Mr NAIRN (9:37 AM) —I rise in the House today to voice my support for the Taxation Laws Amendment Bill (No. 1) 2002 or, as it is less formally known, the 12-month rule. This rule is about encouraging investment in plantation forestry. In Eden-Monaro we rely heavily on plantation forestry as well as native forests, especially around the Bombala and Delegate areas where, for example, Willmott Forests have invested a huge amount of money in setting up a large plantation forestry operation. They employ about 20 people in that particular region, as well as another 20 elsewhere. They have been doing very well and they are great supporters of the local community, which is certainly great to see. I congratulate Marcus Derham, who runs Willmott Forests, and his employees on the great support that they provide to such a small community around the Delegate area in particular.

One of the impediments they face to expanding their operations relates to the seasonal nature of their work. They need to raise funds in one year to pay for activities that will not result in immediate income and hence return on that investment. The government has worked out how we can avoid this. We are therefore seeking, through this bill, to allow for an immediate deduction for certain prepaid expenditure when investing in a plantation forestry managed agreement. This means that if a company is to invest in certain activities relating to its plantation in a given year, this company can obtain an immediate deduction for these funds in the financial year preceding when the investment takes place. However, the deduction is limited to seasonally dependent agronomic operations in the establishment of a plantation. In layman's terms, these processes include ripping and mounding, weed and pest control, planting and fertilising et cetera.

Beyond the investors, obviously subcontractors will benefit from this legislation as well. The potential expansion of this industry that could be realised with this bill will encourage more investment which will then lead to further growth in the number of subcontractors who are involved in this aspect of the industry. This is vitally important to plantation forest regions right around Australia, including those in Eden-Monaro, for those investment companies will now have greater flexibility and certainty in their business dealings. Greater flexibility means businesses can focus on getting on with the job and not be concerned with cash flow problems associated with investment taxation.

The bill introduces two measures. Firstly, the rules relating to prepaid expenditure will be relaxed for plantation forestry managed investments, which is largely what I have said so far. This means that investors will have an immediate deduction for expenditure on seasonally dependent agronomic activities. They will be able to claim in one year for those investments for those activities in the next. Companies nominating to come under this scheme will be required to pay tax on the gross income earned in respect of expenditure qualifying for this new rule in the year the expenditure is incurred by the investor, not when the work is done on the investor's behalf.

Secondly, in relation to non-commercial loss rules, discretion will be provided to the Commissioner of Taxation to allow deductions but only in the circumstances where a profit is evident for that business in an earlier year. Under the existing regime, an investment company cannot deduct for expenditure which fails certain commerciality tests but this is not intended to deny deductions during the establishment phase. The commissioner has the discretion to allow deductions during the establishment period but this ceases once the company records a profit, however minimal that profit may be. Under this bill, however, the commissioner will be permitted to exercise that discretion up until the time the business is expanded to return a profit on a sustained basis. Under this bill, the commissioner is also permitted to consider any period of time appropriate for each business, as opposed to one year at a time under the current regime.

I have met with a number of forestry companies and they have impressed upon me the urgency of this bill. If this bill is not passed in this sitting week of the parliament, the ability of these companies to market their 2001-02 prospectuses will be severely hampered. This is then the stage at which we can help this industry the most. Assuming now that the opposition and other parties support the passage of the legislation, these companies have to seek product rulings from the ATO before they can market their prospectuses to include this investment assistance. This is the crucial stage when these companies drum up support from investors. This bill will do a great deal to make these investments more attractive to potential investors, so action cannot be left to the next sittings. We must do our best to support these businesses now when they need it most. One of the businesses said to me:

Clearly millions of dollars worth of investment are in limbo at the moment. The danger of this money not going to the industry is very clear and is something that parliament has an obligation to ensure does not eventuate. I urge all members to keep in mind that the mere passing of this bill does not equate to these businesses having their prayers answered. On the contrary, the process just begins for them to then lodge the product ruling application with the ATO, and then have the prospectuses amended accordingly.

The federal government has demonstrated a strong commitment to the plantation forestry industry since 1996. Only a year after entering office we set in place Plantations for Australia: the 2020 Vision. I find it a bit surprising that the member for Werriwa was saying that we seem to have some sort of short-term approach to this industry and economic reform, but 2020 back in 1996 was not a bad vision and I would not have called that short term. As the cornerstone of our forestry policy, it is a joint agreement between the Commonwealth, state and territory governments to treble the plantation area around Australia from about one million hectares in 1997 to three million hectares by the year 2020. As part of this program, we aim to develop and encourage an internationally competitive industry with private sector investment as the driving force.

It is not just for the sake of the thousands of timber workers around Australia that we are continuing to display such a commitment to this industry. In the financial year 1999-2000, Australia had a $2.2 billion trade deficit in wood and paper products. There are also, of course, environmental factors which come into play, which is another reason why an increase in our total forestry plantation area is so appealing. Plantations reduce soil salinity, wind and water erosion and waterlogging on agricultural land. Plantations may also help the nation reduce our overall greenhouse gas emissions. Put simply, plantation forestry is central to our forestry policy because it is appealing in so many ways. Very rarely is an industry so good for local job creation and our export markets, yet also so good for the environment.

We in this great nation are in a perfect position to make the best of this industry. We have the necessary land resources and an investment climate ranking amongst the best in the world. Research has indicated that at least three million hectares of land around Australia, currently used for very marginal sheep and cattle production, is suitable for forestry plantation. In Eden-Monaro there are both hardwood and softwood timber industries. At the moment both industries are in a similar position, waiting for Canberra to indicate its support for their job creating projects. In the hardwood industry we have the Regional Forest Agreements Bill which I hope to be speaking on this week in the House; for both the hardwood and softwood industries we have the Taxation Laws Amendment Bill (No. 1) 2002 before us today.

Forestry impacts upon a great portion of my electorate. This has been recognised in the past by this government. With the closure of the Eden cannery and the winding-up of a large part of the native timber industry on the far south coast, Eden was left in difficult times. Here the federal government stepped in, by providing $3.6 million to restimulate the region. It has worked beautifully, and the proof of this is now on the ground in Eden. We had made a clear decision that by focusing all Commonwealth assistance in one industry we put the community in danger of over-reliance on that industry. Clearly, if anything detrimental occurs, the future of the whole town is put in doubt. So what we did was diversify the businesses in which we placed our support in the region.

Through the Eden region adjustment package advisory committee the federal government has funded over 10 projects in the region. From a grant to a native plant nursery in Bombala to grants to pelagic fishing off Eden and the construction of a bakery, the Eden region adjustment package has been great news for an area that desperately needed that extra spark to establish new industries. I was present at the opening of the new bakery in Eden only a couple of months ago. An extension of the famous Nimmitabel bakery, which is also in Eden-Monaro, the Pieman from Snowy River is investigating the frozen pie market as well as export markets. So a couple of industries closed down or began to wind down their operations, the federal Howard government stepped in to assist them, and a mere three years later there is export potential for at least one of the businesses we assisted. This is not to mention other projects such as the Eden multi-purpose wharf and Defence ammunitioning facility that are being built in Eden at the moment. This is yet another example of the government's commitment to regional areas, and most importantly to the facilitation of growth through infrastructure funding.

How will the Labor Party respond to this bill? My experience in the past with the Labor Party when it comes to the timber industry is that they will appear to support it out there on the ground but, as soon as they pass over the ACT border into Canberra, their opinions will change. I guess it is appropriate that I remind the Labor Party—although it was acknowledged by the member for Werriwa—that when they were questioned during the election campaign as to whether they would support the introduction and passage of the bill, they responded that they would. They have the opportunity now to keep their word, and I am pleased that the member for Werriwa has indicated that they will be supporting it—although they are talking about a sunset clause in the Senate. We need to have a closer look at that. I hope it is not an aspect that they are going to work on to try and prevent this bill going through.

This bill is logical law. This is a great example of those out there working within the bounds of this legislation saying to us, `Hold on, look how this is affecting us because of the seasonal nature of the industry. Why can't we structure the law in a different way for this industry so that investment can be attracted?' That is what we are doing: encouraging investment in a policy that we hope will treble in size over the next 18 years. Without investment this goal, which all state and territory governments have agreed we should be aiming towards, will not be met. This industry has so many positives. It is job-creating and sustainable—and it achieves all this while being great for our environment.

The worst thing any government can do for any industry is to unduly prevent or inhibit investment. This is something that we should be promoting rather than stifling. In my meetings with these companies one of the common calls they make is for us to redress the current legislative regime. In Bombala and Delegate it is imperative, with a number of other industries in doubt, that the government does their best to sustain an industry which is building the region up. They are building towns up which would otherwise be looking elsewhere for investment in other industries. It is vital for this industry, which we are trying to build up right around the nation, that this bill be supported. I call on members from both sides of the chamber to support its expediency through parliament.