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

On behalf of the Chair of the Parliamentary Joint Committee on Corporations and Financial Services, I present the report of the inquiry into aspects of agribusiness managed investment schemes together with a Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

The majority of the committee which I am part of made three recommendations in relation to managed investment schemes, forestry and non-forestry. I would like to put on the record that the National Party opposes managed investment schemes. We oppose them because we think they are unfair. In any other situation where a company is formed by people coming together and where, for example, that company buys land or establishes forest or non-forestry business, those people do not have the same advantage of up-front tax deductions. For example, if someone were to move to North Queensland with a managed investment scheme and set up a huge banana industry, they could buy the land, with up-front tax deductions, but genuine banana farmers would not be able to benefit from those same tax deductions if they were to buy their neighbour’s property. This could lead to oversupply and the financial ruination of genuine producers.

We are also very concerned about the amount of farmland in Australia that is being planted with trees. At the moment 0.4 per cent of agricultural land is planted with trees. If these schemes proceed, especially under the CPRS, we may see more than six per cent of Australia’s farmland planted with trees by the year 2020. The question of food security then arises. In the next 30 years, the world is going to have to double its food production. This is of huge concern to us.

We think it is unfair that these managed investment schemes can get away with these up-front tax deductions. It is simply wrong. There need to be more changes to this and I would like to put on record that the National Party opposes managed investment schemes. Even though I present the report here today and did not put in a dissenting report, I thought I would express my disagreement with the recommendations and the whole policy scheme as it stands. That is all I have to say.

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

I rise today to note the report of the Parliamentary Joint Committee on Corporations and Financial Services in relation to managed investment schemes. I have to say that it is one of the weakest reports I have seen presented in this Senate and I am extremely disappointed in it. When it is printed and the public get to see this report, I think they are going to ask some serious questions about why this committee did not have a good look at ASIC’s oversight of managed investment schemes.

That is the key issue here. I have a policy view that managed investment schemes have been an appalling idea for rural and regional Australia and I can demonstrate that through what they have done to rural communities, to the price of land and to the cost of water and through their displacement of people. I can do all that, but the issue here is that this committee was to look into the collapse of these managed investment schemes, what went wrong with them and who was responsible. Instead of that, ASIC oversight gets about three-quarters of a page and the recommendations do not go anywhere near what needed to happen.

There is no justification whatsoever for the view put that managed investment schemes should continue for forestry. All that is reiterated in this report is what the National Association of Forest Industries and A3P have to say. There is no real analysis whatsoever.

I want to put on the record that I wrote to ASIC at the end of last year and I gave them figures, box and dice, on what is going on with Great Southern Plantations in Tasmania. I sent them photos of cattle grazing on these supposed plantations at Temma. I gave them facts in relation to claims that had been made by so-called independent foresters. For example, an independent forester, in the Great Southern Plantations 2005 and 2006 product disclosure statements said:

… it is reasonable to assume … the Plantations will be capable of being managed as a whole to produce an average growth rate of 250 m3 gross of timber produce per hectare of Woodlots … after approximately 10 years growth for each product.

At the time, Great Southern knew that that was not achievable and had not been achieved. They were aware, when they released their 2005 and 2006 product disclosure statements, that they had failed to achieve those returns. In fact not only did the woodlot crop planted in 1994 failed to deliver those returns, but Great Southern went ahead and arranged for a subsidiary company to purchase not only the 1994 woodlots but also the 1995 and 1996 woodlots. They did that and then they used money invested in future years to go back and inflate the price that they gave to investors in order to pretend that the returns were in line with the 250 cubic metres that they had put in their product disclosure statements.

I sent all that to ASIC and I said: ‘This is a Ponzi scheme. They are buying back, they are inflating the return to investors in the early years to make it look as if this product is returning to investors when it clearly is not.’ I sent them details of those product disclosure statements—the whole shebang. I asked them a series of questions about how it was that these false and misleading claims were in the product disclosure statements and why ASIC had not gone back and had a look at the claims. I sent them the photos of cattle grazing on these woodlots. I sent them the whole lot. In return, in January this year, I get back a letter from ASIC which would indicate to anybody reading it that you do not get oversight of these schemes. For example, they said, ‘I advise that concerns about alleged mismanagement should first be raised with the responsible entity of the scheme.’ Don’t they appreciate that the ‘responsible entity’ of the scheme is the scheme manager? These were not independent responsible entities; they were lending money to investors to invest in the product. There was a conflict of interest at every level. If you went and complained to them, you would not get anywhere. Then ASIC wrote: ‘If your constituent is not satisfied, you can go to the Financial Ombudsman Service.’ Great, you can go there. They go on to say ‘perhaps you could get independent legal advice’. ASIC are meant to be overseeing and monitoring the managed investment schemes—and it is not happening. They do not even require a product disclosure statement to be made, except under certain circumstances. They then went back, when this investigation was done, and said they had surveillance over a range of things. But the classic was their response to my allegation that it was a Ponzi scheme, that it would collapse because they were using the investments over these years to go back and subsidise and so on. In their answer to whether or not it was a Ponzi scheme they said:

Generally, Ponzi schemes are investment schemes where returns are paid to investors entirely out of the incoming funds of new investors entering into the scheme. An indicator of such a scheme is a lack of assets … I advise that there is insufficient evidence to indicate that Great Southern Plantations is a Ponzi Scheme. The 2007 financial report for Great Southern’s managers indicate that its controlled entities’ profit after tax was—

blah, blah, blah—and they went on with all the profits that they have got. Therefore, because the financial statements were audited, and Great Southern had profits, it could not be a Ponzi scheme. They did not actually go back and examine the allegation that the returns on those woodlots had been inflated by the investments from subsequent years. They just said: ‘We went to their financial statements. They were audited statements. They’re making a profit. Therefore it can’t be a Ponzi scheme.’ If that is the confidence this committee has in ASIC to oversee forestry managed investment schemes, I do not share that confidence—and I do not think the community shares that confidence. I would like to see ASIC brought to account over why they did not exercise real monitoring and oversight of the managed investment schemes.

I do not support the fact that this committee has recommended that forestry managed investment schemes continue to get 100 per cent tax deductibility. It is a disaster for rural Australia. Now we are having these schemes wound up, we are getting these plantations put on the market, with windfall profits for companies like Gunns that are going to run around and buy them up—because somebody has to manage them, and it is better that they are managed so they do not go to rack and ruin; at least that is something. I raised that in here as well, saying I do not want these taxpayer subsidised plantations to be overrun by weeds and feral animals, not thinned and become useless in the end. It is incumbent on us to actually make sure that they are managed at least, and that there is a return on them. But to turn around now after this inquiry, after this mega-disaster in rural Australia with Timbercorp, with the Elders subsidiary, with Great Southern, and say, ‘Oh, it’s okay; we think it’s a good idea because we get investment in rural Australia in plantations, therefore it should continue.’ I think the real question has to be: what level of influence did NAFI, A3P and the forest industry have such that this parliament failed to properly assess what went wrong with the collapse of these particular schemes? And how could we just turn around after such a spectacular collapse and say that it should continue? It is beyond me. It means there is not real due diligence in relation to these schemes; and there is clearly a philosophical view, an ideological perspective in here that we will continue to give 100 per cent tax deductibility to investing in plantations, to the detriment of food production, to the detriment of rural communities throughout Australia, to the detriment of people on the land, because we want to give these returns to Collins Street investors, returns to the forest industry.

Farmers around the country are having to pay inflated land prices and inflated water prices because of these particular managed investment schemes. The dairy industry in Tasmania is under pressure, for example. In will come these schemes now, with their 100 per cent tax deductibility, and a lot of those farmers in trouble will eventually sell because of the way that the pressure comes onto those rural communities. We have a food security issue globally. We need to be protecting our best agricultural land to provide food. The best land and the best water produce the best trees. We are in competition. This is not about marginal land versus valuable land. This is about the best use of that land, and I do not support subsidising plantations to the destruction of rural Australia.

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

I note the report and look forward to reading the full contents of it. But I do want to make a contribution to the general discussion of managed investment schemes in Australia. It should be noted that there are over 5,000 managed investment schemes being run in Australia as we speak. Sure, some of them have run into trouble. What I would suggest to honourable senators is that we leave it to the liquidators and administrators to come to conclusions as to why and how that occurred. It would be as ludicrous as to say that the retail sector in Australia should be closed down because Harris Scarfe went through the hoops, or because some other retail company failed.

Unfortunately, in a competitive marketplace you will have certain companies, enterprises and pursuits succeeding whilst others are failing. Just because one, two or indeed three fail that does not of itself mean that the particular enterprise that people are engaged in is a bad enterprise. The chances are it means that management of the failed schemes was not as robust as it otherwise might have been. Indeed, some analysts—and I simply leave it at that, some analysts—suggest, for example, that if Great Southern—and I do not want to get into a debate about Great Southern other than to say this—had not diversified into cattle properties or had been able to offload, I think, about $700 million worth of cattle properties, their timber sector would have remained viable and would still be up and running today. It is those inconvenient facts that Greens like Senator Milne so studiously avoid in any discussion of managed investment schemes.

I also say to senators: be very careful about what you wish for. I still recall the outcry in rural and regional communities when compulsory superannuation, enforced savings, came in. That meant that nine per cent of people’s income found its way to superannuation funds that invested their moneys in office blocks in the cities and people were saying, ‘Where’s the money that used to float around in our rural and regional communities?’ I can tell you that agricultural and forestry managed investment schemes have seen money going from the cities back into rural and regional Australia. For example, ask the local nurseryman who has been able to grow the cherry trees for the cherry orchards or the walnut trees for the walnut groves that we have in Tasmania. Ask the contractors who are employed to do the ground preparation, the spraying, the weed control or the fencing. All that sort of activity has been of great assistance to rural and regional communities.

It was most interesting to listen to Senator Milne complaining in particular about managed investment schemes for forestry. It was the Greens’ policy position to get out of old-growth forests and native forests. As a result, previous governments said, ‘If we are going to withdraw from that sector and Australians still want wood products, we will have to grow timber fibre and product on a plantation and no longer harvest our native forests.’ So we moved to plantations with a slight tax incentive—I do not think it is much of a tax incentive, quite frankly—and do you know who called for tax incentives for plantations? None other than the leader of the Tasmanian Greens. I think that was in 1996. Do you know who that leader of the Tasmanian Greens was? The now Deputy Leader of the Australian Greens, who has morphed into a senator and now condemns the policies that she previously supported, including the conversion of prime agricultural land on the north-west coast of Tasmania—at least I think it was about one third of it—to tree plantations. Now she rails against such activities. That is the great thing about being an Australian Green: you never have to be consistent and you never have to be logical; all you have to do is bash the can that is around at the time and try to get some cheap publicity. Consistency ain’t a hallmark of the Australian Greens.

I say to those who want to attack managed investment schemes: be very careful about what you wish for. I say that because they have provided great incentives and great opportunities. I still recall being part of the first commercial harvest of garlic in my home state of Tasmania. Ninety per cent of the garlic consumed in Australia is imported from China. There was a Greek individual who thought Australia should grow its own garlic and he had the wherewithal to do it, the capacity to do it, other than the financial backing. He went from farmer to farmer and to farm organisations and to all sorts of companies seeking assistance and failed year after year. Finally a managed investment scheme operator said, ‘Let’s try and see if we can interest people in growing garlic.’ It was grown on a landholder’s property in northern Tasmania. After years of experimentation in Victoria and Tasmania, Tasmania—and can I say how delighted I was about this—won out in relation to where it grew best. We were able to get a commercial domestic garlic crop which Coles were then willing to purchase. It was a great thing for Australian agriculture but, unfortunately, that first commercial crop came at exactly the time when Treasury and the Australian Taxation Office took a view which I thought was wrong in law and in principle in relation to managed investment schemes. Without airing too much dirty linen from the Howard years, I remember a debate within the government about this very matter. Whilst I have only ever seen myself as a humble suburban solicitor, I did read all the cases in relation to managed investment schemes and it was my considered opinion, on the basis of all those authorities, that the ATO and Treasury were heading for an absolute flogging by refusing to provide product rulings for the non-forestry sector. Two years later the Federal Court ruled as I predicted they would, but of course the non-agricultural sector had two years of no product rulings, which caused it a lot of grief. It will be interesting to see what responsibility the ATO and Treasury will take for not allowing that financial flow to non-forestry managed investment schemes and for what happened to them.

Can I simply put on the record—this is an error by some, a deliberate misrepresentation by others—that managed investment scheme funds cannot be used for the purchase of real estate. That is a fact and that needs to be understood. In relation then to upfront tax deductibility of things such as management and rent and lease costs, they are 100 per cent deductible, just as much as a farmer, if he were to rent or manage the next-door neighbour’s property and plant a crop, would have all of those costs available to him as a 100 per cent tax deduction.

I want to quickly finish on this note. Some people argue against MISs on the basis that there should be one tax regime for all. I simply say to my friends in the rural community: farm managed deposit schemes do not apply to MISs and income averaging does not apply to MISs, and if you hold that as a dear principle of equality in taxation treatment, you would then have to get rid of farm managed deposit schemes and you would have to get rid of income averaging, and that would cause great dislocation to the rural and regional communities of our country.

Question agreed to.