Dissenting Report
Senator McGauran, Liberal Party of Australia
Introduction
The legislation and guidelines
do not represent a valuable policy addition to the national objective of
reducing greenhouse gas emissions.
The evidence received at the
Committee hearings strongly supported this proposition.
The obvious result of providing
a tax incentive to one sector of the market, in this case the carbon sink
forest investors will be to raise the rate of return on investment.
Consequently the value of land increases, marginal and prime, for the purposes
of carbon sink investment.
In contrast, traditional
agricultural land void of an equivalent tax incentive suffers a similar decline
in the rate of return. Consequently, rural land will lose its value as a food
producing resource.
In short it is not a level
playing field.
The added downside to this tax
incentive, as distinct to the tax incentives given to Managed Investment
Schemes, is the carbon sink forest is permanent and therefore the market for food
producing land cannot make a comeback if returns should improve for food
producers over and above the distortion the tax incentive has created.
The Committee heard the
permanency was envisaged to be some 100 years!
The tax incentive and accompanying
guidelines are a clear case of distorting the market and creating an unfair
advantage that will inevitably lead to a misallocation and inefficient use of
resources including capital.
The importance of food
producing land in Australia is being devalued by these tax incentive guidelines.
The effect of this is threefold
- In a time of
anxiety regarding world food shortages the long-term effect from a major
food producing country like Australia lowering its food production will
further exacerbate the situation. Equally Australia will lose valuable
export income.
- Given the majority
of the farming sector is made up of family farms, this efficient social
and economic unit will be undermined by the distortions that will be
produced by the tax incentive.
- Farming families
are a foundation stone of the economic and social life of small towns and
regional cities. The Small businesses, schools, hospitals, etc of these
small towns and regional cities are primarily reliant on a viable farming
sector for their own economic viability. These economic regions will be
detrimentally affected by the loss of productive farming land.
The proposition that certain
land can be quarantined from the legislation is not convincing. At best, a
bureaucratic and subjective nightmare is created, at worst, it is unworkable.
This is due to the variable factors of farming, such as drought and prices.
Such variables occur across farming regions, affecting the returns in so-called
prime land and marginal land.
A practical example is the
cattle station of the Northern Territory specialising in the live cattle export
trade yet the successful operations are being undertaken on so – called
marginal land compared to the family dairy farm in Victoria that is struggling
with prices yet being farmed on so – called prime agricultural land. At
differing times the cattle station and the dairy farm’s rate of return on
capital and profit fluctuate. Further the rates of return and profit are in the
eye of the beholder. For example the family farmer will likely take the factor
of lifestyle into account over maximizing return whilst the corporate operation
focuses more on maximising profit.
It is a perilous role for the
Federal Parliament to direct the market as to what land is classified as marginal
agricultural land and what land is classified as prime agricultural. It should
be principally the market that drives the choice of agricultural land
production in Australia together with the economic decisions made every day by
the farmer.
Impact on prime agricultural
land
The evidence submitted to the
Committee was compelling in regard to the potential impact of the tax incentive
on the food producing sector.
The Queensland Farmers
Federation (QFF) stated that:
“...we would have to be worried about any scheme that
saw arable land which was being farmed productively for food and fibre being
taken out of production. Climate change and increasing climate variability have
the potential to limit Australia’s capacity to produce food and fibre for both
domestic and export consumption. Food security and food pricing should be seen
as part of a national food policy. The removal of 85 000 Ha of land from
agricultural production by 2011 is not good policy unless there is a
requirement to assess the social, economic and environmental impacts of these
tree plantings, This becomes even more significant when most of these plantings
are likely to be in the higher rainfall areas.”[1]
Impact on rural communities
and industries
The Environment Association noted
the undesirable impacts in rural Tasmania, stating:
“Australia’s attempts to sequester carbon to mitigate global
climate warming are likely to promote a mass expansion of artificial plantings
in Tasmania. A great social concern for Tasmania is that farming activity is
being replaced by artificial plantations which employ very few. The reduction
in farming activity, the local production of food and associated employment is
a long-term loss that may well have severe impacts for the viability of our
community.”[2]
The Victorian Farmers
Federation (VFF) stated that the change of land use from production agriculture
to carbon sink forestry will result in a transfer of economic activity from
rural areas to businesses requiring the carbon offset. The VFF noted that rural
areas are already facing considerable economic and social challenges from
changes in climate and reductions in water availability.[3]
Other aspects of the
Legislation and guidelines
The Committee heard evidences
that even in its administration and operation the legislation and guidelines
are flawed. The intent of the legislation, to introduce a tax incentive to
establish carbon sink forests that will contribute to natural greenhouse gas
emission targets, will not be fully realised.
Permanancy of new plantings
Concerns were expressed in
relation to the permanency of the new plantations, and whether the carbon is
sequestered permanently. Australian Network of Environmental Defenders Officers
(ANEDO) stated that:
“neither the Bill, the Explanatory Memorandum, nor the
Guidelines provide that any trees planted under the scheme are to remain a
‘carbon sink forest’ for any sustained period of time. There is no requirement
that the trees planted to establish a carbon sink forest reach an age (ie, at least
10-20 years) to significantly contribute to the purpose for which they were
supposedly planted – to provide a carbon store.
The “establishment expenditure will be immediately deductible
for trees established in carbon sink forests in the 2007 – 2008 to 2011 – 12
income years (inclusive)”. It is therefore currently possible for an entity to
plant trees immediately obtain the tax deduction and not be concerned whether
they succeed in growing or not. Additionally, there are no provisions
preventing the land set aside for carbon sink forests to be sold at a later
date or cleared.”[4]
Flexible nature of the
guidelines
Other submitters expressed
concern that the Guidelines are not sufficiently comprehensive. For example,
greening Australia expressed concern that the Guidelines do not provide
specific direction on a range of environmental impacts including water quality,
restoration and protection of carbon stocks, impacts on habitat, permanence or
perverse outcomes with inappropriate plantings.[5]
Carbon Price
The Library economics section
when writing on the legislation’s possible effect on prime agricultural land
being taken out of production highlighted the price carbon is set under the
Governments Emission Trading Scheme as being a determining factor.
“The major uncertainty in the above argument (agricultural land
production lost to carbon sink forest) is the impact of any Australian
emissions trading scheme. In particular, what the price per tonne of CO2 will be and whether emissions credits generated
by forestry will be included in this scheme. If the price of one tonne of
CO2 is sufficiently high, the emission
credits generated by forestry are of the same value and are included in
an Australian Emissions Trading Scheme (ETS), then the potential gains to a
firm that makes significant emissions may be sufficiently large for it to purchase
significant areas of agricultural land for the purposes of planting a carbon
sink forest.”[6]
Senator Julian McGauran
Senator for Victoria
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