Rob Dossor
The 2014–15 Budget includes measures designed to support drought-affected farm businesses.[1] This package was first announced in February 2014.[2] These measures include:
- a more generous criterion for income support under the Interim Farm Household Allowance (IFHA)
- an amended more generous assets test for the Farm Household Allowance (FHA)
- $280 million over the 2013–14 and 2014–15 financial years for concessional loans to eligible farm businesses affected by drought
- up to $12 million in 2014–15 for drought-affected farm businesses with water-related infrastructure
- up to $10 million over two years in 2013–14 and 2014–15 to assist farm businesses to manage the impacts of pest animals in drought-affected areas and
- up to $10.7 million over two years from 2013–14 to enhance access to social and mental health services in communities affected by drought.[3]
Farm Household Allowance
Many of the measures were introduced by the former Government. The IFHA, for example, replaces the Transitional Farm Family Payment (TFFP). The main difference between the two is the assets threshold, which was $1.5 million for the TFFP and is now $2.55 million net farm assets for the IFHA. [4] In addition, the maximum length of payment was lifted from 12 months to extend to 30 June 2014; the off-farm income that is used to pay interest on a commercial loan is not included in the income test in certain circumstances (capped at $80 000); and recipients are given automatic access to a Health Care Card.[5] The IFHA is due to cease on 30 June 2014.
The FHA measure is essentially the ongoing version of the IFHA. The major differences between the two allowances are the maximum period of support (three cumulative years under FHA) and the provision of case management support by the Department of Human Services. Neither allowance requires drought circumstances for eligibility for payment and both pay at the fortnightly Newstart Allowance rate (or Youth Allowance for those under 22 years of age).[6] The FHA was legislated through the Farm Household Support Act 2014 in March 2014.[7]
Concessional loans
The package includes a concessional loan measure for drought-affected farm businesses. Both loans will operate concurrently.
The existing Farm Finance Concessional Loans Scheme is available for drought and other circumstances. In contrast the assistance available under the Drought Concessional Loans Scheme is targeted to those farm businesses that have a financial need as a direct result of drought conditions.
Under the Farm Finance Concessional Loans Scheme, loans are available to farms businesses for debt restructuring or productivity enhancement projects.[8] The Farm Finance loans are capped at different amounts depending on the jurisdiction (for instance in South Australia the maximum loan amount is $650,000, in Western Australia $400 000 and $1 million for Queensland and the Northern Territory). The concessional interest rate at the start of the loan scheme will be 4.5 per cent. This rate will be reviewed on a six monthly-basis and may be adjusted to be in line with prevailing economic conditions.
Under the Drought Concessional Loans Scheme, loans will be available to drought-affected farm businesses for debt restructuring, operating expenses and drought recovery and preparedness activities. Loans will be up to $1 million or 50 per cent of the business’s debt, whichever is lower.[9] These loans will have a variable interest rate of 4 per cent set at the commencement of the scheme, which will be revised in accordance with changes to the Farm Finance Concessional Loans. The Drought Concessional Loan interest rate will be maintained at 0.5 per cent below that rate.[10]
Other measures
Other measures were announced in February 2014 to assist farmers with the effects of drought. These were:
- additional funding ($10 million over two years) for water-related infrastructure rebates
- up to $10.7 million to provide additional social support services in drought-affected areas and
- $10 million to assist in the management of pest animals in drought-affected areas.[11]
These measures, with the exception of the social support services are primarily available in New South Wales and Queensland, with the potential for expansion into other states.[12]
Drought declarations
In April 2011 the Standing Council on Primary Industries agreed to principles to reform the Exceptional Circumstances system of drought relief. The first is that there should no longer be Exceptional Circumstances declarations or ‘lines on maps’.[13] Following this, state ‘drought declarations’ have become less common, often being replaced by state governments with advisory councils which are better at advising the state/territory governments on the basis of local conditions.[14] As a result of this, for any of these targeted measures to be extended to states or territories other than New South Wales or Queensland, no declaration of drought would necessarily be required.
Commission of Audit and Productivity Commission
The Commission of Audit found that ‘continuation of drought assistance can discourage drought preparedness and self-reliance’ and recommended that the Farm Finance concessional loans scheme be abolished.[15]
This view is shared by the Productivity Commission which in its submission to the Agricultural Competitiveness Taskforce stated, ‘policies that … impede efficient risk management and structural adjustment (such as concessional loans for drought or impediments to farm aggregation) … might help some producers, but at the expense of the competitiveness of the sector overall.’[16]
[3]. Budget paper no. 2, op. cit., p. 53.
[8]. Department of Agriculture (DA), ‘Farm Finance’, DA website, accessed 21 May 2014.
[10]. Advice provided by the Department of Agriculture.
[11]. DA, Drought support for farmers, op. cit., p. 1.
[13]. Primary Industries Ministerial Council, ‘Communiqué’, 15 April 2011, accessed 21 May 2014.
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