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Monday, 1 December 2008
Page: 7752

Senator MILNE (8:27 PM) —I rise to sum up the debate, to close it, and also to thank all of those senators who have contributed to the debate this afternoon and evening for the considered positions that they have taken right across the board in relation to this legislation. There are a number of issues to go through, and I will go through them as logically and quickly as I can. The first point is that the legislation says that ‘the tax deduction encourages the establishment of forests that can contribute to Australia’s target’. If you are establishing forests to as rapidly as possible contribute to Australia’s target then you want to have your trees maximising the volume of carbon that they can sequester in the shortest possible time. That is why the time frame is on this legislation as it is, and that does not lend itself to what the government says is its intention.

Everybody from both the Liberal Party—and I will say ‘the Liberal Party’, because it clearly is not the coalition’s point of view—and the government say: ‘This will not be many hectares. It will only be a small, peripheral kind of measure.’ They say that on the basis that it is going to be on marginal land and so on. But they have not thought it through. That is not what the legislation says. I want to come back to the primary document here, the actual legislation—not everybody else’s musings and interpretations of what the legislation says, but what the legislation itself actually says. When we get to discuss the Tax Laws Amendment (2008 Measures No. 5) Bill 2008, I will be asking the people from the tax office exactly where it says what is alleged to have been the intent.

First of all, you would expect a genuine carbon sink to be permanent. There is nothing in the bill that requires these trees to be permanent. It says it has to be your intention to have a carbon-sink forest and that you cannot get the deduction unless your intention is that you are not going to cut trees down. But there is no penalty if you do. It means you cannot depreciate after the trees disappear over time. But the point is that they are not for permanent plantings necessarily—they can be, but not necessarily.

Secondly, they are not biodiverse. If you are serious about permanent plantings that are going to do the things that everybody in the government and the Liberal Party alleges they are going to do, you insist that these plantings be biodiverse. If they are, you are going to build much greater resilience in the landscape in relation to climate change because you will be planting native species in the areas in which they are endemic in order to maximise the chances of them living and sustaining a biodiverse landscape. If you have biodiverse plantings and they are obviously going to be permanent, then you put them on land that is not your prime cropping land. It would make logical sense to be into restorative measures for areas of your property that were degraded, or for which you had no particular use at that time, and would therefore be suitable for restoration. You would be looking at things like connectivity in the landscape, habitats, improved water retention—all those kinds of things.

But this legislation does not require any of that. It does not say that they have to be biodiverse, and therefore they can be monocultures. If they are monocultures they are not there for the long haul. They are not going to live; the fast growing blue gums et cetera are not going to live for any great length of time but they will bulk up fast, which is the intention here—that is, to maximise the carbon as quickly as possible.

And you will get a water issue. The hydrological impacts here are absolutely critical. I heard both Senator Coonan and Senator Wong telling us that they are satisfied that the environmental and natural resource management guidelines cover that because now there is a reference to groundwater, as well as surface water, but the point is that the guidelines state:

Compliance with this guideline may be achieved by, for example:

Not ‘must be’ but ‘may be’. So there is no mandatory nature to these guidelines at all. They are not mandatory regulations; they are suggested guidelines that you ‘may’ adhere to in various ways.

The minister also said that there is a limit to the extent to which you can use tax law to drive a change of behaviour, which is an admission in itself that there is no way that compliance can actually be forced through regulations or mandatory requirements.

The next point is: who is going to enforce these guidelines? I note with particular interest that it will be the climate change secretary. The Commissioner of Taxation will seek confirmation from the Secretary of the Department of Climate Change that the trees established will be able to achieve the characteristics of a carbon-sink forest. That is a very interesting thing. So how exactly is the Secretary of the Department of Climate Change going to reassure the tax commissioner that this is going to be the case? Who is going to go out there and actually tell anybody whether the surface water or groundwater activity was taken into account and what was done about it? And what does ‘taken into account’ mean? Okay, I plant my trees and I say that I took it into account and decided to disregard it. But nevertheless I took it into account and therefore I am deemed to comply even though I decided in the end that I did not need to do anything about it.

In relation to land clearance, the minister just pointed out that you cannot clear native vegetation because the legislation is using the Kyoto rules:

… on 1 January 1990, the area occupied by the trees was clear of other trees that

- attained, or were more likely than not to attain, a crown cover of 20% or more, and

- reached, or were more likely than not to reach, a height of at least two metres

In other words, it does not preclude the clearance of vegetation that is not covered by the Kyoto forest definition, but you can have other native vegetation. You could have brigalow on the land, for example. You would be able to clear native vegetation if the native vegetation did not conform to the definition of a Kyoto forest. So that is wrong; the minister was wrong to say that. She should have quoted the entire bit, because that is the significant issue here.

In terms of land clearance, as I indicated before, you are deemed to have complied if you have avoided land clearing of remnant native vegetation as determined by the relevant state or territory legislation, which is a beautiful thing, except some states and territories do not have any legislation, so you will have complied if you do nothing because there is no legislation to comply with.

I note that the minister and Senator Coonan are also happy that we are including adhering to applicable state, territory or local government land use planning legislation, assuming that land use planning legislation actually protects agricultural land. I do not think so. There are constant changes to planning schemes to exclude the forestry sector from consideration. In Tasmania that is specifically the case. You can apply for your plantation forest under such provisions as would then exclude consideration by local government. They have been desperate to try to get local government control back over this but of course it has not been possible.

The other issue here that Senator Coonan and the minister were talking about related to the fact that apparently it is not going to be economic to put a carbon-sink plantation on high-quality agricultural land. Well, it will be because managed plantation investment schemes have offered tax-effective investment for wood growing for primarily hardwood chips for export. These provisions have generated a hardwood chip glut. That is what we have got now. And according to the government’s own projections, substantial plantation resources are poised to come on-stream by around 2010 and Australia’s existing hardwood and softwood plantation estate is nearing two million hectares and is capable of meeting virtually all our needs—wood needs—and substituting for all our native forest chip exports. Wood is therefore unlikely to provide a sufficient market for a significantly expanded tree-planting program to affect Australia’s post-2012 emissions targets.

In a recent submission to the government’s Carbon Pollution Reduction Scheme green paper, Judith Ajani and Peter Wood reported model findings that at relatively low carbon dioxide prices—around $10 to $15 a tonne—existing MIS hardwood plantation growers are likely to receive more revenue by switching their plantations from the wood market to the carbon market. If such a switch happens or if carbon-sink forests dominate Australia’s sequestration agenda, superior terrestrial carbon storage systems will be sidelined in Australia’s climate change mitigation policy. These ecosystems—native forests, rangelands, grasslands and woodlands—store carbon in resilient self-generating ecosystems and they offer low-cost, large-scale and permanent carbon storage that plantations, including carbon-sink forests, cannot. The Carbon Pollution Reduction Scheme as proposed is setting up native forests for wood production and plantations for carbon storage, which is the reverse of what should be occurring.

What is now going to happen is that the plantations in the ground are going to be kept for the credits that they generate under the Carbon Pollution Reduction Scheme and they will be tradeable. As a result, logging will be driven more intensely into native forests because under our current accounting system, which is the Kyoto accounting system, native forest logging is deemed to be carbon neutral. So, instead of getting out of native forest logging, this is going to create a perverse incentive for those plantation owners to keep these plantations for carbon and to drive the logging of native forest. That would be an absolute disaster in terms of a perverse incentive.

Contrary to what is being said by the Liberal Party or by the government, at a price of $10 to $15 a tonne on carbon we are in deep trouble here in terms of taking up land. Do not for a minute think that somehow this is going to be restricted to areas which are marginal agricultural land. There is nothing in the legislation—and let’s get back to this; it is the legislation itself that counts—to say that the trees planted have to be in the ground for any length of time; there is nothing to say that they have to be biodiverse, they can be a monoculture; and there is nothing in the legislation that requires a hydrodynamic modelling exercise as to either groundwater or surface water before you plant anything.

On the issue of land ownership, once again I have had the Liberal Party and the government quoting a tax office determination, but I want to know where that is in the legislation. The legislation says, in relation to the establishment of a carbon sink forest, that you can tax deduct all your capital expenses except those relating to the clearance of land or the draining of a wetland. Under those provisions, the only link with the MIS provisions which were set up under the horticultural division, the legislation specifies that if you have a tax deduction under the MIS scheme you cannot get it under this one. There is nothing else in the legislation that precludes the land costs. This is something which will end up being tested in the courts.

Honourable senators interjecting—

Senator MILNE —And I am interested that Senator Conroy is not the least bit interested—

The ACTING DEPUTY PRESIDENT (Senator Forshaw)—Order! There is a little bit too much conversation across the chamber.

Senator MILNE —Thank you, Mr Acting Deputy President. As I said, there is nothing in the legislation that precludes the land costs and this will end up being tested in the courts because the big end of town is coming after this, big time. As was indicated by Senator Nash when she was speaking about the tax break for the big end of town, this legislation is designed for the coal industry. It is designed for the big polluters, for the aviation industry, for the aluminium industry and so on. They will be able to establish fast-growing, rapid offsets using water and good land. They will offset their emissions and there will be a shift of taxpayers’ dollars to the mitigation effort of these companies.

They will get free permits under the emissions trading scheme and they will get taxpayers’ dollars to offset their emissions. They are getting a double take whilst driving up the price of land, driving up the price of water, displacing cropping land and displacing agricultural communities. That is the reality of where we are going. In terms of biodiversity, even more appallingly, the logging effort will be driven even more solidly into native forests as the MIS companies get a better price for holding their plantations as carbon rather than for harvesting them as wood product. In fact, what we will find is that the MIS companies will repackage. They will set up separate companies within the main company and they will shift the effort in relation to how much they put onto the wood market and how much they keep for the carbon market, and they will package that accordingly.

None of this was thought through in the legislation. It seems that there were some fairly naive people sitting around saying that it would be nice if we gave people a tax deduction to plant forests, on marginal land, that will never be cut down. If that was the intention that is not what the legislation delivers. I do not care what the explanatory memorandum says or what the tax office ruling has determined; this parliament has been misled. It has been misled by very poor drafting that does not give effect to what the government thinks it might be doing or indeed to what the Liberal Party might be doing.

We will be back to revisit this but not before there has been a megadisaster in rural Australia in terms of land use. We have already seen it in Tasmania and we have seen it in Victoria and in Queensland. Right around the country we have seen displacement as a result of managed investment schemes. People said at the time that it would not happen, but it did. I know that the Leader of the Opposition has been saying that this will just be marginal land and that the trees will be permanent. That will not be the case. This will be about monocultures and fast-growing ones. It will be bulking up the best land with displacement in rural communities and with a big tax deduction for doing so.

In summing up the debate, I thank all the speakers. I note that Senator Boswell talked about the land price distortions and undermining food security, and that is absolutely where we are going. It will mean double-dipping, as I said before, and, as Senator Boswell pointed out, it will mean that the managed investment schemes will convert to carbon sink forests and drive loggers into the native forests because of the distortion in the Kyoto accounting, which does not allow for emissions from native forest logging. I note that Senator Joyce talked about the destruction of rural communities, as did Senator Williams—and they are absolutely right.

Senator Brown also talked about the perverse outcome of driving the logging into native forests and the loss of the superior carbon stores in favour of inferior monoculture plantations. It is ludicrous that we subsidise the logging and clearing of the stores whilst giving a tax deduction for fast-growing plantations at the community’s expense. Senator Heffernan talked about the perpetuity laws. Senators Xenophon and McGauran also pointed out the impacts on rural Australia. Senator Nash spoke on rural and regional Australia and on the economic sustainability of country towns, and Senator Fielding mentioned his concern after having spoken to some farmers in Victoria.

In conclusion, it is very clear where this Senate is going to go on this motion. I have followed and thought about this issue very carefully for a long time. It disappointed me that, having moved for this disallowance motion, some six weeks later the government still had not got back to me when we had all discussed the possibility of negotiating an alternative set of guidelines which would be mandatory and which would give effect to these carbon sink forests in the way we wanted. The government did that while no doubt confident that the Liberals would be supporting them so they did not need to put the work into it, frankly.

This issue will come back to bite this parliament but, more particularly, the greatest concern is that it is too late once these people have bought up massive amounts of land, the deductions have taken place and the distortion is already in the market, because you cannot retrospectively come back in here and try to take it away after the event. We are indicating here that this is what will happen. Allowing the opt-in under the Carbon Pollution Reduction Scheme is a disaster because it provides the incentive, the driver, for this to go mad in the scheme. What should be happening is that subdivision 40-J, giving upfront deductions for carbon sink forests plus the coverage of reafforestation in emissions trading, should be suspended while policy incorporating the land use sector in Australia’s climate change mitigation strategy is developed. That is what we should be doing. We should be getting rid of this. We should not be allowing the voluntary opt-in of plantations into the Carbon Pollution Reduction Scheme; rather we should be looking at our whole land use sector, going back and getting full carbon accounting in terms of the carbon stores we have, separating the emissions from logging and looking at this in a holistic way.

I thank the senators for their contribution and I urge support for this disallowance motion so that we can come back and get it right. I urge the government to consider not putting in those plantations as an opt-in in the Carbon Pollution Reduction Scheme, because that will be the price signal that really drives this in a way that you have not thought about but we all have.

Question put:

That the motion (Senator Milne’s) be agreed to.