Bills Digest 90 1995-96 Primary Industries and Energy Legislation Amendment Bill (No. 1) 1996


Numerical Index | Alphabetical Index

WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 28 May 1996

CONTENTS

Passage History

Date introduced: 9 May 1996
House: House of Representatives
Portfolio: Primary Industries and Energy
Commencement: The amendments to the Offshore Minerals Act 1994 are retrospectively taken to have commenced on 25 February 1994, while those to the Wool International Act 1993 will commence on Royal Assent.

Purpose

The major amendments proposed by this omnibus Bill:

  • discontinue provisions which enable persons who have paid wool tax on shorn wool (other than carpet wool) to make contributions of up to a maximum of 5.5% over the 4.5% wool tax payment;
  • provide for the debt component of the wool tax to be set by regulation; and
  • allow Wool International to participate in the formation of a company or companies, or to acquire equity in such bodies, which, subject to ministerial approval, may engage in any form of wool trading.

Background

The amendments proposed by this Bill which represent major policy initiatives relate to the wool industry. The amendments, for the most part, are identical to those proposed by the Keating Government in the Primary Industries and Energy Legislation Amendment Bill (No. 3) 1995. That Bill lapsed with the dissolution of Parliament for the 1996 election.

(a) Wool International

Wool International, which was established as a statutory authority in December 1993, took over responsibility for the sale and management of the wool stockpile from the Australian Wool Realisation Commission in accordance with the timetable contained in the Wool International Act 1993.

(b) Additional Contributions by Wool-Tax Payers

Producers' payment of the debt component of the wool tax gives each producer equity in Wool International on privatisation. Additional contributions give contributors a right to additional equity.

The discontinuation of the provisions providing for additional contributions were announced by the Government's Minister for Primary Industries and Energy on 20 June 1995. The rationale given by the Minister for the discontinuation was:

Circumstances in the wool industry have now changed significantly and I announced at the Wool Council Conference last month that all of the proceeds from the sale of the stockpile, once the debt has been removed, should be returned directly to woolgrowers.

There is therefore no justification for retaining the voluntary contributions which where essentially seen as a debt for equity swap.

The possibility also exists that a small number of large producers with a capacity to make the maximum contribution could reduce the return to other growers who are not in a financial position to make voluntary contributions.

The Legislation will be changed to implement this decision with effect from today.

The small number of voluntary contributions already made will be accepted. Any contributions received following this announcement (ie. 5:30 pm on 20 June) will be returned to the contributor but this would not be possible until the legislation is amended.

The then Opposition supported the Government's action with respect to additional contributions. The Shadow Minister for Primary Industries in a Media Release of 20 June 1995 said:

[the Opposition] ... has welcomed the announcement that wool tax payments will be limited to the compulsory 4.5% for the purposes of determining future equity in Wool International.

... that allowing woolgrowers to pay an additional voluntary amount of up to 5.5%, as has been the case until now, would cause a serious imbalance in grower equity in Wool International.

In recent months it has become obvious that growers will have significant equity in Wool International when the time comes to wind it up and paying extra wool tax now would have given those growers a bigger share of the pie at the expense of other growers.

This clearly would have been an unjust outcome and the Minister for Primary Industries and Energy, Senator Collins, was correct to close this option.

(c) Payments to Wool International

In relation to the amendments providing for the setting of the debt component of the wool tax by regulation, the Minister in the Second Reading Speech to the Primary Industries Legislation Amendment Bill (No. 3) 1995 stated that:

At the May 1995 annual general conference of the Wool Council of Australia, it was announced that the government had agreed to conduct a review of the 4.5 per cent component of wool tax payable to Wool International. This decision was taken in the context of significant projected surplus of funds in Wool International once the government guaranteed debt has been retired.

The review, to be conducted in early 1996, will examin if there is scope to reduce or even eliminate this component of the tax from 1 July 1996.

The amendments proposed by the Primary Industries Legislation Amendment Bill (No. 3) 1995 Bill were intended to expedite implementation of the outcome of the review.

(d) Forward and Futures Trading

The Keating Government's rationale for the proposed amendments allowing Wool International to participate in forward and futures trading was as stated by the then Minister in the Second Reading Speech to the Primary Industries Legislation Amendment Bill (No. 3) 1995, that is, that the then Government believed that such a program:

... represents a natural progression in Wool International's efforts to stimulate more effective management of risk in the industry, ... . It will assist eligible wool tax payers to evaluate the commercial viability of a privatised organisation undertaking forward marketing operations and providing risk management services. In that way it will help eligible wool tax payers to make a more informed decision regarding privatisation.

The Minister in the Second Reading Speech to the Primary Industries Legislation Amendment Bill 1995 indicated that strict measures would be specified in the conditions encompassed in a ministerial approval required for the program, such as reporting requirements, and that:

  • there will be no government guarantee involved;
  • regular reports will be provided to the Wool International Board, and through it to the Minister;
  • rigorous risk management arrangements will be put in place to ensure that the operation of the program is conducted within an agreed capital limit;
  • it will be funded from revenue received from the management of non-wool assets, as provided for in the existing legislation; and
  • be subject to all the requirements of the Corporations Law, and all forms of taxation.

It is reported in The Land of 2 November 1995 that most sections of the wool industry have elected (at the October Wool Council of Australia's half-yearly meeting) to back Wool International's bid to establish itself as a forward buyer of grower's wool. For example NSW Farmers Association delegate, Keith Campbell is reported as saying:

Unless we pursue strongly this initiative we will condemn not only ourselves, but also the people coming on in next generations to a huge amount of market uncertainty and production at less than (viable) levels.

Barry Court of the Pastoralists and Graziers Association (PGA) of Western Australia is reported as saying:

... it was wrong to use money compulsorily acquired from growers for the venture. I think it flies in the face of PGA policy for private enterprise to support the motion.

Under the scheme proposed by Wool International, $24 million will be used to establish a subsidiary company, WI Holdings, to offer growers and processors fixed forward sales contracts in a two-year trial beginning in July 1996.

In relation to Wool International's proposed forward marketing scheme, the Shadow Minister for Primary Industries in a Media Release of 25 October 1995 said:

... the Government's decision to allow Wool International to trade in wool as a means of developing forward selling options for growers appeared to be necessary to give them better access to tools for managing risk.

Forward selling options are badly needed by growers and will assist them in managing the high level of risk inherent in a volatile market that is dangerously dependent on spot price sales.

(e) The Liberal and National Parties' Wool Industry Election Commitments

During the 1996 election campaign, the Liberal and National Parties gave a number of commitments in relation to the wool industry, including:

  • removal of the 4.5% wool tax no later than 1 July 1996;
  • closely monitoring Wool International Holdings (WIH) to ensure it achieves its objectives of promoting the use of risk management tools;
  • cap funding to WIH at the current level of $24 million;
  • make available to growers as much as possible of their equity in the stockpile, beginning as soon as it is commercially feasible to do so, by means to be established in consultation with the industry;
  • give growers the option of investing in a privatised Wool International; and
  • allow farmers who take the cash-out option to instruct Wool International to direct cash payments into Farm Management Bonds or Income Equalisation Deposits.

Main Provisions

Schedule 6 - Amendment of the Wool International Act 1993

The powers of Wool International (WI) are contained in section 9 of the Wool International Act 1993 (the Principal Act). A new subsection 9(3) is inserted in the Principal Act by item 1 which provides WI, subject to Ministerial approval, with power:

  • to form or participate with others in the formation of a company; or
  • acquire, hold or dispose of shares or stock of, or debentures or other securities of, a company.

WI may only exercise the above powers in relation to a company whose objects include trading in wool (whether or not the wool exists) [item 1], and is to fund such activities solely from non-wool assets (eg. warehouse rental income) [item 6].

Ministerial approval of the exercise by WI of the above powers is subject to disallowance by Parliament. The reader should note that the proposed disallowance period is three sittings days rather than the normal 15 sitting days specified under section 46A of the Acts Interpretation Act 1901. In addition, where the Minister has not exercised the approval power before 1 July 1997, or an approval has been given before 1 July 1997 which has been subsequently disallowed, the Governor-General may declare proposed subsection 9(3) to have ceased to have effect.

Comment: Proposed subsections 9(3) and 9(7) are identical to those proposed by the then Government in Primary Industries and Energy Legislation Amendment Bill (No. 3) 1995. Proposed subsections 9(4)-9(6) were not provisions contained in the Primary Industries and Energy Legislation Amendment Bill (No. 3) 1995.

Neither the Second Reading Speech or the Explanatory Memorandum to the Bill provide a rationale for the proposed disallowance period of three sittings days rather than the 15 sitting days specified under section 46A of the Acts Interpretation Act 1901. A probable rationale for the reduced disallowance period relates to the natures of derivates tradingand the requirement of certainty for commercial transactions.

Part 7 of the Principal Act (sections 43-56) deals with WI finances. Section 43 requires the Commonwealth to pay WI amounts received after 1 July 1993 from the tax imposed on shorn wool (other than carpet wool) under the Wool Tax Acts. The amount to be payed by the Commonwealth is an amount equal to 4.5% of the sale value of the wool [subsection 43(2)].

New subsection 43(2) is substituted in the WI Act by item 2 which makes the percentage of wool tax collected payable by the Commonwealth to WI a maximum of 4.5% or such lower amount set by regulation.

Section 45 of the WI Act allows persons who have paid wool tax on shorn wool (other than carpet wool), after 1 July 1993, to make additional contributions to the Commonwealth, up to a maximum of 5.5% of the sale value of the wool. Additional contributions received by the Commonwealth are required to be paid to WI. Section 45 is repealed by item 3.

Comment: Items 2 and 3 are identical to those proposed by the then Government in Primary Industries and Energy Legislation Amendment Bill (No. 3) 1995.

Item 11 requires WI to repay any additional contributions made after 20 June 1995 (the date of the announcement of the discontinuation of the provisions providing for additional contributions).

Item 14 provides for a right of compensation if the repayment of additional contributions results in the acquisition of property other than on just terms. Where an acquisition other than on just terms occurs, the Commonwealth is liable to pay reasonable compensation as is determined by the Federal Court. Damages or compensation recovered or other remedy given in another proceeding must be taken into account in the assessment of compensation under this item.

Schedule 1 - Amendment of the Offshore Minerals Act 1994

Section 15 of the Offshore Minerals Act 1994 provides that the area under a licence remains under the original Commonwealth or State jurisdiction which issued that licence even if there is a shift in the baseline [generally, the 'baseline' is the lowest astronomical tide along the coast but also includes lines enclosing bays and indentations that are not bays and straight baselines that depart from the coast]. The rationale of the Government when proposing the insertion of the section in 1993 was

... to ensure that the area under a licence remains constant despite any shifts in the coastline which may occur as a result of natural erosion or accretion processes caused by, among other things, storm and wave action.

There is evidence of shifts of up to one nautical mile having occurred around certain areas of the Australian coast, and shifts of up to three nautical miles may occur. Under these circumstances the baseline, and as a consequence the outer limit of the three nautical mile offshore area under State jurisdiction, may shift either landward or seaward as the case may be. Without this provision the licence holder in certain locations would not have any security of title as it could become invalid if the coastline shifts during the life of the project.

The effect of proposed paragraphs 15(1)(a), (b) and (c) and 15(3)(a), (b) and (c), which are substituted in the Offshore Minerals Act 1994 by items 1 and 2, is to apply the effect of section 15 is to changes in the location of the baseline resulting from acquisition of new date or reconsideration of existing data. As stated in the Explanatory Memorandum to the Bill, the amendments are necessitated by a recent case where the validity of licenses has been put in doubt by a change in the location of the baseline caused by reconsideration of old data.

Endnotes

(1) John Anderson MP, Reviving the Heartland - Building a sustainable future for Australia's primary industries, 5 February 1996, pp. 27 and 28.

(2) Offshore Minerals Bill 1993, Explanatory Memorandum, pp. 8 and 9.

Contact Officer and Copyright Details

Ian Ireland Ph. 06 277 2438
28 May 1996
Bills Digest Service
Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9032
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 28 May 1996

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