Libs to blame for MIS loss | June 20, 2013 Weekly Times MANAGED...

Libs to blame for MIS loss

| June 20, 2013
Weekly Times




MANAGED investment scheme forestry is losing taxpayers millions and the Liberal party is responsible, says SAM PATON

The genesis of the MIS issue for Australian taxpayers at large, in terms of their inadvertent funding of “tax welfare” for high net worth individuals seeking to defray an ATO liability, began back in about 1998.

The then coalition government had decided that we had a balance of payments issue regarding wood and paper products of some $2 billion, and that the government needed to kickstart self-sufficiency in plantation silviculture to create an Australian operation that effectively was to be – plantation timber – woodchips – pulp production – finished paper goods (e.g. Reflex bond paper, etc.) replacement.


What happened then was coalition MP Wilson Tuckey waved an ABARE document in the Federal parliament, touting the viability of wood and paper replacement by conversion of farmland into plantation trees.


Simultaneously, I believe, the MIS legislation was borne, and the rest is history.


What concerns me, as both an Agricultural Economist and a taxpayer, is that this legislation, and the inadvertent commitment it commands historically from the average Australian taxpayer (you, me and everyone else) has lost more money than the Gillard Building Education Revolution fiasco and Insulation Subsidy fiasco combined, and yet it passes under the radar of most voters.


Effectively about $1.5 billion of money has been subscribed to schemes under this legislation, which provided for upfront deductibility of some 99 per cent for taxpayers under the ATO Product Rulings concurrent with the mechanisms of the MIS legislation.


Labor governments have never understood primary production, as far as I’m concerned, and as we speak, Prime Minister Julia Gillard and her colleagues plus on the coalition side, MP Eric Arbetz and a few others, remain rusted on to the moribund concept of self-sufficiency in wood and paper products.


That is, the pulp mill in Tasmania was meant to be the catalyst for Australia’s “get out of jail card” insofar as becoming self-sufficient in paper production.


Ironically, at the peak of these schemes in around 2007, nearly $800 million was going into tree schemes, plus all the other peripheral start up agri-schemes that mutated out of the original legislation (this included everything from truffles, pearls, winegrapes, cattle, sandalwood, olives and almonds, to name a few).


The Reagan and Thatcher governments got rid of this type of tax engineering in the mid 1980s, and yet, as we speak, there is bipartisan support for MIS legislation despite the fact that apart from Visy’s Tumut pulp mill, which processes radiata, no other viable pulp mill operations have survived in Australia, and Gunns project, I believe, was doomed from the start, because Australia simply has no comparative advantage compared to Asia and South America in producing pulp.


In fact, despite the likes of MP Eric Arbetz and others’ fixation with the Gunns project, companies such as Kimberly Clarke had progressively shut down their blue-gum tree pulp lines at Millicent, South Australia, as early as 2002, and subsequently shut down their radiata line for want of viability.


A Deloitte operative’s study on the Gunns project indicated that South America has something of the order of a US$40/tonne cost of production advantage over Australia.


As you may be aware, one positive thing Financial Services Minister Bill Shorten has done, is to abolish upfront and trailing commissions for financial planners as of July 1 this year.


One of the foundation problems with investment in this sector was that many high net worth individuals (and latterly superannuants who could ill afford to lose their money in these schemes), were seduced by the fact that the schemes were marketed by a series of vested interests which was permitted under the legislation.

As at April 2013, there are still many of these schemes in circulation, and one notable scheme is promoted by a company known as Agriwealth, which is for pinus radiata.


One of the major criticisms that the former finance minister in the Howard government, Peter Dutton, levelled at these schemes and the legislation, was that they were so open ended in terms of ASIC scrutiny, that they could effectively disclaim themselves from any real liability if the schemes failed.


Equally, as I understand it, the Agriwealth Prospective extract indicates there is no control over what these promoters charge for a unit of investment in any particular enterprise.


Ironically, the only head of ASIC that was ever proactive in trying to control these schemes and make them accountable, was David Knott, back in the early part of the millennium.


But generally, ASIC was never given the “teeth” to deal with some of the farfetched claims that were made by the likes of Timbercorp, Great Southern, etc.


It seems ironic that the likes of Minister for Trade Craig Emerson in the current Gillard government are making the point that Australian taxpayers have no obligation to “fabulously rich” superannuants who Treasurer Wayne Swan now wants to tax, yet the Gillard Government, through presumably their association with the CFMEU, etc. and for reasons that are not obvious to most agricultural economists, including myself, continue to support this legislation. Also, the Tony Abbott-lead Opposition has consistently flayed Gillard and Swan for poor economic management, and yet this MIS legislation that the coalition is responsible for, is a textbook case of poor legislation and misallocation of taxpayer resources.


Finally, I would suggest that if Australian taxpayers are not alerted to lobbying both sides of parliament to get rid of this legislation, all the spivs in blue suits will be out in force in Tony Abbot’s and fellow Liberal MP Andrew Robb’s brave new world of northern Australian development and the genie will get out of the bottle again.


In the Menzies era there would have to be a “White Paper” produced before any assistance would be granted to any particular industry.


Ironically, as well, the vast majority of Australian agribusiness is now not subsidised, and no ordinary Australian farmer can avail themselves of upfront tax deductibility for a decade or two of future costs, as is allowed to this class of investors under this crazy MIS legislation.
•Sam Paton is a Certified Practising Valuer and agriculture economist