Abbott's agriculture policy in need of adjusting /Newsport (copy 2)

Abbott's agriculture policy in need of adjusting

Tuesday March 4 2014

JOHN Howard had it right on agriculture.

Tony Abbott has it wrong.

The latest farm hand-out is another example of the Abbott Government’s inconsistency and justification-on-the-run when it comes to government assistance.

So how did Howard get it right? Well, in April 1999, the Howard Government set up the Farm Management Deposits Scheme.

The Government recognised (like Dorothea Mackellar, Henry Lawson and a dozen other writers) that drought was a permanent element of the Australian landscape.

So instead of farmers wallowing in wealth and spending it up big in good seasons and then putting their hand out for government money in drought, the Government would help farmers help themselves.

Under the scheme, farmers, in good years, could put money aside (as interest-earning bank deposits).

Money put aside would be tax deductible in that year.In effect, the farmer would pay no tax on any income diverted to deposits under the scheme.Then in bad years, farmers could withdraw money from the deposits.

They would have to pay tax on the withdrawal, but it would be done in a low-tax bad year.

It would certainly attract a lower tax rate than if it had not been put in the scheme and been taxed in the bumper year.

Since 1999, 42,000 farmers – about a third of all farmers – have put money aside under the scheme.And they have put a jolly lot of money aside. The latest Department of Agriculture figure has it at $3.2 billion.

Yes, that’s right, the famers who have been bleating for drought relief have a cool $3.2 billion tucked away for precisely the reason of putting money aside for a (wince) rainy day.

So why, one might ask, is Prime Minister Abbott, Agriculture Minister Barnaby Joyce and Treasurer Joe Hockey handing out a whole lot more – what’s the word for them? – entitlements for farmers.

I thought that age – the age of entitlement – was over.

But not apparently if you are a farmer, own a chocolate factory or want to share in an obscenely high $325 million set aside for commemoration (glorification) during the centenary years of World War I.

More importantly, I thought the Coalition stood for self-help and resilience.

At least John Howard thought so.

Droughts are not natural disasters. If you can’t stand the heat get out of the landscape.

With the knowledge of the $3.2 billion in FMD money, how is the farmers’ position any different from that of SPC.

With SPC the government ruled out helping an industry because its parent company had plenty of money elsewhere.

Howard’s FMD scheme was a practical recognition that farm incomes fluctuate significantly.

It was a generous scheme because farm income over the years would attract less tax.

But that seems fair enough. Wage and salary earners get evenly distributed income and so do not fall prey to very high marginal rates of tax in bumper years.

So what have these 42,000 farmers been doing with these deposits? Have they been salting it away so they can withdraw some money and be self-reliant in droughts?

Not a bit of it.The department did a review of the scheme in 2002 and again in 2006.

The 2006 review revealed – in polite language – that the farmers were using the scheme as a tax-reduction financial-management tool, not as a means to help overcome droughts.

Deposits have risen steadily – presumably as word got about that this FMD scheme was pretty good.

"There is a distinct annual pattern of large net FMD deposits in June, and net withdrawals in July, which may suggest that farmers are using FMDs primarily as tax planning instruments . . . ," the review said.

"Widespread drought conditions have been experienced throughout Australia since 2002-03. During this period, FMD holdings have continued to rise."

The review found that farmers were using the scheme for six main reasons, and listed them.

Not one of them had anything to do with drought.

They were in order: obtain a commercial option to make better timed expenditure decisions; earn interest on otherwise taxed income; pay a lower eventual tax rate; and three others dealing with superannuation and financial planning.

The review found that most withdraws had nothing to do with covering family and farm expenses in a drought.

Rather they were to buy working capital – which would be deductible and largely offset the tax payable on withdrawal.

To be fair, the scheme is good farms and the economy as a whole.Nonetheless, farmers are having two bites of the cherry here.

They already have a government-subsidised scheme to help farmers in drought, but they also want the usual round of handouts.

And having got the handouts this week, the farmers still whinged.You see, Abbott and Hockey have pulled an off-Budget swifty here.

The large majority of the $320 million in drought relief will be in 4 per cent loans.

The government will have borrowed it at 3 per cent, so even though the Treasury cheques are written and cashed, they are not entered as government spending.

That will only come when some farmers default and the debt has to be written off.

The government naively imagines than only 3 per cent of farmers will default. Let’s see.

It was this swifty that caused the farmers to whinge.

National Farmers Federation president Brent Finlay called for a return to the cash grants available under the old ''exceptional circumstances'' interest subsidies.

Farmers know a good thing when they are on it.

That scheme cost taxpayers more than $1 billion by the time it was suspended by Labor in 2012 at the politically astute time of there being no drought-affected areas and therefore no immediate squealers or hard cases for media attention.The farmers are like the car industry – perpetual seekers of government largesse.

It is fine for the government to help start up industries, or businesses in sudden one-off trouble which they would survive if helped, but the car industry ceased to be start-up in about 1952 and drought is not a sudden one-off trouble, but an ordinary feature of the agricultural business environment.