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States and Northern Territory Grants (Rural Adjustment) Amendment Bill 1992
House: House of Representatives Portfolio: Primary Industries and Energy
Purpose To provide a debt restructuring with interest and crop planting subsidies to certain farmers under the Rural Adjustment Scheme.
Background Outline of Characteristics of Australian Farms: The number of establishments that conducted agricultural activity decreased by approximately 2.4% to 125 615 between 31 March 1990 and 31 March 1991. 1 The largest fall occurred in Queensland, down approximately 4.5% to 25 129, followed by Tasmania, down 3.7% to 3 560, Victoria down 2.2% to 32 415, New South Wales down 1.8% to 36 651, Western Australia down 1.3% to 13 121 and South Australia down 1.1% to 14 392. 2 The largest decrease was in the sheep industry, down approximately 7.6% from 26 289 to 24 298. 3 Despite an overall decline, the peanut industry recorded an increase of approximately 20.2% from 163 to 196 establishments. 4 Increases were also recorded in the cotton industry, with an increase of 14.2% from 586 to 669 establishments; the sheep- meat cattle industry, up 5.7% from 8 747 to 9 244; and by the meat cattle industry up 3% from 18 948 to 19 509. 5 In the year ended 31 March 1991, approximately 46% (57 756) of establishments had an estimated operational value of less than $100 000, compared to 47.9% (61 683) in the previous year. 6 Prices received by Australian farmers are forecast to rise by approximately 2% in 1992- 93 with stronger wool prices forecast for 1992- 93 being a major contributor. 7 However, as prices paid by farmers for inputs are also forecast to rise by approximately 3%, farmers' terms of trade in 1992- 93 are expected to be largely unchanged from the 1990- 91 and 1991- 92 levels. 8 Aggregate net farm cash income in 1992- 93 is forecast to rise by 27% to $4.45 billion and net value of farm production in 1992- 93 is forecast to total $1.7 billion. 9
The Rural Adjustment Scheme: The Rural Adjustment Scheme (RAS) is the major program implemented by the Commonwealth to assist rural industry structural adjustment, ease adjustment pressures and assist farmers to leave the industry if they are no longer viable. The RAS operates under the States and Northern Territory Grants (Rural Adjustment) Act 1988 (the Principal Act). The Principal Act contains a schedule of agreements between the Commonwealth and the States and Northern Territory. All the agreements are identical. The Principal Act covers all agricultural, pastoral, dairying, horticultural and apicultural industries (Note: the RAS does not cover the fishing industry). The legislative purpose of the RAS is to assist in maintaining and improving the efficiency of Australian rural industries. The objectives of the RAS include to enable farmers to overcome financial difficulties arising from causes beyond their control; assisting farmers to improve their technical and financial performance; and allow farmers to make an orderly exit from farming and successfully re- establish themselves post- farming if they are without prospects in the rural industry. The strategies to be employed in achieving the objectives include: carry- on finance; capital restructuring; increases in farm size or capital intensity; farm enterprise changes; access to information on technological developments and their application; and the acquisition of improved skill levels.
The RAS comprises three major elements named Part A, Part B and Part C. Part A Part A provides assistance for structural adjustment purposes in the form of interest subsidies, loans or grants to farms assessed as having prospects for long- term profitability, but who are currently experiencing short- term financial difficulties. Part A finance can be made available for: increasing farm size; increasing capital intensity; changing farm enterprises; adopting technological developments; capital restructuring; and acquiring farm management skills and professional advice. Part B Part B provides carry- on financial assistance for farmers assessed as having prospects for long- term profitability but are experiencing a short- term downturn through economic and/or climatic factors. Assistance takes the form of short- term interest subsidies on loans. Part B is financed on a dollar for dollar basis with the States and Territories. Part C Part C provides assistance to farmers assessed as being without prospects of a return to profitable operation. Part C assistance takes the form of household support payments and re- establishment payments.
The majority of funding under the RAS has been provided by the Commonwealth under Parts A and C. The subsidy paid in 1990- 91 for Part A was $49.383 million. 10 In 1990- 91, Commonwealth expenditure under Part C was $7.798 million compared with $5.156 million in 1989- 90. Total Commonwealth expenditure on the RAS is estimated to total $160 million in 1991- 92. 11
The principal amendments proposed by this Bill were announced by the Minister in April 1991, October 1991 and February 1992. 12 On 17 April 1992, the Minister announced the establishment of a program to provide a debt restructuring and interest subsidy to farmers. Basically, this assistance is intended for farmers assessed as having prospects of long- term profitability but due to reasons including low incomes are not able to obtain additional finance from their creditors. The aim of this assistance, as stated by the Minister in the Second Reading Speech to this Bill, is to improve farmers' cash flows. On 29 October 1991, the Minister announced that the funding contributions ratio of the Commonwealth and the States and Northern Territory under Part B would be changed from 1:1 to 2:1. The stated aim of this measure is to encourage the States and the Northern Territory to fully implement Part B. 13 On 27 February 1992, the Minister announced that the Government would establish a $21 million crop planting scheme for the 1992 winter. The scheme, which has been available since March 1992, provides eligible farmers with a 75% interest subsidy on commercial finance to meet the costs of crop establishment. As stated in the Second Reading Speech to this Bill, to be eligible for assistance under the scheme, the farm enterprise has to have prospects for long- term profitability but is currently unable to obtain sufficient commercial carry- on finance to undertake normal cropping programs.
The cost to Commonwealth revenue of the debt restructuring with interest subsidy is given in the Explanatory Memorandum to this Bill as $40.47 million in 1991- 92. The cost to Commonwealth revenue of the crop planting scheme is unclear. In the Minister's 27 February 1992 Media Release, it was announced that the Government would establish a new $21 million crop planting scheme for the 1992 winter and the 1992- 93 summer crop planting seasons. In the Explanatory Memorandum to this Bill the cost of the scheme is given as $13.29 million ($6.5 million being provided in 1992- 93). In the Government's One Nation statement of 26 February 1992 it is stated that the scheme will be Commonwealth funded with additional funds of $10.8 million and $6 million being made available in 1991- 92 and 1992- 93 respectively. 14
Main Provisions The Principal Act contains a schedule of agreements between the Commonwealth and the States and Northern Territory. The main amendments proposed by this Bill take the form of amending agreements and are contained in the schedules to this Bill. Clauses 7, 8 and 9 will give the Commonwealth authority to execute the agreements as set out in Schedules 1- 3 of this Bill. Proposed Schedules 2- 4 will be inserted into the Principal Act by clauses 12- 14.
Schedule 1: Clause 6 of the Schedule of the Principal Act sets out the strategies to be employed in achieving the objectives of the RAS. Sub- clause 6(1) of the Schedule of the Principal Act provides that the strategies to be adopted to overcome financial difficulties arising from causes beyond a farmer's control shall be to facilitate carry- on finance and capital restructuring. To these strategies will be added, by sub- clause 2(b) of proposed Schedule 2 of this Bill, debt restructuring with interest subsidies. Sub- clause 2(b) will be taken to have commenced on 20 December 1991 (clause 2).
Clause 10 of the Schedule of the Principal Act provides that subsidies paid under Part B shall not exceed 50% of the interest payable on loans, and the States and the Northern Territory are to bear half the cost of the subsidies out of their own funds. The effect of sub- clause 2(e) of proposed Schedule 2 of this Bill will be to reduce from half to one third the funding contribution for Part B assistance required to be made by the States and territories. Sub- clause 2(e) will be taken to have commenced on 20 December 1991 (clause 2).
Schedule 2: Clause 2 of proposed Schedule 3 provides for assistance under the crop planting scheme. The crop planting scheme will be taken to have come into force on 1 March 1992 (sub- clause 1(2) of proposed Schedule 3). Subsidies paid under the crop planting scheme are not to exceed 75% of the interest payable on, and associated costs of, loans for the establishment of broadacre (i.e. cereals, coarse grains, oilseeds, peanuts, and grain legumes) and sugar (i.e. sugar and cane sugar) crops. Crop planting scheme assistance will be available for the year ending 31 December 1992.
References 1. Australian Bureau of Statistics, Characteristics of Australian Farms 31 March 1991, Catalogue No. 7102.0, May 1992, p. 1. 2. Ibid. 3. Ibid. 4. Ibid. 5. Ibid. 6. Ibid. 7. Australian Bureau of Agriculture and Resource Economics, Agriculture and Resources Quarterly, Vol. 4, No. 1, March 1992, p. 9. 8. Ibid. 9. Ibid. 10. Rural Adjustment Scheme, Annual Report 1990- 91, p. 11. 11. Budget Statements 1991- 92, Budget Paper No. 1, p. 3.174. 12. Minister for Primary Industries and Energy, Media Release, 17 April 1991. Minister for Primary Industries and Energy, Media Release, 29 October 1991. Minister for Primary Industries and Energy, Media Release, 27 February 1992. 13. Minister for Primary Industries and Energy, Media Release, 29 October 1991. 14. Prime Minister, One Nation, February 1992, p. 91.
Remarks The amendments proposed by this Bill have received general support from rural industry lobby groups. For example, in response to the announcement of the debt reconstruction with interest subsidy, the then President of the National Farmers Federation, in a Media Release of 17 April 1991, is reported as saying that "... new provisions within the Rural Adjustment Scheme for debt reconstruction and interest subsidies could be particularly helpful". Similarly, the President of the Grains Council of Australia, in a News Release of 27 February 1992 is reported as saying that "... the increased carry- on finance provisions under the Rural Adjustment Scheme and the 75% interest rate subsidy for commercial carry- on loans would go some way to assisting Australian grain growers to plant a crop this year".
In contrast, a number of commentators have questioned whether the RAS and rural aid generally is in the long- term interests of the rural community. For example, Senator Walsh is reported in The Australian of 31 January 1992 as saying that the farming community had no more justification in calling for government assistance than the rest of the population. Similarly, an academic commentator has concluded that the RAS is a flexible device for increasing cash flow of poorer farmers and depressed regions which is very sensitive to policy- makers' preferences and changes in them, and that the need for intervention in the adjustment process on efficiency grounds would not seem to be established (see W.F. Musgrave in Agriculture in the Australian Economy, Sydney University Press, 1990).
Bills Digest Service 15 May 1992 Parliamentary Research Service
For further information, if required, contact the Economics and Commerce Group on 06 2772460.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Commonwealth of Australia 1992.
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Published by the Department of the Parliamentary Library, 1992.