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

Could I note my surprise in that last division that, after such a passionate speech by Senator McGauran against the Liberal Party, he failed to turn up for the division. But I move on.

Eric Abetz (Tasmania, Liberal Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

Relevance has never been your strong suit.

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

Oh, Eric. I am supporting your position here. I am just flushing out the rat.

Eric Abetz (Tasmania, Liberal Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

Be careful, Mate.

Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Order, Senators! We might actually discuss the bill that is before the chair.

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

The government will not support the amendments to be moved by Senator Milne of the Australian Greens, Senator Joyce and Senator Xenophon in relation to carbon sink forests. I note that the carbon sink forest measure was passed by the Senate on 17 June 2008 as part of the Tax Laws Amendment (2008 Measures No. 2) Bill 2008. This measure will encourage the establishment of carbon sink forests and, in turn, make an important contribution to carbon sequestration. The implementation, operation and administration of the legislation underpinning carbon sink forests was considered by the Senate Standing Committee on Rural and Regional Affairs and Transport. The committee considered that the tax deductions for carbon sink forests represent a valuable policy addition that will promote greenhouse gas reductions. The structures and processes outlined in the Income Tax Assessment Act 1997 provide for a sensible legislative and administrative framework relating to the tax treatment around the establishment of forest carbon sinks.

I note that the carbon sink measure is unrelated to the bill that we are considering today, the Tax Laws Amendment (2008 Measures No. 5) Bill 2008. I would like to make all honourable senators aware that this is an urgent bill. Schedule 3 to the bill extends eligibility for exemption from interest withholding tax to bonds issued in Australia by state and territory central borrowing authorities and commences from the date of royal assent. This amendment will result in a lower cost of capital and financing costs for the states and territories. Lower financing costs for the states and territories are crucial to state infrastructure projects, which need to be funded in the most efficient manner possible. The amendment will also aid in easing some of the pressures currently facing the Commonwealth government securities market.

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

by leave—I move amendments (1) and (2) standing in my name and the names of Senator Joyce and Senator Xenophon:

(1)    Clause 2, page 1 (lines 7 to 9), omit the clause, substitute:

2 Commencement

        (1)    Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

Note:   This table relates only to the provisions of this Act as originally passed by both Houses of the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent.

        (2)    Column 3 of the table contains additional information that is not part of this Act. Information in this column may be added to or edited in any published version of this Act.

(2)    Page 35 (after line 8), at the end of the bill, add:

Schedule 6—Provision relating to capital expenditure for the establishment of trees in carbon sink forests

1  Application of Schedule 8 of the Tax Laws Amendment (2008 Measures No. 2) Act 2008

The Income Tax Assessment Act 1997 has effect as if Schedule 8 of the Tax Laws Amendment (2008 Measures No. 2) Act 2008 had not been enacted.

The purpose of these amendments is to remove entirely from the tax law this particular schedule. It would have the same effect as if schedule 8 of the Tax Laws Amendment (2008 Measures No. 2) Act 2008 had not been enacted. It removes entirely this whole provision of a tax deduction for a carbon sink forest. We have had a considerable debate on that and I now want to test some of the assumptions that were made in relation to that, since we never got an opportunity to debate this in the Senate previously. I would like to begin by asking where in the legislation, as it currently stands, it says that you cannot deduct the cost of the land. It is not in the explanatory memorandum; I know about that, and I do not want to hear about the tax law explanation either.

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

The amendments are to put aside some assertions that have been placed out there that dealing with the regulations had no effect. I truly believe, on the advice of the Clerk and of other bodies, that the regulations were made inoperable and that, therefore, the legislation would have been inoperable had it been passed. But, had that not been the case, the amendments certainly put the argument to rest. They reach into the tax legislation and expunge the article that gives the deduction. They clarify beyond any question the effect of the legislation. If people argued before that they were not going to support the disallowance of the regulations because that would have no effect, then they will support the amendments because they definitely do have that effect. Without a shadow of a doubt, they have that effect.

What we are dealing with here is people saying that they have advice from the taxation department and they have advice from this body, advice from that body and advice from some other extraneous body, except this chamber. The primary document, the ultimate document, is the legislation itself. That is it. That is what is taken into consideration in a court of law, not the musings of some secondary body. If the musings of some secondary body were to stand and they were superior, there would be no point to this chamber. This chamber would be without cause, because all we would have to do is say: ‘Don’t stand for parliament. Stand for a position with the department of taxation. They are a superior body to the chamber.’ That is blatantly ridiculous. The primary document that you have to refer to is the legislation, and the legislation clearly says that capital expenditure is tax deductible, except for the drainage of swamps and the clearing of land. By reason that it says only ‘the draining of swamps and the clearing of land’, that is a presupposition that other things are deductible, and the other things that are deductible are the purchase of land.

In tax law there can only be capital or income. It is one category or the other. That is it. There is no third mysterious category. If it is a capital expenditure deduction, all the things that are defined by accountancy standards as capital become deductible, and that includes land. It is a capital expense amount. When you buy and sell land you are up for—wait for it—capital gains tax. Why? Because it is capital. If any other asset is determined to be covered by such a thing as the capital gains tax act then of course it would be a lay-down misere—it is going to be a capital deduction.

I am surprised in the extreme that people have now got an alternate definition of capital. I am waiting for the piece of legislation that proves this alternate definition of capital, but it is not here because it does not exist. And that is it: game, set, and match. It is either capital or income. This legislation says that capital deductions are deductions for the purpose of this act. Therefore, someone is going to wander into the High Court and say: ‘Land is capital. Land is covered by the capital gains tax act. Land in every other definition is capital; therefore, I argue my case that land should be accepted as a capital expense deduction because it is capital.’ I do not know who is going to argue against them. They will wander in with the legislation and say, ‘This is what the legislation says.’ Someone else is going to wander in with what? The musings of an extraneous body?

The primacy principle says that this chamber sits above the musings of other bodies. So why didn’t the government put into the legislation that land was excluded? If it can go to the effort of putting in ‘the draining of swamps’, what stops it from saying ‘the purchase of land’? What happened there? The minister knows and the powers that be know and the people who are sitting behind you in those dark corners telling you what to say know exactly what they want. You are playing their fiddle. You have agreed to them today. Now Senator Conroy will try to convince the chamber that there is actually a superior body to this chamber. That will be fascinating in the extreme.

We have other people saying, ‘I’ll support it but I would be ego pulling’—whatever that is. That uses the premise that, whenever the numbers are against you, you run away; whenever the numbers are hard, you run away; whenever the battle is difficult, you duck for cover. Sorry, that just does not wash with me. If you think something is right, it is right and you support it. And, if you think otherwise, you do not. If you make an alternate decision, that is a decision for you. But to come in here and say, ‘I would support it but I do not want to be ego pulling,’ is to try and cover up your tracks, and everybody can see through that in a jiffy.

This goes right back to the essence of the matter: the capital expense deduction for those who will create market differentiation. It is a capital expense deduction so that they can obtain an entitlement, a benefit, to be paid for by the working families—we heard that ad nauseam. The working families are going to pay for this capital expense deduction that the Labor Party have brought into this chamber, because the Labor Party have taken the budget into deficit; therefore, every deduction that some other body gets, somebody else pays for. And who is going to pay? The primary payer of tax is going to be the working men and women of this country, the working families, as salary and wage earners—the people that the minister is supposed to represent. You have that smarmy little smiley face of, ‘Oh, it’s so hilarious,’ because you are covering up the fact that you know that you are deceiving those people. You know exactly what you are doing. You could have changed it.

I do not believe for one moment that, with the competencies that I think exist in the Labor Party, since 26 June—which was when this originally came up—you have not had the capacity to change it. You did not even make an attempt, except some pathetic, ridiculous referral to local government powers—so help me! That is as far as we got: if it contradicts local government and state government ordinances, it is disallowed. There is no local government act that stops you from planting trees—and you know that.

So we had the opt-in, opt-out market theorist: the whole market theory is religion; it is so important; it is what it is all about; this is the new way the world works—except when we disagree with it, and then we create a complete set of market manipulation principles, where the biggest threat to communities is not the global economic crisis but government economic policy. Government economic policy becomes their biggest threat, because a certain manipulation and variance in the market is placed there by a piece of legislation that goes through this Senate. I think it is extraordinary that the people of Tully, the people down in the Riverland and the people of other towns are now at threat not because of the global economic meltdown but because of government taxation policy.

And why? Who is pulling the strings that made this happen? Who is pulling the strings that made this happen and, as a consequence, brings the smarmy smiles with it? That is an issue that needs to be considered. It shows that they are very influential people in how a nation is run. Follow the money and you will find the fault. I am supporting the amendments because, as Senator Milne has pointed out, there are a whole range of flaws in this. I acknowledge the sentiments that Senator Milne expressed with regard to the National Party—that they are probably driven by a completely different motive. But they both came to exactly the same outcome that this legislation is rubbish and that this is also part and parcel of it. So it is part and parcel of it and therefore it has to be knocked out.

There has to be a clear statement to the people of Australia that there are people in here with the conviction to see it as rubbish, call it rubbish and vote for it as if it is rubbish. That is what they are looking for. Such a statement would reignite their belief in this chamber as a democratic chamber. I note for the record that there are people here who have serious doubts about this. I note the last vote, where about 20 people did not turn up. That is a clear statement that there are concerns about this, and I acknowledge their concerns.

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

Senator Conroy interjecting—

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

Not for one moment. I am only having a discussion and a bit of a concern about people who cloud the water with the so-called ego-pulling metaphor, which was completely not required. I acknowledge absolutely the convictions of some people, especially Senator Nash, who has given up her job as a shadow parliamentary secretary because of her belief in this. That is something that is decent and good and right—that people have that sort of conviction still; that people have the ability to look at the dignity of this chamber and to rise above what crumbs are offered to them and do what they think is right. That is refreshing to the Australian people. I also note some of the talkback that is happening on some of the radios, where Senator Nash is now a person who is placed in high esteem because of her conviction on this issue. And, once more, we get the smarmy smile. It might pay for dinner at Morocco’s, but it is not going to cut it with the Australian people.

If we go to the essence of this, this takes out something that is more or less a tax deduction for those who can afford it most, to be paid for by those who can afford it least—manipulated by those who have the most influence in this place. It tells a whole story: to bring about a sense of market manipulation which will bring about the further demise of regional towns. It makes a statement that food on the table for Australian working families is not worth as much as currying favour with certain corporate interests. It says to those who want to be part of this that their belief in certain peculiar and very small and very influential groups is really what they are on about. It says that there is a whole range of belief and structure that is easily put aside when the right people make the phone call.

I look forward to an explanation from the minister on just one thing. Why did you not exclude land from the legislation as being a capital expense deduction? Why did you have to rely on an extraneous body? Why did you not have the conviction to put that into the regulations and the guidelines, so we would not have to move this amendment? Why did you not do that? What stopped you? What was the process that made you come up with an idea that swamps and the clearing of land shall be specifically excluded—and that is where you stop? Was it that people said, ‘We have every intention to claim other things as capital expense deductions, so don’t put them in the legislation’? Was that the process?

Our position is that this is the first step on the path to an ETS. You cannot for one moment stick with the current guidelines and not support this, vote against this, and then say in another breath while with another group, a community of people, a group of friends, part of our caucus or part of your group in this chamber that you are somehow against the ETS—because you voted for it. When you vote for this legislation, you vote for an ETS. Your foot is on the sticky paper and you are on the path to it; you now believe in it. Your actions will always speak louder than your words.

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

In answer to the question Senator Milne asked and, I think, the question that Senator Joyce was asking, I draw their attention to the Income Tax Assessment Act 1997, chapter 2, ‘Liability rules of general application’, part 2-10, ‘Capital allowances: rules about deductibility of capital expenditure’, division 40—‘Capital allowances’. Section 40.30 says:

What a depreciating asset is

(1)

A depreciating asset is an asset that has a limited * effective life and can reasonably be expected to decline in value over the time it is used, except:

(a)

land …

I am not quite sure how much plainer I can be. It is stated there in black and white: ‘except land’.

In the same way that the carbon sink legislation does not cover exclusions, the horticultural plant provisions use a general meaning for establishment costs. The ATO has made a tax determination in relation to carbon sink forests, which states:

The cost of purchasing land to be used for growing a horticultural plant is not establishment expenditure, as the cost is attributable to the land rather than to the establishment of the plant.

Given that this interpretation applies elsewhere in division 40 of the Income Tax Assessment Act 1997, there is no reason for it not to apply in the same way for carbon sinks. The explanatory memorandum for the carbon sinks legislation makes clear that assets separate from the trees are not considered to be an establishment expenditure. I am quoting here from the Income Tax Assessment Act 1997, chapter 2, part 2-10, division 40, ‘What a depreciating asset is’. Quite clearly, land is written there and excluded.

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

I am really going to enjoy this. Guess what, Minister? Land is never, ever a depreciable asset, so excluding land from the definition of a depreciable asset is to state the bleeding obvious. It never was, never is, never will be a depreciable asset. It is certainly a capital asset. What you have said shows the government’s complete misunderstanding of tax law. They have said, ‘We’re going to prove to you that land is not a capital asset because land is not a depreciable asset.’ You just said it in one: it is not a depreciable asset. Depreciable assets are assets such as trucks, automobiles, certain sheds, but they are not land. They never were. Saying, ‘Land is not a depreciable asset; therefore it is not a capital asset,’ is like saying, ‘A horse is not a snake; therefore it is not a mammal.’ It is a mixed metaphor and completely extraneous. So you are wrong. Once more, I direct you to the section that talks about 2007-08 to 2011-12 and ask you to clearly point out to me where in that section within schedule 8, ‘Capital expenditure for the establishment of trees in carbon sink forests’, it explicitly excludes land.

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

Division 40 is about depreciating assets and declines in value. It excludes land, as I have just described. Section 40(3) says that if it is excluded from division 40 then it would be inconsistent for it to be claimed under the carbon sinks provision in subdivision 40-J.

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

I find this interesting, because you cannot cite where in the legislation it says land is not included. I asked the minister’s office to show me where it is in the legislation and all I got back was a concession that subdivision 40-J of the Income Tax Assessment Act provides a statutory deduction for capital expenditure incurred on establishing trees in a carbon sink forest. There were only two things to which they could refer to tell me that land was not included. One was the 2007-08 budget statement, which has nothing to do with anything. It is not the legislation; it is a statement in the budget papers, and half of those are wrong half the time. They went on to talk about the horticultural plant provisions. They said it is modelled on the provisions. So what! It is modelled on the provisions; it is not the provisions. Lots of things are modelled on things. They are not the provisions.

Of course, they then compare it to MISs because they are under the horticultural provisions. Other things are under horticultural provisions; therefore this one is. On the contrary. One is about trees that are going to be cut down. This is about trees that are staying. The only other reference that the government could give me was that of the Australian Taxation Office issuing a tax determination on what amounts are included in the establishment expenditure for the purposes of horticultural plant provisions. But it is only modelled on that. It is actually wrong. No-one from the minister’s office could point me to where in the legislation this stands. And in the hearings, again, we got the same thing from various people. The Department of Climate Change, in its submission, said that landholders can also offer land to businesses that grow carbon sink forests in return for payment for use of the land. In this situation the business would obtain a tax deduction. How lucky is that!

The point here is that they do not point to anywhere in the legislation. They go back to the explanatory memorandum or to the tax office determination but not the legislation itself. That is why I went to see a tax barrister and said: ‘Look at the legislation. Have a look at the interpretation of it and tell me if the land is deductible.’ He said it most certainly is because of the specific reference that says expenditure in relation to the establishment of a carbon sink forest is deductible and the two circumstances that it cites where it is not deductible: (1) the cost of land clearance and (2) the cost of draining a wetland. Apart from that, the inference is that everything else is deductible and that a court would take the view that, because you have specified the two things that are not tax deductible, everything else is tax deductible in terms of capital costs.

He went on to explain a range of other things in relation to this, but the fundamental principle was there. He went through the legislation, and there is nothing there. He quite clearly said that, regardless of what the explanatory memorandum says, in several cases before the High Court where there has been a difference between the legislation and the explanatory memorandum, the High Court has taken the legislation as the primary document, and indeed it would in this case. There is nothing in the legislation, and the tax office determination is not regarded as having anything like the power of the legislation itself.

So I would point out to you that I am still not satisfied that you have shown me anywhere in the legislation where it says the land is not deductible. I think that there are going to be a few tax barristers and tax lawyers around looking at this, not the least of whom, as Senator Boswell pointed out, are from the MIS companies. Already they have set up subsidiary companies for the sole purpose of switching across to this mechanism. If this was going to be some small initiative for marginal land, for biodiverse plantings, don’t tell me that those companies would be going to the trouble they are going to now to set up these subsidiary divisions, because they are doing that for a reason. So, unless, Senator Conroy, you can pick up the bill and point out where the specific exclusion of land is, I am going to go with the interpretation of a tax barrister who works with this all the time. And I might say that, in the course of talking to him, he did pose the question: why is it that government does not outsource part of the drafting of the legislation to people who are working in the field all the time, who have to interpret the law and go into courts and deal with the law, so that the drafting actually gives effect to what the government is saying it wants to do, and not draft legislation that is so full of loopholes it ends up with everybody in the courts losing a great deal in the process? That is the point I want to make. I will come back to it, and I will be very happy for you to point out where that is in the legislation. And, if indeed it is anywhere else in the legislation, I am interested that the minister’s office could not point it out to me and could only refer me to the budget papers or the tax office determination but nothing in the legislation. I presume that is still the case.

The second thing I want to ask is in relation to the role of the climate change secretary giving the commissioner of tax a notice if he or she is satisfied that one or more characteristics of a carbon source have not been met or will not be met et cetera. I would like the government to tell me what the role of the climate change secretary is—what he or she actually reports to the commissioner of tax on in relation to the guidelines.

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

I am just seeking some information on the second point. On the first one, Senator Milne, I accept that you genuinely believe the opinion of one tax barrister. I accept that entirely. But I guess we are just going to have to disagree from a government perspective, a tax office perspective and existing practice over the last seven years. When you say it mirrors the horticultural provisions—it does not mirror them; it is identical. It has the same impact. So I guess we are going to genuinely disagree about the interpretation. You passionately believe the opinion of one tax barrister, who may be a very eminent tax barrister. That does not mean he is correct. But you believe it, and we accept that you believe that to be the case. We believe differently. We have done everything we can. We have been through this debate a couple of times in the chamber. You have had opportunities to speak to Senate officials about it. We genuinely have a difference of opinion. But yours is based on an opinion you have received from one tax barrister.

On the second point, the section states:

The *Climate Change Secretary must give the Commissioner a notice in writing under this subsection if the Climate Change Secretary is satisfied that one or more of the conditions in subsection (2) have not been satisfied for the trees—

and then it obviously just loops back to subsection (2). I hope that helps.

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

No, it does not at all. We have just had a whole debate about these environment and natural resource management guidelines. I have heard from Senator Coonan that she absolutely believes that this will cover all the problems with the environment. We have heard Senator Wong say exactly the same thing. I want to know about the assessment process for the guidelines and how the Secretary of the Department of Climate Change is going to make a judgement as to whether they have been met. Or is he or she not required to make a judgement about that? In fact, is that completely irrelevant? Where does that fit in in terms of the enforcement and compliance?

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

I am just seeking some more information but, while I am getting that, subsection (2) sets out the conditions:

(a)

at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more;

(b)

at the time the trees are established, it is more likely than not that they will:

(i)

attain a crown cover of 20% or more; and

(ii)

reach a height of at least 2 metres;

(c)

on 1 January 1990, the area occupied by the trees was clear of other trees that:

(i)

attained, or were more likely than not to attain, a crown cover of 20% or more; and

(ii)

reached, or were more likely than not to reach, a height of at least 2 metres;

(d)

the establishment of the trees meets the requirements of the guidelines mentioned in subsection (3).

I will see if there is some more information I can gather for you.

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

I am fascinated, because I can see the minister has a lot of advisers over there. I am wondering whether, because I think it might just be a conflict of definitions, he would explain to me what a depreciable asset is and whether depreciation is on income account or capital account.

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

Just to go back to Senator Milne’s earlier question—

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

I thought you might!

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

As I said, I was gathering information. If there is any further information we can gather for you while I am doing that, Senator Joyce, we will obtain it. We will of course as always defer to your expert experience as an accountant. This is a copy of the ‘Notice of establishment of trees in a carbon sink forest’ form, Senator Milne. I am not sure whether you have seen it. I am sure you have. Section 11 refers to ‘Details of how you expect the trees to meet the following conditions’—and I think I just described those. Then you have to sign a declaration. So that is the form you actually have to complete, setting out the guidelines that have to be met. Again, I am not sure whether that fully answers your question, but that is the form that is necessary.

Senator Joyce, if there is any more information that I can add to your knowledge with, I will happily do so.

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

So we have a form. It is a self-regulation thing—you just tick the boxes and say, ‘I am confident that my trees are going to meet these requirements, thanks,’ and send it in to the tax office. Then the tax office sends it over to the Secretary of the Department of Climate Change without any reference to the specific land, without any reference to the water issues. What is the point of these guidelines? Are they just there to hover around the side? Who is going to enforce them? Who is going to do anything about them?

To go back to your explanation to me of how the horticultural provisions apply, let us look at divisions 40-F and 40-J—division 40-J relating to carbon sink forests and division 40-F relating to the tax deduction for planting trees to cut them down, the MIS scheme. This legislation actually says specifically that you cannot get 40-J if you are a recipient of 40-F. Therefore, it is a precondition of 40-J that 40-F does not apply. Division 40-F is the one you are telling me about in terms of why the land is not tax deductible. But the point is that it is a precondition of getting J that F does not apply, and that is why I am saying it should be specifically in the legislation and why I think your interpretation is wrong.

I am really keen to know, if someone could tell me in very specific terms, how the Secretary of the Department of Climate Change will determine compliance on surface water and groundwater. It is really specific—how will he or she get compliance in order to let the tax office know this should go ahead?

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

I am just waiting for my answer—any time tonight would be great.

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

Senator Milne made the point that this is just another self-assessment. The entire Income Tax Assessment Act is self-assessment, so it is not inconsistent in any way. There are penalties if false information is supplied. It is quite clearly stated on the form, which I understand is on the website, which sets out that penalties may be imposed for giving false or misleading information. So, just like every other part of the tax act, it is self-assessment. You seemed to make something of that point. I am not sure that it is relevant. On the groundwater, I am seeking some more information. Senator Joyce, do not worry; we have not forgotten you. We will keep working on adding to your knowledge.

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

I ask the minister, following on from his last comments: could he perhaps advise the Senate who is going to determine whether there is false or misleading information?

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

Sorry, Senator Nash; I was just in conference. I might need to get you to repeat your question in a second. Senator Milne, you asked about the groundwater. Senator Wong during the debate tabled some guidelines in relation to the establishment of trees that were amended, I believe, from earlier. Possible amendments are highlighted. They specifically deal with establishing carbon sink forests in ways that avoid any significant negative impacts on water availability, including surface water and groundwater. I think some of your concerns have been addressed in the guidelines that were tabled a little bit earlier this evening. I am not sure if you have had a chance to see them yet. They go on to say:

Compliance with this guideline should include adhering to applicable state and territory and local government land use planning legislation regarding the establishment of alternative land uses on agricultural land. Legal rights concerning carbon sequestration in carbon sink forests should be registered on the land title in accordance with state and territory governments’ legislation, and compliance with this guideline may be achieved by registration of carbon sequestration rights associated with the forest or through registration of other relevant legal arrangements that establish ownership over, and rights regarding, sequestered carbon.

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

This is a serious case of having our intelligence insulted, Senator Conroy. I do not know if you have been listening at all to what I have been saying. I am asking: how do these guidelines get enforced? Yes, of course I heard Senator Wong saying in here that she has now put in a couple more words about surface water and groundwater. I am saying: who will actually deem that this has been complied with? The issue here is that the Secretary of the Department of Climate Change is supposed to be telling the tax commissioner whether this is legit or not. That assumes that somebody at the Department of Climate Change actually considers the specific hectarage that we are talking about and asks: ‘Is there a groundwater issue? Is there a surface water interception issue?’ Does it take into account clearance, or is this just here essentially as a bit of decoration to say that, if you wanted to, you could look at this and, if you wanted to, you could take some notice of this? What I am asking is: how will it be determined whether a person did anything about surface water or groundwater before getting the tax deduction, and how will the Secretary of the Department of Climate Change make that determination? The Liberal Party’s support for these guidelines is based on them being complied with, on them actually existing, but they are not regulations and they are not mandatory. So can you please explain to me the difference between mandatory regulations and these guidelines as they pertain to the enforcement of these provisions?

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

If I could start by responding to Senator Joyce.

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

Ah!

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

We have not forgotten you, Senator Joyce.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Senator Parry interjecting—

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

Senator Parry, don’t draw me with clever, witty interjections. Depreciating assets decline in value. They are assets that waste, like machinery and equipment, trucks et cetera. Taxpayers are allowed to claim deductions for declines in value under division 40 of the Income Tax Assessment Act and, as referred to before, division 40 explicitly says you cannot get a deduction for land.

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

Thank you very much, Aristotle! That was incredible. A depreciable asset—he is right!—is a truck, a thing that over time has a value that deteriorates, that diminishes. And—guess what!—he is dead right: it does not include land. It never has. But land is definitely capital. It is not an asset that is subject to diminution. It is not a truck. It is not a car. It is not a fence. Land is a capital asset whose base is structured and permanent.

The minister says that he hangs the relevance of this legislation on the fact that it excludes land because land is not a depreciable asset—his quote, not mine; he said that in this chamber—and therefore we have nothing to worry about; because that is the case, the problem is solved. We have clearly proved tonight that land is definitely not a depreciable asset; in fact, he agrees with me. But land is definitely capital. Therefore the legislation is flawed. In this committee stage of this piece of legislation, for something we have been discussing since 26 June, we now have a huge hole in your legislation, a hole you could drive a truck through. The smart people know the hole is there. That is why they put it there; that is why they made you agree to it. This document is what you are referring to, the Income Tax Assessment Act 1997. This is where it all comes from. You have a huge hole in your legislation, Minister. What are you going to do about it?

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

Further to something that Senator Joyce said, the essential elements for the process of sequestration are the trees, land and water. The result of the process of sequestration is storage of carbon in a carbon sink. The accounting methodology for carbon sink forests will in most circumstances credit carbon dioxide sequestered in the entire system—that is, trees and other living vegetation, including branches, trunks, roots, deadwood, litter and soil. Unlike horticultural plants, where depreciation is recognised in the tax act, carbon sink forests actually continue to store more carbon as they grow, in their branches, in their roots, in the soil and so on, for decades or even centuries, depending on the type of vegetation.

This cannot be seen in the same context as depreciation. Apart from the fact that land is a capital asset, there is an even greater argument that the price of land should be included as a tax deduction because the land is essential to the carbon sink forest in terms of the carbon being sequestered, since, over time, there will be more carbon stored underneath the ground than there is above it. That is why old-growth forests have much more carbon in them than a plantation has—because they have got hundreds of years of the carbon in the soil. Unlike where you cut a tree down and you can take that away and sell that, with a carbon sink forest the land is an essential component of the storage of the carbon and an essential component of the calculation of how much carbon you have got there and therefore the value of that carbon sequestered over time. It is an entirely different thing. Whether or not you accept it, I think you are going to find that Senator Joyce and I are absolutely right here in terms of the interpretation that is going to be applied in the courts about the land actually being an integral part of establishing a carbon sink forest and maintaining the carbon sink forest because they are inseparable, unlike the MIS schemes, where you are cutting the forests down to take them away.

I come back to this issue that I still have not got an answer on—and I really think it is essential that we get one—as to what the difference between guidelines and mandatory regulations is and how these guidelines are going to be complied with and enforced. How are they going to be complied with and enforced? Please tell me that—not what is in them, not the amendments the minister has put up here, but how they are different from mandatory regulations, why this legislation does not have mandatory regulations and instead has guidelines, and, if they are only guidelines, how they are going to be enforced.

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

I have been seeking information on the issues you have been asking about, Senator Milne. If the secretary is not satisfied with the declaration, the signed document, he or she will tell the ATO that is the case and the deduction will be denied. This is consistent with the self-assessment that is throughout the income tax act. I am not sure I can add a lot to that. It has been designed in exactly the same way. This also addresses one of Senator Joyce’s points and addresses one of the points he has just raised. Yes, land is capital; I think we are in heated agreement on that, Senator Joyce. The land is separate from the trees. The trees are deductible but are separate from the land, which is not deductible.

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

Where does it say that?

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

You can continue to ask the same question over and over again, but, as I said earlier, we have a genuine disagreement. You believe you have found a flaw and a hole. On this side of the chamber and on the other side of the chamber, we do not agree. You are basing it on both your own opinion and that of a tax barrister. Senator Joyce, you said you believe this is what the courts of the land will uphold. That is nothing more than an opinion. It is a valued opinion but it is just an opinion. I think we are just going to have to agree to disagree on this point. I am not sure that there is any more information that we are going to be able to give each other, no matter how long we stand here discussing the same question over and over again. It is an opinion. You have a strong opinion in one direction; we have a strong opinion in a different direction. But it is an argument about opinions.

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

I have been listening to this debate because I am particularly interested in it. I do not have the expertise of being an accountant. In fact, I am a seller of paintbrushes. That is where I made my living for 25 years. Listening to this debate, I am getting more and more concerned about it. I was concerned about the fact that there would be an explosion in planting trees by getting a tax break on carbon sinks. That is one thing to be very concerned about. But, if in fact you are going to get depreciation on the land, this will take off like a bushfire and we will have carbon sinks wall to wall from the east to the west.

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

You cannot get depreciation on land, Bossie.

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

Well, I am sorry; I am getting advice from a tax accountant and a barrister who say that you can. You may be right, Senator—you are a barrister. But if you are wrong, God help the farmers because it will be a disaster of massive proportions if there is some chance of a tax deduction on land.

The smart way out of this, Senator Conroy, would be to report progress, go and get an opinion from someone who has worked in this area, such as a tax barrister, and report back to the Senate. If you are wrong and Senators Joyce and Milne are right, then we are in deep trouble. I am offering you the proposition that we report progress, get on to the next piece of legislation and then revisit this tomorrow or the next day. I would hate to be the minister at the table when this went through if I was wrong. You would carry that through with you until your dying day. The smart thing to do would be to just report progress, get on with the next piece of legislation and get some strong advice on this tomorrow from some tax barristers, the Solicitor-General or the Government Solicitor—then we will not be flying in the dark.

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

We now have the opinions of an expert tax accountant—not me, but the referral from Senator Milne—

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

I think she said a tax barrister.

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

A tax barrister then. We have also now clearly established that land is not a depreciable asset. From the acknowledgement of Senator Conroy himself, we have established that land is a capital asset. The amendment says:

You can deduct amounts for capital expenditure—

and we have now determined that land is capital expenditure—

incurred for establishing trees—

if you buy the land to put the trees on, that is exactly why you did it—

that meet the requirements for constituting a carbon sink forest.

They are the words in the legislation, not mine.

We now have a huge hole. Those who now support this support that hole and the effects that it will have on our budgetary position. If you support this, you support the hole in the Treasury figures. This is an issue that has progressed even tonight. The smart money would say that if you were fiscally responsible—on either side of this chamber—you would not support this. Some people have interjected: ‘Land is not a depreciable asset.’ We have determined that. That is what this whole thing swings off—it is not a depreciable asset. It is depreciable assets that are right for the exclusion. This is a capital asset; therefore, as a capital expense, it stands. It is capital in nature. If you depreciate an asset it goes on to income. In fact, depreciation recouped is on an income account; above that it is on a capital account. Land itself is pure and simply on the capital account. If I look at 40-1000 of the primary section of the guide to subdivision 40-J, without a shadow of doubt I can deduct amounts for capital expenditure. The first question I would ask is, ‘Is land capital expenditure?’ Yes, it is. The amendment says ‘incurred for establishing trees’. Did you buy the land to put trees on it? The company would obviously say, ‘I absolutely had no interest in buying that land except that I was going to put trees on it.’ There is not a shadow of a doubt. There is the nexus between my expenditure and the purpose. I have now defined my two arms. Then I go to the final wording of whether it was for the ‘requirements for constituting a carbon-sink forest’ to establish the nexus between the establishment of the trees and the trees for the carbon-sink forest. Game, set, match—I win.

The purpose of the court is to interpret the legislation in the form provided, not to interpret the musings of an extraneous and inferior body to this chamber. We all know that there is a hole in this. It is just bizarre in the extreme that, knowing that the hole exists, we are now going to vote for it. That means we are all fools. Even if you want to pass this thing—and I do not—I think that the advice that Senator Boswell gave you is good advice. I would park this and go away and get some competent advice, which for the life of me I cannot work out why you do not already have, because we have been flagging this thing all the way back to Senate estimates. I can put you in touch with whoever you want and you can do the same. What worries me is that the people who lobbied you to do this know exactly what they were up to. Why do we not just do the sensible thing, which is what the Australian people would expect, and spend 24 hours to close a loophole that will otherwise make you look like a complete and utter fool when this legislation appears in its first case with someone against the tax department? The plaintiff will win on this one hands down.

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

I am still waiting for the government to tell me the difference between mandatory regulations and guidelines and how compliance with these guidelines will be enforced. Further to Senator Joyce’s comments, I am interested to know whether the government did get legal advice from the Attorney-General’s Department or anywhere else. Do you have legal advice on this issue? As this has been an issue since before the 2007 election and for all winter, I just want to know whether the government actually did get legal advice from other departments as well as just this department’s advice.

I really insist on knowing how these guidelines are going to be enforced. Senator Coonan made a big thing out of the fact that she is satisfied that all of these will be applied and that the environment will be cared for. Well, it will not be, because these are just voluntary guidelines that have no effect whatsoever. I want to know how compliance is going to be enforced. I specifically want to know whether you will be able to get a tax deduction if you have cleared land, because the clearing of the land is consistent with the Kyoto provisions—that is, the land had native vegetation on it but was not a Kyoto ‘forest’ in 1990. In a state like Tasmania, where there is no land clearance legislation, will you be able to get a tax deduction using these guidelines because you will be deemed to have complied?

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

If I could just add some information for you, Senator Milne: the guidelines stipulate that all government regulatory requirements must be adhered to in order to obtain the tax deduction. This includes relevant state and territory land-clearing regulations. I am advised that it is not for the Commonwealth to introduce regulations that override existing state and territory laws. That is the information I have at this point in response to your questions.

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

What you have just told me is that you can get a tax deduction for land clearance in Tasmania. Because there is no land clearance legislation, you will be deemed to have complied. That does not answer my other question about who is going to apply the guidelines. Who is actually going to check when you apply for your tax deduction whether these guidelines have been complied with? Who is going to do that? How? Where are the enforcement provisions?

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

The self-assessment income tax act works in exactly that way: if you have done your tax, you sign a document that says you comply with the regulations. If there is an audit and you are found to have not complied with the regulations, then you are fined and other penalties apply. This works in exactly the same way. If people lie and cheat on the form—

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

It’s the tax act.

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

Yes, it is the tax act. Senator Coonan is trying to assist. I am at a loss to explain something that is as straightforward as that. Maybe I am just doing it really badly, Senator Milne, and if I am I apologise. But self-assessment is self-assessment. If you sign a document that legally says, ‘Here is what my opinion is,’ and it is subsequently discovered that you have falsely declared that, you are fined. That is the way self-assessment works. Once again, I apologise if I am not explaining it clearly, but I am not sure that I am going to be able to explain it any more clearly than that.

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

I understand the principle of self-assessment. That is why the form only goes to the issues of whether you intended it to be a carbon-sink forest and whether you are confident that it is going to achieve the provisions of two metres and 20 per cent coverage. That is not the question I am asking. Yes, you can sign that. The question I am asking is: where do the guidelines fit in? The tax act, whilst it is about self-assessment, has mandatory regulations. It does not just have a set of guidelines that say, ‘Take this into account when you fill out your tax.’ It has actual mandatory regulations. These are not mandatory regulations. On that form, you do not have to tick boxes about land clearance and, in particular, about water. Where are you going to do that? Secondly, we are supposed to be having audits here. How are you going to audit from a self-assessment? How does the government intend to audit the implementation of these guidelines?

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

Again going to the form, it says:

Details of how you expect the trees to meet the following conditions:

It is not just ticking a box for yes or no. You actually have to set out the details. It is a fairly straightforward form. Then you sign a declaration and it clearly states:

Check that you have provided accurate and complete information.

…         …         …

Penalties may be imposed for giving false or misleading information.

That is consistent with the income tax act. It is part of the income tax act. Again, I am not sure if I am going to be able to give you any more straightforward an answer than that. You keep asking about the guidelines and the fact that they are not mandatory. I think we have explained previously that we are not in a position to override state and territory law in this particular matter. You have to comply with all of those things before you can claim it.

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

Could the minister perhaps outline for the chamber what the process is for determining if there is false or misleading information?

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

There is the same processes as for self-assessment under the income tax act. If you are prepared to make a false declaration and you are audited and it is found to be false, then you are faced with the penalties. It is exactly the same process.

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

Could the minister perhaps outline for the chamber exactly what that audit process is? I know he is saying that it is exactly the same as the other, but it might be useful for the chamber to understand very clearly what the minister means by the phrase ‘the same audit process will apply’. What actually is the process? Who will do it? When does it kick in? What criteria will be used? How will they be determined?

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

The ATO has rigorous risk assessment procedures and the same procedures will apply in this case as apply in other cases. If all of a sudden you are an opponent of the self-assessment processes, I understand that and we are not going to agree. But all of a sudden you seem to want to impose a test on one part of the Income Tax Assessment Act different from what applies to all the other parts. If that is your position we are going to agree to disagree.

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

In relation to the guidelines, where on the form that Senator Conroy just referred to do you have to say what you have done in terms of assessing the groundwater or the surface water interception? Is there a specific section on the form? Is there a specific requirement on that form that you have to say that? Is there a specific section on water and what are you required to swear to in your self-assessment as to water? Can you confirm for me that this legislation enables you to plant monocultures and does not require biodiverse plantings? Secondly, can you confirm that there is no length of time in which these trees have to be in the ground? All you have to do to get the tax deduction is say that your intention is that the trees be in the ground, but your intention can change over time.

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

Section 11 of the form has the heading:

Details of how you expect the trees to meet the following conditions:

The last dot point under that heading states:

… the establishment of the trees meets the requirements of environmental and natural resource management guidelines for establishing trees for carbon storage.

Those guidelines—and I am happy to read them out again if necessary—particularly mention the surface water issue and you have to make your assessment as to whether you meet those guidelines and then you have to sign the form in a legally binding way.

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

At last we are getting somewhere. All you have to do is say, ‘I believe that my carbon sink forest meets the environmental and natural resource management guidelines in relation to the establishment of trees. All you have to swear to is this:

Carbon sink forest establishment should be based on regionally applicable best practice approaches for achieving multiple land and water environmental benefits.

What is the test for that? That is gobbledegook of the highest order. What is the approach? Whose approach? Who says it is best practice? Which region? It is just a ridiculous idea. For number 2 the requirement is:

Carbon sink forest establishment activities should be guided by regional natural resource management plans and water sharing plans, and environmental impacts at a catchment scale should be considered.

So you say: ‘Yes, I comply with that. I considered the catchment management plans and anyway in my area there is no NRM plan or if there is it is not finalised or is not statutory, and there might be a water-sharing plan but there might not be so all I have to say is that I comply with that. The regional approach? Yes, that is done too.’ The third guideline is:

Carbon sink forest establishment activities should recognise and adhere to all government regulatory requirements.

So you say: ‘Yep, that is fine, especially where there are none. It is great.’

There is not a person I know who could not tick those off and have 95 per cent confidence that if anyone ever audited it all you could defend the position that you adopted: the best-practice approach in your region; that you looked at those plans and took them into consideration; and that you recognised and adhered to government regulations, whatever they might be or however inadequate they are. So I just go back to the point I made earlier: these guidelines are not worth the paper they are written on and they are a disgrace.

Not only are we in this position of tax deducting the costs of the land; apart from everything else we now have a situation where all that the coal companies, airlines et cetera have to do when they employ a subsidiary company to plant out thousands of hectares is tick the boxes, because they know that none of those are legally enforceable. There is no benchmark there against which you could measure anything. It is an aspirational goal. And what does ‘best practice’ mean? It means: ‘Whenever I use a word,’ said Humpty Dumpty, ‘it means exactly what I choose it to mean—nothing more, nothing less.’ That is precisely what we have got here, Minister: Humpty Dumpty legislation. Your regulations are not worth the paper they are written on.

Perhaps you could tell me this. Do you get the tax deduction if you plant a monoculture forest rather than a biodiverse forest? Do you only have to say it was your intention at the time for it to be a carbon sink forest to get the tax deduction and then later you can change your mind?

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

On the monoculture issue the guidelines oblige the carbon sink forest grower to apply regional natural resource management plans and best-practice approaches for achieving multiple water and land environmental benefits. This will facilitate a focus on providing habitat for local flora and fauna, providing biodiversity benefits for the region. That is all the information I have at hand to give you on that.

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

Why is that the case at all? NRM management plans provide for plantations in those areas. Where in these guidelines does it say that you have to have a biodiverse planting? Does this legislation preclude monocultures?

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

The planting has to abide by local rules and local state rules. This legislation does not specifically mandate biodiversity. It says that you have to comply with the local regional state rules. I hope that that answers your question.

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

It certainly does answer my question, because the local rules are useless—you know it and I know it. Take yourself to the Tiwi Islands, where there is massive conversion of native vegetation, or take yourself to Tasmania, where there is also massive conversion of native forests. Local rules are not worth the paper they are written on—you know it and I know it.

The more we get into this, the more we see that it is Rafferty’s rules. There is nothing here. You just get a tax deduction by saying, ‘I intend this to be a carbon sink forest. Yes, I agree with all the local rules because there aren’t any in most cases.’ We know the National Water Initiative will not be in place until 2011. Between now and 2011 you can do as you like in just about any catchment as far as water is concerned. NRM plans are not statutory in most places. People working in landcare who are genuine about trying to restore ecosystems are horrified by this. With a bit of thought and a bit of care, this could have actually done what we needed it to do: to get biodiverse plantings in order to restore habitat connectivity in the landscape and resilience in the face of climate change. But instead of that this legislation has been put together by people who intend to run the sham. The sham is going to turn into a major scam across Australia and we are going to see a disaster.

I think we have asked enough now to establish that none of the things that have been asserted here actually stand. We know we can have monocultures, we know we do not have to have the trees in the ground for any length of time, we know we only have to say it was our intention when we put them in and we can sell to somebody else and they can cut the trees down. We can change our mind over time and we can tax deduct the lot. We can tax deduct the cost of the agent who puts the package together for us, including the cost of the land, and whether the access to water rights is a capital cost or a recurrent cost depends on whether you can put it in the package. This is a complete mess.

I was worried about it before, as Senator Boswell indicated, and now I see this as open slather. There is no enforcement, there is no disincentive and there is no-one coming along afterwards doing any assessment or enforcement. This is just an upfront land grab of a massive kind that will shift landownership in Australia in the most radical way. It will also shift wealth in Australia because those companies that need to offset their carbon emissions will get the taxpayers to pay for it in two ways. One way will be with free permits and the other will be by tax deducting the costs associated with mitigation. It is the farming communities, the rural communities and the community as a whole who will pay. The people who will be grinning are the MIS companies and those resource based companies who are going to exploit this, big time. Whilst you might be sitting here thinking this is just a tiny little tax measure that is a matter of a few million dollars, wait until the Treasury starts to feel the impact, then there are going to be questions asked about how this could have been allowed to happen.

The people who are looking at natural resource management plans and catchment management plans, those who were devastated about what was going on with water, will be horrified to know that under this legislation people can put in a plantation, without any assessment of the groundwater or without any assessment of the interception, and get a tax deduction for having done so. Any attempt to fix it up later in 2011 under the National Water Initiative is going to be too late.

I am disgusted with this and I am disgusted by the people behind it. If this is the best the Greenhouse Office can do then it is an indictment. I cannot condemn it in stronger terms. Having stood here tonight trying to get some answers out of the government, knowing full well that in the Tasmanian context there is a tax deduction for clearing native vegetation to put in a monoculture to exploit a loophole, has been just horrendous for me. We all know it is going on, yet the upshot is that it is probably going to be allowed.

However many tax bills are going to come through this place before the next election, every time they do come through here I am going to move to delete this section. We will have this debate over and over and over again until we get some answers in relation to how these guidelines are actually going to change anything, how people are going to be followed up, how there is going to be enforcement and compliance and how we are going to get the environmental benefits that are claimed to be there. And I look forward to the first case that goes to the courts, which will be at great expense and will demonstrate that the cost of land was always tax deductible, because of the poor drafting of this legislation being defended in here by both the government and the opposition, who actually have not cared enough about the ramifications of this on the ground to go out, talk to people and see what it is actually going to do.

This is one of the great travesties and it is dressed up as a climate initiative when all it is going to do, by creating a carbon price through the ETS, is drive the perverse outcome of seeing plantations kept growing and native forests being logged. The greatest carbon stores and the greatest biodiversity will be destroyed and there will be a perverse outcome because people have not actually cared enough about this. There is not much more to be established here. You do not have any answers for us in relation to these guidelines. I note that, for all the talk about these guidelines, they are completely meaningless bits of paper without any compliance provisions. I look forward to voting on this amendment.

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

I want to refer to the Income Tax Assessment Act 1997 as to what expenditure qualifies. You can have certain kinds of capital expenditure as deductions. Depending on the kind of expenditure, you can do this either immediately or over a period of years. It is called capital allowance. To the bottom of that we have now included a subdivision, 40-J, clearly expressing that you can deduct amounts for capital expenditure incurred for the establishment of trees that meet the requirements for constituting a carbon sink forest. Unless the trees levitate they have to sit on something. That means the primary place they are likely to sit on is land; therefore, there is a clear nexus between the land, which we have all determined tonight is capital expenditure, and the trees. Between the periods 2007-08 and 2011-12, as determined by part 1 of schedule 8, it is an upfront tax deduction so, as to the period of time you get to deduct it over, it is one 100 per cent.

Question put:

That the amendments (Senator Milne’s, Senator Joyce’s and Senator Xenophon’s) be agreed to.