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Monday, 1 December 2008
Page: 7720


Senator BOSWELL (5:00 PM) —I rise to support the motion to disallow the environmental and natural resource management guidelines made under section 40.1010(3) of the Income Tax Assessment Act 1997. I see this disallowance motion as the down payment on a fundamental restructuring of the economy to be achieved by the government’s Carbon Pollution Reduction Scheme. It is because this issue is so important that I join my fellow Nationals in making a stand. Crossing the floor is the longest walk in politics. It should not be done in hubris or for effect or revenge but in sincere commitment and belief that the decision before us is above ordinary gravity, and I believe that is the case today.

The guidelines facilitate a tax deduction for established carbon sinks. If successful, this disallowance motion will render the deduction inoperable. Let me repeat: the new law is completely inoperable without the guidelines that spell out the environmental and natural resources management process in relation to the establishment of trees for the purpose of carbon sequestration. I have received internal advice from the Department of the Senate and external advice from a prominent barrister confirming that, without these guidelines, the legislation is inoperable. It will not be possible to plant trees and incur expenditure for establishing trees in carbon sink forests unless the guidelines have first been made.

One of the conditions for the deduction is that you must meet the requirement of the guidelines—no guidelines, no deductions. Why is this issue so important? Because the tax deduction has the potential to distort land prices in major agricultural regions, moving food-growing land to carbon sink land and undermining food security. This is important because the legislation, which prohibits the management of investment schemes to act as a tax incentive, is being thwarted. Managed investment schemes are already lining up to exploit a loophole that allows them to take advantage of this carbon sink deduction.

Most importantly, this tax deduction represents the first shift of taxpayers’ money and a mammoth structural change to the economy with the government’s Carbon Pollution Reduction Scheme. To give carbon sink forestry operations a significant tax advantage over food-producing operations will inevitably distort the market in favour of carbon sinks. The current guidelines contain nothing to contradict this conclusion. Providing a tax incentive to one sector of the market—in this case the carbon sink investors—will raise the rate of return on their investment. In contrast, traditional agricultural land, void of an equivalent tax incentive, will suffer a comparative decline in rate of return. Consequently, rural land will lose its value as a food-producing resource.

The value of marginal and prime land will be changed under preferential treatment given to carbon sinks over food production. This will have the ongoing effect of weakening the strong farmers, who will not be able to expand the size of their holdings. They will not be able to afford the prices being paid by the carbon sink operators. These guidelines artificially inflate the price of land and put it out of reach of the farmers; therefore, more and more land will be taken from farming and food production and tied up in carbon sinks for generations.

The guidelines create a discriminatory tax benefit with similar effects to those of managed investment schemes. The added downside to the carbon sink tax incentive is that carbon sink forests are supposed to be permanent and, therefore, the market for food land cannot make a comeback even if returns should improve for food producers. The tax incentive and accompanying guidelines are a clear case of distorting the market and creating an unfair advantage for one land user over another.

The importance of food-producing land and food security in Australia is undermined through these tax incentive guidelines. Australia has already seen how a taxation incentive can be used to distort land prices. There has been an invasion of forestry based managed investment schemes into prime agriculture land, which threatens the viability of farming land and food production. The Senate inquiry that looked at this deduction was told by the Canegrowers Association that 14,000 hectares of prime cane land has been lost to forestry managed investment schemes. The sugar industry is concerned that land use will move towards carbon sinks, just as it has moved towards managed investment schemes. But it is not just sugar-growing areas that are being affected; it is everywhere and anywhere that there is good rainfall and agricultural land, including land presently under dairy, horticulture and other cropping.

The legislation attempts to make managed investment schemes ineligible for a tax deduction for the establishment of carbon sinks; however, the MIS industry is attempting to find a way around that. There are already managed investment schemes seeking to change their structure to take advantage of the new tax deduction on carbon sinks and, in doing so, broaden their income stream. The publicly listed Great Southern Ltd or GSL, an MIS, announced to the Stock Exchange in August that they were restructuring, with the main investment objective of capturing the potential benefits of carbon emission trading. One of the sugar processors has written to me, asking that ‘Forestry MISs not be allowed’—in their words—’to double dip; that is, to take a tax advantage to establish trees for harvest and then convert the scheme to allow for sequestration credits’. The concern is that MIS tax incentives extend over years and, in contrast, tax deductions for carbon sinks are over one financial year.

But it is not just the farmers, the millers and the processors who are worried; it is the unions as well who opposed these guidelines in their submission to the Senate inquiry. A third-generation Tully mill worker later commented to the effect that, if this takeover of farming keeps going like it has, there will not be a fourth generation of his family working at the mill. That is because the mill needs a critical mass level of production to keep it viable. If there is less land for farming and less product, the mill cannot operate efficiently and costs go up. It must get a critical mass. That is the same for a dairy factory or any other food processor.

The Australia’s low pollution future report by Treasury refers to the ‘Garnaut-25’ scenario, which sees around 40 million hectares of new forestry plantations established from 2005 to 2050. It is difficult to picture how much land 40 million hectares is. The total area sown for winter crops in Australia in 2008-09 was estimated to be slightly less than 22 million hectares. Double that and you will get an idea of how much land is being forecast for new forestry plantations. Australia’s plantations 2008 inventory update reports that Australia has less than two million hectares of plantations currently. This means that a large amount of food-producing land is projected to be turned into forestry. This raises the question: if we put 40 million hectares into plantations, where on earth do we put those 240 million kangaroos that we are supposed to farm, according to Professor Garnaut?

In March this year, Australian Securities Exchange General Manager Anthony Collins told an ABARE conference that ‘the value of issuances in the Australian emissions trading scheme could be around $120 billion over the next 10 years, more than twice the value of the Australian government bonds market’. Little attention has been given to this extraordinary summation of the emissions trading market or to its implications. The financial services industry must be salivating, and some big business is counting on free permits, courtesy of the taxpayer, to get by. But, for everyone else, this is a huge carbon tax that will flow through the nation’s businesses and households.

As a National, I am particularly concerned about the impact on agriculture. The potential impacts of an emissions trading scheme on agriculture in Australia were estimated by ABARE in June this year to result in ‘agricultural production costs rising by three per cent for livestock and 4.5 per cent for cropping in Australia if agriculture is excluded from the scheme; and agricultural production costs rising by 18 per cent for livestock and six per cent for cropping in Australia, if agriculture is included in the scheme’. If today’s carbon sink regulation is like Australian farming having a stroke, then the ETS to come will have the impact of a heart attack on rural industry. And do not forget the consumer. If it costs a beef producer an extra $180 a beast to get it to market, who will pay? The consumer will not and the producer cannot without going out of business. How attractive it will be to grow trees instead. But then how do we feed ourselves and how do we replace valuable food exports?

You have to question the government’s genuineness in all of this. Senator Wong delivers lecture after lecture on the need to set up an ETS by 2010. Forget what the rest of the world decides to do in Copenhagen or what Obama gets through congress. Forget all that; Minister Wong wants Australia to go over the top and rush the enemy carbon lines without any covering fire. Some industry players think it will be okay to come out of the trenches because they will be given free cover in permits. But the permits do not last very long and there are not enough to go round. The foot soldiers of industry and agriculture will be told to go over the top and brave a world riddled with the bullets of a financial crisis. They will have extra carbon costs that will make it difficult for them to survive. Big businesses will just move out of Australian trenches and find a neutral country where they can operate without worrying about the carbon fire.

Today with this disallowance we are digging the first line of trenches for Australian industry as it comes to grips with a 2010 emissions trading scheme. Meanwhile, back at the Wong ranch, government departments putting the 2010 brand on the carbon cattle have not even done their own budget costings of what the Carbon Pollution Reduction Scheme will cost them. In October estimates I asked what work had been done on analysing the government’s own CPRS liabilities. They had no answer then and took it on notice for every department. I have received a reply from the Infrastructure, Transport, Regional Development and Local Government portfolio. They say simply that the design of the CPRS has not been finalised. The only other reply says, ‘The Attorney-General’s portfolio has not endeavoured to estimate the operations cost to the department under the Carbon Pollution Reduction Scheme.’ That means that the government do not know what their cost blow-out will be under a CPRS and they have not done the work on it. Think of all the emissions from department buildings and cars—yet they expect business to cop it sweet in 2010. We are not talking about minor costs, either. The community sector raised concerns early on about how they were to pay their increased power bills under the ETS, yet there is no provision for these significant costs in forward estimates.

So we have a government carbon general pushing the industry troops out of the trenches to face open warfare from the rest of the world, who are not playing by the same rules. It is like our government generals are acting on behalf of some other government—not the Australian one. We must hold off from establishing an ETS before Copenhagen, at least. It is crazy to self-sacrifice jobs and exports with no chance of taking any carbon ground if the rest of the world is not with us in the trenches. This carbon sink regulation is part and parcel of changing the underlying structure of the economy to suit the hastily designed and imposed Carbon Pollution Reduction Scheme. It sends the first wave of foot soldiers—once again, farmers—over the top and into a new conflict where there will be many casualties.

There has already been an international volley fired in the carbon war. The British government is imposing a $400 green surcharge on Australians travelling home from the UK on Qantas aircraft. This is marketed as a new method to help save the planet but, let’s face it, it is an opportunistic revenue raiser for the old country that takes money from the colonies and makes it harder for our tourism industry. Have we entered the age of a new green imperialism? Perhaps. It is very hypocritical of the UK, because the new tax takes no account of the environmental efficiencies being made in planes that fly in and out of Australia or of the fact that short-haul flights in Europe create comparatively more greenhouse gases.

The subject of today’s disallowance motion can be likened to the first step on a slippery slope towards a wholesale restructuring of the economy and how we do business in Australia. Today it is about impaired food security and the viability of rural communities and infrastructure. Tomorrow, or certainly by 2010, it will be about the carbon tax—the equivalent of adding two bond markets onto our financial system, or $120 billion of issuances over 10 years. The only businesses that will win are those that go offshore where there are no similar restrictions. They will seek an emitters’ paradise and go unregulated. Other businesses think they can walk through this maelstrom of market changes unscathed because they will get free permits. How long do they think that will last? How long will it be before their suppliers, with no protection against rising carbon input costs, go to the wall?

No-one can escape the carbon tax past the very short term. If you think you are safe, just think of the deals that will be done in this chamber by a Labor government wanting the Greens’ support in the Senate and preferences in election campaigns. Once the CPRS is established under legislation, all the levers and frameworks are there to turn off free permits and change caps and trajectories at the whim of a Senate vote. Only one kind of business left in Australia will truly be a winner: the moneychangers, the financial whiz-kids who have brought the world economy to its knees because of reckless greed and dysfunctional regulation. Are we really going to reward them with brokerage fees for $120 billion? John F Kennedy once warned:

… those who foolishly sought power by riding the back of the tiger ended up inside.

Karl Marx famously said:

The last capitalist we hang shall be the one who sold us the rope.

Today the Senate votes on a tiger and that rope. We vote on whether to allow the big end of town to distort the market through tax advantages that put trees ahead of food and farmers. In doing so, we vote on whether to begin undermining the efficient allocation of resources that allows economic progress and prosperity.

The big companies that will benefit if this disallowance motion is not passed will eventually fall victim to the process the legislation begins—a process that attacks the jobs and exports of a country that needs both to survive in this competitive and crisis-afflicted world. If this disallowance motion fails then we will have taken the first step in ushering in a green ‘brutopia’. Take away the farms and the food, tax the resource- and energy-intensive industries, and Australia is no longer Australia. We will be a land of forests and misery. We will be poor and unable to help the poorer. We will be unemployed and unable to offer jobs to future generations. I urge all senators to consider this disallowance motion not as some insignificant fraction of a day at the office but as a keystone event in our history. Once we embark on this voyage of harm to our natural competitive advantages, we start to dismantle the sails that took us to such a lucky country. We do not want to end up inside the tiger or at the end of a rope we fashioned ourselves.