value of issuances in the Australian emissions trading scheme could be around $120 billion over the next 10 years, more than twice the value of the Australian government bonds market’. Little attention has been given to this extraordinary summation of the emissions trading market or to its implications. The financial services industry must be salivating, and some big business is counting on free permits, courtesy of the taxpayer, to get by. But, for everyone else, this is a huge carbon tax that will flow through the nation’s businesses and households.

As a National, I am particularly concerned about the impact on agriculture. The potential impacts of an emissions trading scheme on agriculture in Australia were estimated by ABARE in June this year to result in ‘agricultural production costs rising by three per cent for livestock and 4.5 per cent for cropping in Australia if agriculture is excluded from the scheme; and agricultural production costs rising by 18 per cent for livestock and six per cent for cropping in Australia, if agriculture is included in the scheme’. If today’s carbon sink regulation is like Australian farming having a stroke, then the ETS to come will have the impact of a heart attack on rural industry. And do not forget the consumer. If it costs a beef producer an extra $180 a beast to get it to market, who will pay? The consumer will not and the producer cannot without going out of business. How attractive it will be to grow trees instead. But then how do we feed ourselves and how do we replace valuable food exports?

You have to question the government’s genuineness in all of this. Senator Wong delivers lecture after lecture on the need to set up an ETS by 2010. Forget what the rest of the world decides to do in Copenhagen or what Obama gets through congress. Forget all that; Minister Wong wants Australia to go over the top and rush the enemy carbon lines without any covering fire. Some industry players think it will be okay to come out of the trenches because they will be given free cover in permits. But the permits do not last very long and there are not enough to go round. The foot soldiers of industry and agriculture will be told to go over the top and brave a world riddled with the bullets of a financial crisis. They will have extra carbon costs that will make it difficult for them to survive. Big businesses will just move out of Australian trenches and find a neutral country where they can operate without worrying about the carbon fire.

Today with this disallowance we are digging the first line of trenches for Australian industry as it comes to grips with a 2010 emissions trading scheme. Meanwhile, back at the Wong ranch, government departments putting the 2010 brand on the carbon cattle have not even done their own budget costings of what the Carbon Pollution Reduction Scheme will cost them. In October estimates I asked what work had been done on analysing the government’s own CPRS liabilities. They had no answer then and took it on notice for every department. I have received a reply from the Infrastructure, Transport, Regional Development and Local Government portfolio. They say simply that the design of the CPRS has not been finalised. The only other reply says, ‘The Attorney-General’s portfolio has not endeavoured to estimate the operations cost to the department under the Carbon Pollution Reduction Scheme.’ That means that the government do not know what their cost blow-out will be under a CPRS and they have not done the work on it. Think of all the emissions from department buildings and cars—yet they expect business to cop it sweet in 2010. We are not talking about minor costs, either. The community sector raised concerns early on about how they were to pay their increased power bills under the ETS, yet there is no provision for these significant costs in forward estimates.

So we have a government carbon general pushing the industry troops out of the trenches to face open warfare from the rest of the world, who are not playing by the same rules. It is like our government generals are acting on behalf of some other government—not the Australian one. We must hold off from establishing an ETS before Copenhagen, at least. It is crazy to self-sacrifice jobs and exports with no chance of taking any carbon ground if the rest of the world is not with us in the trenches. This carbon sink regulation is part and parcel of changing the underlying structure of the economy to suit the hastily designed and imposed Carbon Pollution Reduction Scheme. It sends the first wave of foot soldiers—once again, farmers—over the top and into a new conflict where there will be many casualties.

There has already been an international volley fired in the carbon war. The British government is imposing a $400 green surcharge on Australians travelling home from the UK on Qantas aircraft. This is marketed as a new method to help save the planet but, let’s face it, it is an opportunistic revenue raiser for the old country that takes money from the colonies and makes it harder for our tourism industry. Have we entered the age of a new green imperialism? Perhaps. It is very hypocritical of the UK, because the new tax takes no account of the environmental efficiencies being made in planes that fly in and out of Australia or of the fact that short-haul flights in Europe create comparatively more greenhouse gases.

The subject of today’s disallowance motion can be likened to the first step on a slippery slope towards a wholesale restructuring of the economy and how we do business in Australia. Today it is about impaired food security and the viability of rural communities and infrastructure. Tomorrow, or certainly by 2010, it will be about the carbon tax—the equivalent of adding two bond markets onto our financial system, or $120 billion of issuances over 10 years. The only businesses that will win are those that go offshore where there are no similar restrictions. They will seek an emitters’ paradise and go unregulated. Other businesses think they can walk through this maelstrom of market changes unscathed because they will get free permits. How long do they think that will last? How long will it be before their suppliers, with no protection against rising carbon input costs, go to the wall?

No-one can escape the carbon tax past the very short term. If you think you are safe, just think of the deals that will be done in this chamber by a Labor government wanting the Greens’ support in the Senate and preferences in election campaigns. Once the CPRS is established under legislation, all the levers and frameworks are there to turn off free permits and change caps and trajectories at the whim of a Senate vote. Only one kind of business left in Australia will truly be a winner: the moneychangers, the financial whiz-kids who have brought the world economy to its knees because of reckless greed and dysfunctional regulation. Are we really going to reward them with brokerage fees for $120 billion? John F Kennedy once warned:

… those who foolishly sought power by riding the back of the tiger ended up inside.

Karl Marx famously said:

The last capitalist we hang shall be the one who sold us the rope.

Today the Senate votes on a tiger and that rope. We vote on whether to allow the big end of town to distort the market through tax advantages that put trees ahead of food and farmers. In doing so, we vote on whether to begin undermining the efficient allocation of resources that allows economic progress and prosperity.

The big companies that will benefit if this disallowance motion is not passed will eventually fall victim to the process the legislation begins—a process that attacks the jobs and exports of a country that needs both to survive in this competitive and crisis-afflicted world. If this disallowance motion fails then we will have taken the first step in ushering in a green ‘brutopia’. Take away the farms and the food, tax the resource- and energy-intensive industries, and Australia is no longer Australia. We will be a land of forests and misery. We will be poor and unable to help the poorer. We will be unemployed and unable to offer jobs to future generations. I urge all senators to consider this disallowance motion not as some insignificant fraction of a day at the office but as a keystone event in our history. Once we embark on this voyage of harm to our natural competitive advantages, we start to dismantle the sails that took us to such a lucky country. We do not want to end up inside the tiger or at the end of a rope we fashioned ourselves.

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

I rise to concur with the views that were clearly and very well put by Senator Boswell and the views that were put forward by Senator Milne. This is an issue that we have been talking about since June. It is not something that is a flight of fancy. It is a very serious issue, and today a number of National Party senators unfortunately will have to cross the floor to enunciate that. Why is it so important? Because we have tried for so long to mediate another outcome; we have tried for so long to come up with another process; we have tried for so long to breathe some sense into this legislation.

The wider community must see that there is something peculiar happening when the National Party and the Greens, supported by some of the Independents, are at one on an issue such as this. It signals that there is something very peculiar and wrong with this legislation when both those groups have serious concerns about it. I do not believe in the operation of a pure market economy but, for all those who vote for it, this legislation says that obviously they do not believe in market theory. Theirs is an ‘optional market theory’ approach where at certain times you hold it up as a religion, as the be-all and end-all, and at other times you drop it like a hot potato. This is an upfront tax deduction for those who can afford it most, to be paid by those who can afford it least. It would be peculiar even if you knew nothing about agriculture or about regional Australia. You would look at it from the outside and say: ‘If I believed in market theory then I would just let the market operate. I would not come charging in, try to create market differentiation and interfere with the process when we have seen all the problems it has caused just lately.’

We look at this as extremely important—so important that it requires us to show our nation clearly that there are serious errors in it. I will go through just a few of them. They have probably already been covered by my colleagues. The big one is the demise of regional towns. If, by your own mechanisms, you take away the substance of their economic base and that of the hinterland that surrounds them, which has provided the commerce that has built up the town and which people have relied on to invest in that town—to buy a house, to move there as a doctor or a schoolteacher, to build a shop—then you are doing something very wrong. In that breath you are saying: ‘Don’t worry about the world economy. You have to worry about your own nation’s domestic tax policy. That has become a major threat to your future.’ That is a very peculiar thing for people who call themselves economic conservatives to inspire.

Remember, it is quite simple: if you are offering an upfront tax deduction, that is the impetus for people to invest in the scheme. It means that therefore they have a tax bill. And, as they get a tax deduction in a deficit budget, somebody else somewhere else has to pay the tax. So those corporations that can afford it most get the tax deduction, and those who pay for it are the Australian working families. They pay the bill for this cute little deal—and it is a cute little deal.

The effect of the loss of prime agricultural land, as we know, is quite simple. Going straight back to market theory, if you take out prime agricultural land, if you take out the mechanism of producing prime agricultural food, you force up food inflation, full stop—game, set and match. Not only are we imposing a tax bill on the Australian consumer but we are putting up the prices of groceries in the shops to boot, so they can remember it—another peculiar step for people who believe in market theory.

Whilst they are also doing that, they say: ‘Oh, well, we can rely on imports. We will remove Australian domestically grown food and we will rely on imports.’ It is strange in the extreme that a country the size of Western Europe, with only 21 million people, is starting to become more and more reliant on imported food. Our whole concept of food sovereignty should be one of our nation’s strengths. We are starting to make it one of our nation’s weaknesses. What are we going to rely on—a resource based economy, with about two per cent of the workforce employed in it, and the rest of the people in service industries hoping and praying that the game never stops? Every country knows it is one of the smartest things you can do—regardless of the rules, the laws, your beliefs, you must make sure you can feed yourself. This is yet another step away from being able to feed ourselves. Any household will tell you that the most tenuous position you can ever be in is when you are relying on somebody else to feed you, especially when those people are slightly hungry themselves.

One of the insults added to injury in this whole thing is that, when you look at a town, the income stream that was associated with that land, that used to go through that town, that used to support the commerce, that used to bring a benefit back to that region, is now going to be a carbon sink. And that carbon sink will get a future income stream. After we have given them an upfront tax deduction, it will get a future income stream, through the increase of weight on carbon that is petitioned by that area. But where will that income go? It will not go to the local town. It could even end up overseas. It could end up being owned by Mitsubishi Steel. It could go anywhere. What do we say to the people of that town—that not only have we completely circumscribed their access to income but we have also moved any potential income stream to somewhere else? And we believe that is morally just? It is yet another part of the oxymoronic process that enmeshes this piece of legislation—or whatever it is; I do not know what you call it.

So not only have we completely circumscribed their process; we have moved the income stream that supported that district to a completely different place somewhere else. And look at the actual commerce of it. If these people are going to get a future income stream, let us look at the concept. If there is a hectare, 10,000 square metres, and for every 10 square metres they can plant a tree, and, say, it is worth $100 a square metre, that is a possible future income stream of $100,000. What on earth are you giving them an upfront tax deduction for? Why do you need to do that? If this were a real economic issue, a real economic belief and statement of how the process should work, they would not need an upfront tax deduction. Otherwise, you are just propping up something that should not exist in the first place.

You can do with private land what you want. I have never suggested for one moment anything other than that with private land, if it is yours, you can do what you want. If it is private land, people can still put in a carbon sink. We are not saying you cannot put in a carbon sink—put in a carbon sink. But do not ask the Australian people to sponsor it, to subsidise it. Do not ask the mothers and the fathers of Australian working families to sponsor the deduction for the major companies. That is exactly what is happening.

And let us look at the efficacy of the carbon sink. It came to us through the committee hearings that summer pasture sequesters more carbon than a dry sclerophyll forest. This debunks the myth that it will not be using prime agricultural land, because if you go into prime agricultural land and you want to sequester more carbon than is already there, there is no point removing the summer pasture to plant trees. You would actually be going backwards. If you wanted to be authentic about it, you would have to go to an area with high rainfall and good soils and the prospect of being able to deliver a big increase in the weight of carbon in a short period of time.

We have asked for just one thing right from the start: for prime agricultural land to be excluded. It was not asking for much. We started in June. We never got there. We got this peculiar response, ‘We’ll rely on local government guidelines and state government guidelines,’ because they knew that the thing they had to dance around was that they would never grasp the nettle and exclude prime agricultural land. The reason they will not is that that is where it is going to go—because that is where the MISs go. This is just a turbo-charged MIS. If you are relying on local government guidelines, which local government guidelines? Which local government guidelines stop you from growing trees? I have no idea. Even if the local government came up with those guidelines, they would be taken to the land court at the state level. These issues are all part of this mystery and this riddle as they try to fool us in the way this legislation works.

On this issue—and this is something that the Australian Greens and the National Party differ on—I believe that the emissions trading scheme is going to be one of the worst things that ever happens to this nation. In a time of recession we are moving towards a period where we are going to create another tax. It is another tax to encourage people to leave our nation and do business somewhere else. That is what it is. The response to the queries that we put to Treasury in the Senate Standing Committee on Economics says that this is strongly revenue positive. That means the government collect money. It might be coincidental, as the government run into deficit, that they will be looking at ways to pick up funds. What a brilliant way to do it: go on a moral gig of ‘we’re going to save the world, collect money and fix up the deficit’—because the government become the arbiter of where it is morally right and morally wrong to send that money that they have collected from the Australian people.

But, if senators in this chamber do not believe in the concept of the ETS and they have serious concerns about it, they cannot vote for this, because this is step 1 of putting their foot on the sticky paper. I imagine the Australian Greens will continue their support of it, but I and my colleagues see that the ETS is going to be economic vandalism. If we want to reduce carbon emissions, I think a possible economic downturn will do that in spades. We do not need to exacerbate the process by encouraging the aluminium smelters and a whole range of other businesses to move overseas. If you vote for this, you have to understand that you are voting that you believe in the ETS and everything that surrounds it. You have to be sincere and fair dinkum. You are either on board or you are not; you cannot have this sort of optional belief system. That is also a key concern.

Australia cannot continue closing down prime agricultural land. As we continue to rely on overseas imports for food, we do not just lose our domestic production; we also make ourselves vulnerable because those overseas suppliers can enter into an arrangement where there is a specific supply contract with specific retailers of the product. Those supply lines to overseas venues become a very powerful instrument to stop other participants in the market. Big retail players have the capacity to set up explicit supply lines to certain big players overseas, but your independent greengrocer and your independent stall probably do not get the same arrangement and the same process. So, at a retail level, this can start to move against small business. This really shows the intermeshing of all the effects when you start passing legislation that reduces Australia’s access to prime agricultural land to produce food.

I also brought up through the Senate estimates the fact that the legislation, and I have quoted it before, in schedule 8, 40.10 says that capital expenditure is deductible for the establishment of carbon sink forests. Other people have said, ‘That’s different,’ and, ‘The explanatory memorandum’s different.’ We have heard today from Senator Milne, who has spoken to one of the leading tax barristers, who said that is bunkum: ‘If it says capital expenditure’s deductible, capital expenditure’s deductible.’ Game, set and match. The minister has never had the capacity, the bravery, to go into the legislation and say, ‘It excludes the purchase of land.’ So, if it does not exclude the purchase of land, I suppose it includes the purchase of land.

If that is the case, that is totally unfair. Who else gets a deduction for purchasing a block? Why don’t we give the deductions that we are giving to these people to the people growing fruit, vegetables and meat, people who are trying to sustain themselves and in the process send their hard-earned dollars by way of tax to the Treasury? Why aren’t we giving them the same advantage? I can imagine other things associated with the planning of a carbon sink forest—if they put up a shed to store stuff in, that is a capital expenditure, so they will get an upfront tax deduction. A farmer would have to write that off over 15 or 22 years or something. This is outrageous. Why are you creating another sentiment of market differentiation, where the person on one side of the fence gets one advantage and the person on the other side gets another advantage, and what differentiates them is that one has the gall to try and feed Australia while the other is planting trees to get an income stream at a future date and gets the benefit of an upfront tax deduction?

We heard Senator Boswell talk about the prospect of 40 million hectares of new forestry. We only have 22 million hectares of crops. We have to understand this concept and where it can go. We have to look into who is actually pushing this agenda—who is going to make money out of this? Follow the money and you find the problem. That is the query. It is obviously going to be the people who have the capacity to make a margin on trading it and the people who make a tax deduction on putting it in place.

For the sake of regional towns, for the sake of maintaining Australia’s food sovereignty and for the spirit of fairness among all citizens in this nation—who should not be compromised by having to pick up the tax bill for the tax deduction that this is—I ask and plead for people to knock out these regulations. At a later stage, to make sure we clarify it, part of the TLAB 5 measures will explicitly disallow the tax deduction.

I know there are people who feel very strongly about this—some of them probably not noted in the media. I know there are strong feelings against this piece of legislation. So I ask: even if you are not going to vote against this, at least do not vote for it, because if you vote for this you are voting for our nation to go down a path of unfairness and you are taking the first step in a very dangerous economic proposition for our nation to deal with in a possible recession.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

I rise in this chamber to voice my objection to what is being planned here and support the disallowance motion put forward by Senator Milne. I said in my maiden speech on 15 September:

… governments should not take our food producers for granted simply because we have such a huge supply of good quality, well-priced food. We all know what happens if we do not eat.

And that is the point I make here: for the government to have an upfront tax deduction to allow the big end of town to come in and buy up our prime agricultural land, sow it down to trees and hence make money afterwards I think is simply wrong.

I have said for months now that if we want to take the carbon dioxide out of the air we can put it in the soil; we do not have to put it in the trees. If you talk to any soil nutritionist, they will simply say that carbon is the cycle of life. We see people like Dr Christine Jones, at Armidale, and my good friend Nationals MLC for New South Wales Rick Colless, who has worked in the care of land for some 27 years, saying, ‘Get the micro balance right in the soil and it will sequester the carbon out of the air and into the soil and then can be used for more production of food.’ This is the way we should be going in this nation, not allowing upfront tax deductions for the big end of town to buy up our land, plant it into trees, remove it from producing food and take the money out of the local economies that have battled against drought since early 2002.

What happens when our food production reduces? Going back to my days of learning economics in 1972, the story was that if demand exceeds supply then prices rise. There has been one big kerfuffle of late about how the price of food is high. That has been brought about by the lack of supply brought about by the lack of rainfall and negative seasons on the land. So what are we going to do? We are going to give an upfront tax deduction to reduce the volume of food in this nation. This is bad not only for the future of all Australians but for those local communities that rely on the dollars being brought into their districts by the sale of such things as wheat, barley, sorghum, sunflowers, canola; you name it. They are the industries that bring the dollars into those local towns and communities that keep the small businesses going, that keep the working families in a job. Now we are going to make a decision here that will have the end effect of putting those working families out of a job. That will be the end result of this in small communities.

We see that we have a huge problem of a lack of flow of water in the Murray-Darling Basin. You do not have to be a rocket scientist to realise that when you plant trees they actually absorb moisture and prevent in many cases the run-off of water, even in wet times. The more carbon sinks are established, the less water will run down the Murray River. I am sure Senator Xenophon, Senator Birmingham and others are not real happy about that. I am sure that even Minister Wong would not want to see less water running down the Murray and hence more problems as we see in the Murray River. But the allowance of this carbon sink upfront tax deduction is going to have that effect on the Murray-Darling Basin.

It is just so wrong when the big end of town, those with the big chequebooks, can come in and pay the big price for prime agricultural land. The effect of that is simple. Farmers wish to expand their land size, as they have had to do for a hundred years. Going back to the 1950s, in areas such as inside the Goyder line in South Australia, with a property of 500 acres you could make a good living. Then in the seventies you needed 1,000 acres. Then in the nineties you needed a couple of thousand acres. Today to survive you probably need 2,500 or 3,000 acres, simply because farmers have to be more productive, the retail price of products has not kept up with the cost of their production and hence they have had to expand their properties. But when the big end of town come in and pay whatever they want for the land, knowing full well they are going to get an upfront tax deduction, according to Senator Joyce and others here, and go on to make their money, they will inflate the price of land. They will squeeze out the small bloke, and we are just going to see more carbon sinks established. The end result will be less production of food, less exports and worse monthly trade figures.

It is the emissions trading scheme that this is all being prepared for. The Nationals have made it quite clear that unless the big emitters around the world take on the same project we will become uncompetitive. We will shut down industries here; we will move them overseas. I was talking to one person representing the cement industry. In Australia we produce 10 million tonnes of cement a year and we also import two million tonnes. When we produce a tonne of cement in Australia, we produce 0.8 tonnes of greenhouse gases. What will happen if we tax that industry out of existence? It will then be moved overseas or we will import cement from China. In China they produce a lot of cement, around one billion tonnes a year, but when they produce one tonne of cement in China they produce 1.1 tonnes of greenhouse gases. So we would shut down our local cement industry to import 10 million tonnes of cement from China. The result is that, instead of producing eight million tonnes of greenhouse gases in Australia, we will import the 10 million tonnes from China that will produce 11 million tonnes of greenhouse gases. The net effect is that we close down our industries here, we lose 1,850 jobs, we import all our cement from places such as China and we put three million tonnes of extra greenhouse gases into the atmosphere each year. That is not very clever at all. That is going to be the effect of the emissions trading scheme unless the United States, India, China and the other bigger emitters come on board with something in the way of this to at least make us competitive and not shut down our local industries. This is where we are heading, and where we are heading is not good for our children’s future in terms of having to make a living, to feed the people, to have exports and to keep our small communities alive. That is why I will be supporting this disallowance motion.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I also support the motion. I acknowledge and give credit to the submissions we have just heard and the power of the National Party’s stand on this important issue. I also want at the outset to thank my colleague Senator Milne for having drawn the Senate’s attention to this matter last year, because otherwise it would be through and done and dusted without the very important debate it is getting at the moment. The minister and the government cannot say they were not told about this insidious process that we are dealing with here today. The hand of the big end of town, particularly the National Association of Forest Industries and the big polluters, is all over these regulations. Minister Wong is an intelligent and resourceful character, and I am surprised that she is hosting such a shoddy and hopelessly inadequate piece of regulation in this parliament.

I was in Bermagui on Friday night for a public meeting about the logging of forests on the doorstep of that town and in south-east New South Wales more generally. Of course, that problem applies in Tasmania as well. A lot of issues were raised at the meeting. People are concerned about the tourist amenity, they are concerned about biodiversity, they are concerned about recreation and they are concerned about the feeling of place that they have. The Indigenous people there are totally opposed to that logging taking place, and the oyster growers pointed out that other local clean water areas have been lost because of siltation following deforestation. One of the few forests left in the Bermagui region is now threatened by logging that is to occur in the new year. On top of this came repeated questions from the public about carbon. The public is astute on this and seems very much better versed on it than is the cabinet.

Effectively built into this proposal is a public subsidy for planting carbon-sink plantations, which is a perverse outcome. Here we have the government and the Liberal Party supporting the destruction of the biggest carbon banks living on terrestrial Australia—that is, the native forests—and, as a consequence, contributing nearly double  the pollution of the whole of the transport systems of Australia into the global atmosphere. The woodlands and native forests of Australia, from the Tiwi Islands to Tasmania, are being converted into greenhouse gases at an extraordinary rate. It is estimated that that accounts for 17 to 20 per cent of Australia’s total greenhouse gas output—and that is in the world’s biggest coal exporting country. That is incredible, and it is not even measured by Minister Wong’s greenhouse office. We will hear that that is because internationally we do not have to, and that is because Australia, amongst others, fought very hard under the Howard government not to have it included. But the reality is that that is part of the greenhouse gas output in Australia.

Here we have a system to establish plantations to sequester carbon and to effectively cover the fact that these great forests, which store massive amounts of carbon, are being logged. This is, in my book, culpable behaviour. This is a gross misdemeanour at the highest government level against the interests of the planet, future generations and the biodiversity we share on this planet. Here we have big business effectively getting a Labor government to bring forward a set of guidelines that are going to aid and abet the process. This will have the perverse effect of having more and more land that currently has woodland or forest on it converted to plantation and will result in a massive loss of carbon. You will get a tax break for some future carbon sink that will never again replace what was lost.

I noticed that in the regulations there are words like ‘may’ and ‘should’. One regulation says:

1.

Carbon sink forest establishment should be based on regionally applicable best practice approaches for achieving multiple land and water environmental benefits.Compliance with this guideline may be achieved by, for example:

• avoiding clearing land of remnant native vegetation as determined by the relevant state or territory legislation …

Well, look at the performance of the New South Wales, Victorian and Tasmanian governments on that score. They are ripping down state owned forests that are massive hedges against climate change and discounting it all as nothing. These regulations put into the hands of those same people a request that they ‘may’ look at whether taxpayer subsidised carbon-sink plantations under this scheme ‘should’ be restricted in places where people are going to cut down forests and woodlands or even clear scrublands to achieve a process that will, at the end of the day, hold less carbon in it. It is extraordinary that the dollar imperative here is riding over not just commonsense but the decency to be honest, which is required of all governments.

Today, the National Party is making a stand against the inevitable takeover of food-producing lands—lands where farmers get no subsidies for producing that food—by a scheme driven by the people at the big end of town who can see a get-rich scheme. They will be getting the investors in for their tax deductions for plantations that are supposed to be carbon sinks and that will replace food lands. I have not heard an answer from anybody in government or elsewhere as to whether the current carbon stores in the food lands are going to be replaced by these plantations. Is there a necessity for an assessment? No, there is not. Is this used land, the so-called back blocks of farm lands, the hills where there are currently woodlands that are the maximum carbon storage and which are the naturally best attuned ecosystems for maximising the storing of carbon, now going to be knocked down? Because they are considered marginal farming land, are they to be replaced by plantations that will never ever contain as much carbon? There is nothing in these regulations to say that cannot happen.

Unless you regulate with ‘musts’—and you have to—and leave no option but to abide by a system which ensures you are actually going to increase the carbon-sink facility on land, it will not happen, because the driving motivation here is going to be making dollars and achieving tax deductions. The motivation is not going to be the good of the land; it is not going to be the wellbeing of the human community, either locally or globally, in terms of food production; and it is certainly not going to be hedging against climate change. This was driven by money makers and the Labor government has rolled over and said, ‘Yes, we’ll have that’ to this inherited legislation from the former government, and that is why we have this extraordinary perversity where there will be an actual loss of carbon sink. This will be subsidised by taxpayers through schemes coming from the big end of town, where they could not give a damn about what is happening in rural and regional Australia, its productivity or its ability to be a hedge against carbon. They will be interested in get-rich-quick, money-making schemes to be sold to people wanting to avoid taxation.

Currently, they are onto an issue of great concern to people right across Australia: climate change. It will be very easy to sell to people. ‘This is win-win. You get a tax deduction and you help save carbon from going into the atmosphere and you actually take carbon out of the atmosphere.’ The reality on the ground is quite different. If this goes ahead, we are going to see perversity of that aim and carbon stores—carbon stores bigger than will ever be replaced by this scheme—will be lost through the get-rich-quick potential. The government says, ‘We will leave looking after that to the state governments.’ Really? Who is going to assure me or anybody in this Senate that that is going to work? We would pass the regulations and leave it to the ‘good offices’ of, for example, the Tasmanian government, which wants to build Gunns pulp mill? This is a government which is prepared to put great subsidies into that pulp mill and which knocked out the environmental assessment process to facilitate it—stuck it on the sideboard because it did not fulfil the wishes of one corporation. What are state Labor governments—let alone a federal government that has handed across ipso facto through this process this control to state governments—going to do when they are approached by multiple corporations who have a get-rich-quick scheme and do not want environmental rules getting in the way of it?

The practice shows that this will fail. It will not bring the goods. But the reality here is that, if the Minister for Climate Change and Water, Senator Wong, the Minister for the Environment, Heritage and the Arts, Peter Garrett, and, more particularly, the Prime Minister, Kevin Rudd, want to achieve an outcome on climate change through what we do with our land, the first thing the Rudd government must do is stop the destruction of the biggest carbon banks living on Australia: our forests and woodlands. Overnight, the contribution towards saving the planet would be greater than this scheme would ever, even if it maximised its potential, give to this country. The government that is failing to protect the biggest carbon banks in the country is asking us to pass this legislation which will give very much the same people who are behind that forest destruction industry the ability to buy up otherwise productive land in rural areas or land which is already a big carbon store and sell it on to people as a win financially and, deceptively, as a win for protecting the environment when it will do nothing of the sort.

It is incredible that an intelligent government like the Rudd government could support legislation like this. It is incredible, because this is ignorance writ large. It will be used through studied ignorance—through people saying: ‘Well, that’s the law. It must be good. Senator Wong supports it and Prime Minister Rudd supports it’—as others go about getting people into tax-deduction schemes which are going to do this country harm rather than good. I commend my colleague Senator Milne on the good work she has done on this. I commend the common sense of the National Party in opposing—

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

Senator Nash interjecting—

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Absolutely. Not least, Senator Nash, because common sense sometimes takes courage. We are seeing that courage today. There is a conscience factor here, and I would charge every member of the Liberal Party and the Labor Party who is really considering the urgency of the climate debate in this country to vote against their party and to cross the floor on this issue. It is as important as that.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I too support the disallowance motion and I support the sentiments of the previous speakers. This is a monumental act of folly. This will have the effect of taking away prime agricultural land. It will put further pressure on the Murray-Darling Basin, because there is no requirement for these schemes to be contingent on a hydrological study before going forward. In the discussions I have had about this, the CSIRO’s rule of thumb, it seems, is that you have to be very careful about which rainfall regions you put these forests in, because they can actually do serious damage by taking groundwater out of the system. More importantly, there is also the issue of interception. We have seen what Professor Mike Young from the Wentworth Group of Concerned Scientists has said about this. The Wentworth group have been quite outspoken about the importance of dealing with the whole issue of interception. What could be a bigger source of interception than giving the go-ahead to carbon sinks with accelerated tax benefits?

Senator Joyce is right. This is a turbocharged MIS in terms of its tax benefits, and we know what MISs have done to rural communities. We know what they have done to overallocation in the Murray-Darling Basin. I know what they have done to irrigators in the Riverland; they just cannot compete with the MISs. The price of water has been forced up. It has accelerated the whole issue of overallocation and this carbon-sink legislation will just make it so much worse. So it beggars belief. It is an act of folly that will harm rural communities, I believe, irreparably and irreversibly. It is an act of folly because it will affect our food security and it is an act of folly because it will impact on our water resources in this country.

I note that the government is requiring guidelines with respect to the whole issue of how it will impact on water, but they are only guidelines; they are not mandatory and they are not requirements. In the absence of a mandatory requirement and of having some very clear guidelines the consequences will be catastrophic.

There are no protections for current food producers under this legislation. There is nothing to stop these schemes from taking over prime agricultural land in order to plant these carbon sinks. There are no guarantees that these forests will not be chopped down in the future after these schemes have taken advantage of the tax breaks. Why would the government pay good money to buy something that can be so easily taken away? Effectively, that is what the government is asking the taxpayers of Australia to do. We will be subsidising the making of water resources more precarious in this country, we will be subsidising the making of rural communities less viable and we will be subsiding our food security being made much less secure. I do not understand why there is nothing that specifically stops the clearing of native vegetation in order to plant carbon-sink forests. Where is the sense in that?

It is for these reasons that I support this disallowance motion. It is for these reasons that I believe that this scheme is a monumental act of folly that will haunt those who support it. This will come back. There is no question that the consequences of this scheme will be to cause wholesale damage to the environment and to rural communities in this country and to put the Murray-Darling Basin under even more stress. I do not understand this: we are in the midst of debating the water bill, which is supposed to be about having a new authority and about ensuring the water security of the basin, and this flies in the face of that. It flies in the face of fundamental good policy and common sense. Unfortunately, I believe we will be revisiting this in the not too distant future, but I fear that the damage done to rural communities and to the environment will be irreversible.

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

This is what I would call a serious mess. I think that everyone in this parliament ought to be condemned for allowing such an untidy, unstudied, unscrutinised piece of legislation through the parliament. There are lots of bits of this legislation that are good, but there are lots of bits of it that are a voyage into the unknown. I would like to deal with some of the facts. The press have been speculating about whether or not people will cross the floor. I said as a throwaway comment—because it is not going to make any difference—that there is going to be a micky on this at the end of the day, which I think is a shame.

I think we ought to revisit the issue. As we all know, this disallowance motion would disable the legislation if we agree to it. I think we ought to go back and redo the legislation and do something about avoidable deforestation and degradation. This actually penalises people who save forests, which, as Senator Bob Brown said, is just silly. I have to say that I would cross the floor if it would make a difference but it is just an ego tugging or rimming exercise for some. I do not need to tug my ego, but I oppose the legislation, seriously, based on a lot of consequential possibilities.

In regard to the tax side of this, I have heard all the very good and passionate speeches so far and some are saying that the value of the land is tax deductible. That is not my understanding. There is, as I understand it, a barrister’s opinion around—although I would shoot two out of three lawyers if I were in charge—saying that the land is a tax deduction. I am reliably informed by the government and the tax office that the land is not a tax deduction. I am also reliably informed that the lease is not a tax deduction and that the forestry right is not a tax deduction.

Today I have tried to get my head around some of the issues of this. I have to say that there are some great opportunities if we get the legislation right. My view is that the legislation is seriously flawed. I do not think anyone in this chamber or in the parliament, or at least the bulk of people, would have any idea of the technical detail of this. So I will just run through a few things.

I would like to raise the matter of CarbonSMART, which is the landcare farmer based version of a carbon sink company as opposed to someone like the CO2 company which, although they do not like me using the word, are a carpetbagging company who promote carbon sinks. The catchment management authorities—I suppose most people know what they are—are even into this. I have a copy of a letter to the member for Bendigo from Mr Ben Keogh, Managing Director, Australian Carbon Traders, which sets out an example of what the catchment management authorities are doing. This is about knocking off the benefits that would accumulate to farmers. The letter says:

As an example, one landholder who was offered a grant was offered $800 per hectare to revegetate by the CMA, the site will return around 550 tonnes of CO2 over its lifetime. Break that down and the CMA is offering $2.90 a tonne, and they are using government money that was put aside for biodiversity and water quality projects. They could sell those credits … for up to $30.00.

That is a tidy little profit for the catchment management authority. I think the profit ought to be with the landholder.

The CMA is acting in a greedy and irresponsible manner, they do not know what they are doing and in their own interest use federal money to line their own pockets, money that could and should be going to the landholders.

Of biggest concern is that if or when agriculture is covered in 2015 and landholders are required to reduce their emissions—

and bear in mind, at $40 a tonne, 27 per cent of the production costs for beasts will be the carbon tax—

or offset them with forestry the landholders will have lost 50% of their carbon rights … to the CMA.

That letter has provided just one example. The landcare movement has a really good plan. I would also like to get some things on the record in relation to CarbonSMART and to mention a particular gentleman who resides at Merriwagga; Ian Shaw is his name. He has done a deal with the CO2 company for about 30 hectares and has bought a forestry right on the property at Merriwagga. This country, much to the misunderstanding of a lot of people in this debate, was mallee country. It is being returned to mallee country but with a Western Australian version of mallee, which, under the catchment management authority guidelines and under the CarbonSMART guidelines, does not qualify because it is not a local native tree. These are trees that you would not cut down. If you did anything with them in time you would make a few didgeridoos out of them.

In this particular instance we have done the sums and over 30 years, for 600 tonnes at $20 a tonne, that is $12,000, and the landholder gets a once upfront payment of $1,000. So it is not a bad investment. This particular landholder has a plan to do it himself. He is going to tell the CO2 company, as I understand it, to forget about it. He is going to do the rest himself and maximise that profit into his own farm. When his son takes over the farm, his son can be doing the farming and he can be sitting on the verandah collecting the carbon tax over the following years instead of giving it to some sort of a carpetbag operation, which is what everyone is worried about—the accumulation by aggressive companies that have an incentive at the present time, for the first three years left in the system, of an upfront tax deduction. These companies do not need the tax deduction to undertake the scheme; they have told me that. But it is nice work if you can get it, and if we are stupid enough, and if the taxpayers are so generous that they say, ‘Thanks very much. We will take that.’

So the farmer in Merriwagga intends, to his great credit, to do this himself. He intends to run seminars around the district so that other farmers will do it. This is out in mallee country, which is light-red country that blows away like hell in a dry time. He has an 800-acre paddock and has put rows of trees around his fences and will qualify for the carbon tax benefits on all that. He says that his costs are about 63c a tree because he has now bought and accumulated one million seeds through a nursery. He is going to pay the local school kids contract rates to plant the seeds. These are good ideas. It is not all bad. It is just that it is untidy legislation and we need to go back and rethink it.

This is what we ought to be doing rather than this shoddy stuff. Right around the planet, in Brazil and other places, there are companies that are working under the CDMs, the clean development mechanisms, of Kyoto to absolutely dodge farmers out of their money. There is a scheme in England where the farmers are getting 2c in the dollar because of the shoddy bookwork that we have allowed to go through. This is all part of the shoddy bookwork that is in this legislation. I think there is a lot of goodwill behind this legislation; it is just that it is not thought through. It was not paid any scrutiny and it slipped through with another bill. We saw the untidy episode here in the earlier sessions where I think it was tied to a change from one schedule to another.

We all ought to own up that we have made a mistake. We all ought to try and fix it because there are a lot of good things in it—if it is not a tax deduction for the land, if it is not a tax deduction upfront for the lease, if it is not a tax deduction for the forest right and if it is not eligible to be knocked out under the perpetuity laws. No-one has talked about the perpetuity laws with this. The perpetuity laws may need to be invoked to protect these things. I have not heard one person talk about the perpetuity laws. I do not have time to go through the technical detail. Besides that, I probably would not do it really well because I am a wool classer and a welder and not a lawyer. But we have some serious technical problems.

I have some modelling here to give you examples of variations between opportunities. There is a site in Western Australia and, if we take $20 a tonne as the cost, over 100 years that site is going to return $2,458 a hectare. The same cost for a site in Wagga will return $5,289 a hectare. These are interesting figures for people to understand. In Far North Queensland—yes, Senator Joyce—a cane block will return $11,958 a hectare. So there is some variation in what land will do.

Depending on the price of carbon and on the tax deal, obviously if you could buy a sugarcane farm and get the money upfront as a tax deduction, why wouldn’t you go there because you are going to maximise the sinking of the carbon? Bear in mind that the science on the sinking of the carbon by trees, as opposed to perennial grasses, is lining up apples with oranges, because we are lining up inert carbon with active carbon. We are trying to offset inert carbon with active carbon, which does not make a lot of sense to me.

The more I look into this, the more problems I see. For instance, the modelling on how much carbon you sink varies. I will not name the companies, but some companies are telling their investors that their rules for sinking the carbon are different from the government’s rules, with the Department of Climate Change being the final arbiter. The national carbon accreditation system is the one being used by CarbonSMART and Landcare, and I have to say that it is very conservative. But the carbon accreditation being used by some of the lurk people, the potential lurk people that are coming into the system, is two or three times as generous as the national accreditation system. I do not know what the hurdle is for them to jump over the approval by the Department of Climate Change, which has the final say.

This seems to me to be a piece of legislation about which we all ought to say, ‘We have made a mistake.’ While there are some positives in it, there are some potential negatives in it. I have talked to people on both sides of the equation and in the middle. I cannot think of a better body to be advising farmers on how to go about a sensible carbon sink on your property. You might as well get profit for putting trees on your farm, especially out in some of that marginal wheat country. In Western Australia it makes a lot of sense to get rid of some of the reflective heat off country that was cleared in the 1960s and 1970s, country that should never have been cleared, and put some trees back on. That country, as that model demonstrates, is not going to sink a lot of carbon but will do a lot of good in getting rid of the reflective heat off the country and encouraging moisture and higher rainfall. So there are some good things about it. But we are just flying into cloud with this legislation. I have not talked to anyone who fully understands the technical side of it. It is hard to get up here and talk about the technical side because it is hard to follow.

To give you an idea of the good side of this, under the Australian government’s national carbon accounting system, the CarbonSMART mob have 13,000 hectares of land assessed as ‘unsuitable agricultural land to be planted’, including some hobby farms. It is all going to be registered on the title. Landcare are ranked the top forestry offset provider by Choice magazine and the Total Environment Centre, beating the CO2 Group for instance. They are putting all their efforts into maximising the profit for the farmer so that the farmer gets the benefit as the market rises. Under the proposed punter schemes that we are all worried about, the farmer does not get any tax deductions. Only the promoter gets the tax deductions. The farmer gets a few bob upfront and then, when he sells the farm to the next bloke, the next bloke has to wear it. When he asks, ‘What are those trees there?’ the farmer says, ‘Well, they are on the title.’ At least they are registered on the title. We managed to get people to understand that they have to be registered on the title, but there is no benefit. It becomes a discount on the value of the land for some people because of the upfront payment. For instance, in the case out at Merriwagga of $1,000 a hectare, that is a great way to square off the bank as a one-off, and then when you sell the farm to the next bloke—but that bloke out there has woken up and is now going to collect the credit as he goes—there is no benefit and it becomes a discount on the land because it is land that is out of production for which you are not getting any income as the farmer, and some mob on the Gold Coast or on the 25th floor of an office block tower in Melbourne or somewhere else is getting the benefit of it.

The interpretation of the tax side of that is still a vagary. The government have cooperated by giving as much information as they can to us to understand the tax rulings, but then we have other lawyers’ views. It is like competing science; you have competing law. The courts, as you know, are not about the truth generally; they are about the law. God knows what the outcome is. I would have thought that, before we went down that track, we should have tested that at court to see who is telling the truth. I do not know who is telling the truth.

It is regrettable that we find ourselves in this position, because most people in this place on both sides of the chamber and in the middle will tell you that maybe we are making a mistake. Why don’t we have the courage to say, ‘Whoops, let us fix it, let us define all this stuff’? Obviously the food task is going to double in the next 50 years; obviously there is going to be a contest for agricultural land; and obviously if you go about this the right way it will not put pressure on good farming land. As the landcare mob have said, they have assessed a lot of this land as unsuitable for farming. My plea—even though, as I understand it, it is falling on deaf ears—is that we have the courage to fix it.

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

Hear, hear!

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

We have the courage to fix it.

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

Well, we are going to fix it.

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

No, you are not. You are going to symbolically have a tug and walk to the other side—all you will do is tug your ego because it is a waste of time. I do not think Senator Nash should lose her job as whatever she is, the parliamentary secretary for water—

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

That’s a stupid thing to say.

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

I do not think she should, because it is not going to make any difference.

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

Senator Joyce interjecting—

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

Why lose your job over something that is not going to make a difference—

Gary Humphries (ACT, Liberal Party) Share this | Link to this | Hansard source

Order! Senators should address their comments through the chair.

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

Sorry, Mr Acting Deputy President. Anyhow, that is just what I think. We should try to get a negotiated outcome, because I think we are making a dreadful error. Nothing that this group of people and I can do is going to make any difference, from what I understand. Everyone in this building stands condemned. Thank you.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

In the seven or eight minutes just before dinner, I too wish to address this disallowance motion. Like other speakers, I believe the legislation is fundamentally flawed. It is farcical in many areas and shoddy all around. It will be no good for the government to say later on, as I predict they will after dinner, ‘This was your legislation.’ In fact, it is the government’s legislation. They passed it. While the scheme and concept, in the early stages, were thought up by the previous government, the legislation never came before the parliament. The whole scaffolding of this legislation and, consequently, the regulations we are debating today, are your work. You brought it before the parliament, you put it down before the parliament and subsequently defended it. So do not come in here later, after dinner, as predictable as it is, and say, ‘This was your legislation.’

The beginnings and the concept of this legislation were bred by our government and would have been fixed up. Whatever shoddiness is there now would surely have been fixed up, because we were a very efficient and good government. We could see bad legislation coming a mile away. So I make that point upfront before the Minister for Climate Change and Water, Senator Wong, stands up and speaks to the matter. I think this legislation gives a very generous tax incentive to investors to establish permanent tree plantations to offset carbon emissions. When I say ‘permanent’, the Senate committee hearings defined ‘permanent’ as between 70 and 100 years.

It is my view that this is bad legislation for the farmers and consequently it is bad legislation for the farming communities. Senator Boswell touched on this subject in his address. Recently we had the government’s senior economic and climate change adviser seriously write in his review—for those who want to be bothered to read it, but this utterly discredits it—the suggestion that farmers ought to replace grazing cattle and sheep with kangaroos. He envisaged 240 million kangaroos by around 2020. That is the extreme laughable, farcical end of this whole climate change debate—the kangaroo question. I notice the government have yet to rule it out, by the way.

This legislation and the regulations that introduce a tax incentive to establish permanent forests on farming land are at the extremely dangerous end of the climate change debate. As others have said, the legislation basically slipped through the parliament as part of a cognate debate on several tax law amendments. It certainly slipped by me. Thankfully, many of my colleagues were raising the issue at the time, and they did single it out. As often happens in this place, these sorts of serious issues are buried deep in legislation, but thankfully this found its way to a Senate committee, and I was part of that Senate committee in reporting. That is where we flushed out what is wrong with this legislation, and I would say that anyone with a serious conscience who sat on that committee would stand up here today and say that this legislation is wrong. It is bad for the farmers, it is putting forests ahead of food, and, sure as God made little green apples, we will be back in this chamber again fixing up the loopholes and the nightmare that we have created for the tax office with the impossibility of managing this tax incentive.

I make the prediction that we will be back in this parliament fixing this legislation up. So I say to Senator Boswell and colleagues on the far left of the chamber that this will not be the last chance that we will have to debate this issue. It is predictable already. The flaws are so fundamental, so obvious, I do not know how the government is going to get up after a long dinner break and actually defend this legislation. I know we are talking about the regulations but I join with the other speakers and say that if you knock out the regulations you will make the legislation inoperable. So we are discussing the scheme in itself.

In short, the establishment of the scheme for the carbon-sink forests does not represent a valuable policy addition to the national objective of reducing greenhouse gas emissions. It is a scheme that lacks foresight or care as to the consequences for rural Australia. The intent of the legislation, the intent of the scheme, ought to be abandoned. The obvious result of providing a tax incentive to one sector of the market, in this case the carbon-sink forest investors, will be to raise the rate of return of investment—to make it attractive. That is what tax incentives do. Consequently, the value of the land increases, whether marginal or prime, for the purposes of carbon-sink investment. In contrast, agricultural land—food-producing land, the land farmers are working—will not have the equivalent tax incentive and will suffer almost an equivalent, or perhaps greater, decline in the rate of return. It cannot compete and consequently rural land will lose its value as a food-producing resource. In short, it is not a level playing field. It is tilted one way.

The added downside to this tax incentive, as distinct from the tax incentive given to the managed investment funds that have been addressed by earlier speakers, is that carbon-sink forests are permanent. That is the difference between this tax incentive and that given to the MISs. The MISs are a crop, in many respects, and it is debatable whether they should get their tax incentive or not.

Debate (on motion by Senator Conroy) adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.