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Tuesday, 25 November 1986
Page: 3708

(Question No. 4204)


Mr Andrew asked the Minister for Primary Industry, upon notice, on 3 June 1986:

(1) Further to his answer to a question without notice (Hansard, 29 May 1986, pages 4242-3) which rural policies of the previous Government has the Government changed and what were the consequential changes in outlays or receipts in the financial years 1982/83 to 1984/85.

(2) What major rural policy changes have been introduced by the Government and what were the consequential changes of magnitude of $0.5m or more in outlays or receipts in the financial years 1982/83 to 1984/85.


Mr Kerin —The answer to the honourable member's question is as follows:

(1) and (2) Details of significant changes to rural policy during the years 1982-83 to 1984-85, together with general policy changes which have has particular implications for the rural sector, are given below.

Where practicable estimates have been provided of the change in: Government revenue; Government budgetary expenditure, or the sector's revenue or costs.

I should emphasise, however, that though it has not been possible to provide estimates for some of the more far reaching reforms, some of these policies will have a much greater impact on the industry's competitiveness and long term prosperity than some of the measures for which estimates can be made.

Further, the Government has since 1984/85 introduced a number of major new assistance measures, including the substitution of bounties for tariffs where possible, and new marketing initiatives. It has also embarked on several new trade initiatives.

It should also be borne in mind that the overall impact of policy changes to the rural sector or the consequential changes over a number of years cannot be evaluated by adding up individual annual estimates. The figures would be meaningless as they would be based on the untenable assumption that everything else has remained unchanged.

Tax averaging

From 1983/84, the automatic ``in-out'' nature of the taxation arrangements for primary producer income averaging ceased Marginal tax rates are now based solely on average income.

Under the previous provisions, tax was calculated by reference to the rate of average income only in years when current income exceeded average income. This not only ensured that variable primary producer income did not attract a higher tax than others who had an equivalent total income over the same number of years, but also had the incidental effect of ensuring a lower rate of taxation for primary producers.

The estimated change in receipts for 1983/84 was $15m and for a full year $20m. This varies considerably with the levels of farm incomes in any particular year. Estimates are not available for other years.

Income Equalisation Deposit Scheme

From 1 September 1983, new arrangements were introduced under the Income Equalisation Deposit Scheme. Deposits no longer qualify for a tax deduction when made, nor are withdrawals included in assessable income.

The previous arrangements were inequitable as the benefits to producers varied according to their level of taxable income. Under the new arrangements, interest is paid at a rate 2% higher than the two year bond rate. This is significantly higher than the rate which applied under the previous scheme and thus provides an incentive for participation in the Scheme while at the same time ensuring a fairer Scheme.

Details of the net effects on Government revenue from these changes are not available.

Depreciation of Farm Storage Facilities

On 19 July 1982, the depreciation period for certain primary production plant, including structural improvements for the storage of hay, grain or fodder was reduced from 5 to 3 years. Subsequently, on 19 May 1983 the 5 year depreciation arrangement was reintroduced for plant items acquired under a contract entered into or commenced to be constructed by a taxpayer after that date.

The decision to reduce the depreciation period from 5 to 3 years was directly related to the extra need for storage on farm during the drought and the special assistance required to counter perilously low drought-affected rural incomes. However, its use as a means of providing only short-term assistance recognised the distortions it could have induced in resource allocation had it been maintained over the longer term.

The increase in taxation revenue from this decision was estimated to be $9m in 1983-84 and $50m in a full year. More detailed estimates for subsequent years are not available. Again they would vary according to the income levels of farmers. The benefits from improved resource allocation have not been estimated.

Depreciation Rates for Fuel Storage Facilities

Special depreciation provisions (immediate write-off) for certain facilities and ancillary plant used for the storage of petroleum-based liquid or gaseous fuel were terminated on 19 May 1983. Normal depreciation allowances therefore now apply to facilities acquired under a contract entered into after 19 May 1983 and to facilities whose construction commenced after that date.

Details of the increase in taxation receipts after return to normal depreciation allowances are not available.

Depreciation for Land Improvements

Section 75a of the Income Tax Act-which allowed primary producers to deduct over 10 years expenditure not normally subject to depreciation-was abolished with effect from 23 August 1983, unless a contract was entered into before that date. Expenditure eligible for the deduction included land clearing, swamp drainage, ploughing and grassing of land for grazing purposes.

The estimated increase in tax receipts in a full year was $3m.

Values for Natural Increase of Livestock

The Government announced new values to apply for natural increase from 1984/85. The prescribed minimum values for valuing natural increases in livestock at cost price rather than market selling price, had not changed since 1936. The increases raised the minimum values from 40 cents to $1 per head of sheep; from $2 to $5 for cattle and horses; and from 50 cents to $4 for pigs.

The increase in Government receipts from the revised values was estimated at $4m in 1985/86 to rise to $9m in subsequent years.

Depreciation for Disease Control Expenditures

In the 1983/84 Budget, Section 75c of the Income Tax Assessment Act was extended for two years to 30 June 1986. This section now provides for the immediate deduction for expenditure incurred before 1 July 1986 on sub-divisional and stockyard fencing certified as necessary to control or eradicate bovine brucellosis and tuberculosis of livestock.

This extension was expected to reduce tax receipts by $0.5m in each of 1985/86 and 1986/87.

Australian Wheat Board Borrowings

Since 1 July 1983, the Australian Wheat Board has been permitted to source at least 50 per cent of its borrowings from overseas. Previously, to compensate for the higher cost of domestic commercial borrowings, the Government had reimbursed the difference in interest costs between the Board's commercial borrowings and the cost of equivalent borrowings from the Rural Credits Department of the Reserve Bank. As this re-imbursement ceased with the new arrangements, there was a commensurate decline in Government expenditure. The interest subsidy paid to the Board in 1982/83 was $20.9 million.

Petroleum Products Freight Subsidy

When the Government came to office in 1983, the Petroleum Products Freight Subsidy had been operating unchanged in country areas since July 1978. The freight subsidy which was payable to all users in country areas, is intended to offset the additional cost of distributing motor spirit, power kerosene, aviation fuels and automotive distillate in country areas.

The scheme was amended as of 1 June 1983 so that the subsidy applied to freight differential costs in excess of 1.1 cents per litre rather than the previous 1.0 cent per litre and was indexed in line with CPI increases. This ensures that the real value of the freight subsidy is maintained.

Reflecting this change in the subsidy, the total subsidy paid to all country consumers, not just farmers, declined by $5.0m in 1983/84 over the previous year. Despite a further increase in the consumer contribution to 1.2c/litre from 1 July 1984, and the exclusion of power kerosene and all fuel in locations where there was no retail site, the subsidy paid by the Government increased from $116.2m in 1983/84 to $130.2m in 1984/85.

In the 1985 May Statement the consumer contribution to the cost of fuel freight under the Petroleum Products Freight Subsidy Scheme was increased from 1.2/litre to 5.2c/litre to restrict coverage of the scheme to remote locations. Government assistance for this purpose in 1985/86 therefore fell to an estimated $21m compared to $130.2m in 1984/85. The current consumer contribution is 5.7 cents per litre.

The subsidy payments from 1982/83 to 1986/87 are as follows:

$m

1982/83 ...

123.8

1983/84 ...

116.2

1984/85 ...

130.2

1985/86 ...

21.0

1986/87 (est)...

24.0

Fuel Excise

To maintain the real level of excises the excise on motor spirit and diesel fuel was increased by 1.5c/litre and that on aviation turbine fuel by 0.5c/litre in the 1983/84 budget. The rebate on diesel fuel in respect of off-road use, however, remained at 7.155c/litre. The cost to farmers of both petrol and diesel therefore increased. The cost to farmers of this increase is not known.

The increase in Government excise receipts due to these new excise rates was estimated at $295m in 1983/84 and $354m in a full year.

In the 1984/85 Budget, the rebate on off-farm use of diesel fuel was made subject to six-monthly indexation. The first indexation adjustment to the rebate occurred on 2 February 1985 when the rebate rose to 7.341c/litre from the previous 7.155c/litre. A further rise to 7.619c/litre occurred in August 1985.

The estimated cost to the Government of indexing the rebate was $2m in 1984/85 and $11m in a full year.

The Government announced, in the 1985/86 Budget, the full rebate of diesel fuel excise for diesel used off-road by the forestry, farming and fishing industries, effective from 1 November 1985.

The estimated reduction in Government excise receipts was $23m in 1985/86 and $36m for a full year.

Grape Spirit Excise and Wine Sales Tax

The excise on grape spirit used in fortifying wine (item 2j in the Excise Act) was reintroduced in the 1983/84 Budget at a rate of $2.61 per litre of alcohol, thus reinstating an excise which had previously applied from 1901 to 1970.

By September 1983 this renewed excise had been reduced to $1.50 per litre of alcohol and was abolished on 22 June 1984.

In the 1984/85 Budget a sales tax of 10 per cent was introduced on Australian and imported wine and cider effective from 21 August 1984. At the same time, it was announced that the excise duty would be refunded.

The estimated value of refunds to the industry was $5m. Increased receipts from the new tax on wine and cider sales and from the existing excise on expected increased beer sales due to consumer substitution, for a full year were estimated at $62 million. The sales tax was increased to 20 per cent in the 1986/87 Budget with the estimated increase in receipts in a full year being $60 million.

The effect on the rural sector as a whole is not known but would depend on any reduction in consumer demand for wine and cider after the introduction of sales tax.

Soil Conservation

In 1983/84, the Government introduced a National Soil Conservation Program and provided $1m for the implementation of the Program, which directly funds soil conservation projects proposed by individuals, organisations and State government agencies.

The funds allocated to this program increased substantially to $5.5m in 1986/87.

Expenditure under the National Soil Conservation Program:

$m

1983/84 ...

1.0

1984/85 ...

4.0

1985/86 ...

4.7

1986/87 (est)...

5.5

Exchange Rates

In December 1983, the Government announced the free float of the Australian exchange rate, allowing the interaction of domestic economic performance with international conditions to determine our exchange rate. Since the floating of the dollar, the exchange rate has undergone a substantial correction-to June 1986 there has been a real devaluation of about 25% (as measured by the BAE's real effective exchange rate).

For Australian rural exports this has meant that sharp declines in world prices for a wide range of commodities, have been moderated by the devaluation. Conversely, the cost of some inputs has risen.

The net effects of the floating exchange rate are difficult to measure. Nevertheless, the BAE has estimated that the net value of rural production was about $1 billion higher in 1985-86 than it otherwise would have been if the exchange rate had not devalued and interest rates and inflation had also remained unchanged.

Reform of the Statutory Marketing Authorities

This has been a priority area for the Government. The first reforms were initiated in 1983 for the Australian Meat and Livestock Corporation (AMLC). In June 1984, five Bills were passed by Parliament, allowing for:

The restructuring of the AMLC

The formal establishment of the related Selection Committee (to identify suitably qualified persons for appointment to the new Board of the AMLC) and the Meat and Live-stock Industry Policy Council as statutory bodies and

The introduction of comprehensive new consultative and accountability arrangements.

Most of these changes entailed breaking new ground in the field of commodity authority legislation. Although these reforms do not mean any substantial increase in Government expenditure, there are substantial long term though unquantifiable benefits to the industry.

In January 1986, I released a white paper on the Reform of Commonwealth Primary Industry Statutory Marketing Authorities.

In developing policies for these authorities the Government has given close attention to their distinctive characteristics and the environment in which they operate. As they are in essence performing industry functions and also financed by the industries concerned either through statutory levies or from the sale of produce, it is the Government's strong objective that they operate as efficiently as possible.

The major reforms are:

Statutory Marketing Authority Boards will be constituted on corporate lines and objective selection procedures used to seek out high calibre persons for appointment. The Government will be aiming to appoint the best available people to cover the range of professional skills required for directing the authorities' operations.

Subject to strengthened accountability arrangements and strategic Ministerial controls, the Government has provided for greater commercial independence and efficiency of operation by the removal of a wide range of lower level administrative and operational controls on the authorities eg in staffing, finance, land, property and purchasing. These have previously involved Ministers with unnecessary detail, added to the administrative costs of both the authorities and the Government, and distracted the authorities from their business of marketing agricultural produce.

Wool Promotion

In March 1984, the Government announced that it would maintain its contribution to wool promotion over the next five years at a fixed level of 1.2% of the gross value of proceeds from shorn wool subject to the industry at least maintaining its contribution through the Wool Tax at 2.5% of the gross value of proceeds from shorn wool.

The Government contribution under this formula for 1984-85 was $26m compared to $20m in each of 1982-83 and 1983-84 and was $31.5m in 1985-86.

Water Resources

When the previous National Water Resources Program expired on 30 June 1984 the Government introduced a new program-the Federal Water Resources Assistance Program (FWRAP). The new program, which drew upon the recommendations of the report ``Perspective on Australia's Water Resources to the Year 2000'', brought together all the previous Commonwealth water resources assistance programs but based them on more efficient funding arrangements.

The most significant change in the way that State water projects are now funded is that all new revenue producing projects (eg irrigation projects) are funded by loans from the Commonwealth to the States rather than grants as before. States are therefore forced to carefully assess the economics of proposed projects before an application for a Commonwealth loan is made under the program.

Additional funds have been allocated for rural projects under the FWRAP but even more significant benefits will flow from the efficient allocation of funds for the better management of Australia's scarce water resources.

Large grants commitments entered into before the change in the water program have delayed the full realisation of the more widely spread benefits of the new policy. Grants for the construction of the Burdekin Dam ($25m allocation in 1985/86) and the Bundaberg Irrigation Project ($4m allocation in 1985-86), for instance, have accounted for the majority of Commonwealth payments to the States since the introduction of the FWRAP.

Commonwealth budget outlays to the States for rural water resources programs from 1982-83 to 1985-86 are given in the table below.

1982-83

1983-84

1984-85

1985-86

1986-87

(est.)

$m

$m

$m

$m

$m

Irrigation...

11.5

20.7

26.6

Investigation and other water projects...

11.6

8.0

9.1

41.0

40.4

Flood mitigation...

0.3

0.6

0.5

Salinity mitigation and drainage...

7.3

6.2

6.7

6.2

7.7

Recoveries and payments...

(-3.1)

(-3.2)

(-3.2)

(-3.3)

(-3.2)

Total (net)...

27.7

32.1

39.7

43.9

44.9

Sugar Industry Adjustment

Since 1981, the Australian sugar industry has experienced difficulties due to the impact of low world prices. Tight regulation has prevented it from adapting to these changed circumstances.

In October 1984, the Federal Government approved $5 million for special assistance to Queensland cane growers in 1984-85 through Part A of the Rural Adjustment Scheme for debt reconstruction and build-up with a further $500,000 for New South Wales on a similar basis. The funds were provided to assist cane growers who could continue in the industry but for their high debt servicing commitments.

The 1984-85 assistance package for the sugar industry supplemented the $11 million provided by the Federal Government during 1983-84 under Part B of the scheme.

In September 1985, the Government announced its decision on the recommendations of the Sugar Industry Working Party (Savage Committee). The Working Party comprised Commonwealth, State and Industry representatives. The Government's decision was to provide a three year, $150 million package of assistance to the sugar industry, to be matched by the Queensland and New South Wales Governments with $1 for every $2 of Commonwealth funds.

Agreement on a modified package with the Queensland government was finally reached in August 1986. The package includes price support, mill and farm adjustment and deregulation measures to provide much needed relief to Queensland canegrowers and to facilitate revitalisation of the sugar industry. The Commonwealth's outlay is a maximum of $100 million over three years.

Funds allocated in the Budget have already been distributed to support the price of 1985 sugar to a level of $230 a tonne on a $2-for-$1 Commonwealth/State basis. The price will be supported on the same 2:1 basis to $225 and $220 per tonne for the 1986 and 1987 seasons respectively.

The consultative machinery for mill adjustment assistance is now in place in both States. The Commonwealth and Queensland Governments have already endorsed recommendations for mill rationalisation in the Mackay region.

As part of the package the Queensland Government agreed to proceed as quickly as possible with deregulation measures in the State's sugar industry. These measures-which are the legislative responsibility of the Queensland Government, not the Commonwealth-are crucial to the future efficiency and prosperity of the entire Queensland sugar industry. The necessary legislation was passed by the Queensland Parliament in September 1986.

Wheat Marketing Arrangements

New wheat marketing arrangements were introduced for five years from 25 October 1984. Some important changes in wheat marketing were new price underwriting arrangements, the basing of the home consumption price on export parity and the introduction of permit sales for stockfeed wheat.

The benefits of these changes have not been quantified though due to the resulting increases in efficiency, they are expected to be substantial.

The main advantage of the new underwriting arrangement is that underwritten prices are now also determined for categories other than Australian Standard White. Price relativities between different wheat categories are therefore clearly identifiable and cross-subsidisation between categories of wheat has been significantly reduced.

Inspection Services

A number of revised inspections procedures and practices have been progressively introduced from December 1984 as part of an entirely new legislative package covering the Commonwealth Export Inspection Service.

To increase inspection efficiency and productivity there has been a major move to deregulation and/or industry self-regulation with the Commonwealth maintaining a broad oversight of inspection arrangements.

The Government has actively pursued the development of a single national inspection service for meat. Progress towards this goal has continued since 1 July 1983 when the New South Wales Government transferred its domestic meat inspection service to the Commonwealth. All States and the Northern Territory have now agreed to revised inspection arrangements and dual meat inspection charging has been abolished in all States except Western Australia. Estimates of the savings under these new arrangements are difficult to assess, but by the end of 1985, the industry would have benefited directly by some $5m in lower inspection charges through the abolition of duplicate State inspection fees in export works.

In total revised inspection arrangements implemented to date have reduced the cost of inspection and related activities in real terms by an estimated $17m a year.

The previous Government's policy of a targeted 50% recovery for inspection services has been maintained. Fees previously introduced for meat, grains and wool inspection on 1 July 1979, were extended to fish and dried fruits inspection in 1980/81, and dairy products, eggs and edible oils from 1 January 1983.

The first inspection charge to be approved by the new Government was the livestock inspection charge introduced from 1 July 1983. While the Government has continually re-affirmed its policy of 50% cost recovery, we have taken several initiatives to reduce the costs of inspection including giving priority to the introduction of fee for service based charges, and exempting industry from some costs. The costs to the industry therefore have to be considered against the background of the overall reforms in inspection services.

Rural Adjustment

During the period 1983-84 the Government maintained the previously existing Rural Adjustment Scheme (RAS) at a cost of $44 million in 1983-84 and $31 million in 1984-85. Following receipt of the IAC Report on the RAS the Government moved to restructure the Scheme. The Government introduced the new RAS from 1 July 1985. Under the new scheme Part A and B assistance is provided by way of a 50% interest rate subsidy on borrowed funds, rather than by direct lending to the States. Part C was not changed. Funding of $16.83 in 1985-86, allocated for the new RAS Parts A, C and carry-over grants under the old scheme, made available a total of $73 million in loans to farmers. Funding of $34.4 million provided in the 1986-87 Budget should facilitate loans of $240 million.

In March 1985, the Commonwealth Government announced adjustment assistance additional to that available under RAS to assist dried vine fruit growers. The assistance, mainly in the form of vine-pull grants, was agreed to on a $2 Commonwealth: $1 State cost-sharing basis up to a maximum of $5m available until 30 June 1987 with $1.4m budgeted for 1985-86.

Following consideration of the report of the Independent Inquiry into the Grape and Wine Industries, the Government decided to provide $1.6m in 1985-86 to extend similar assistance to the wine grape industry. Subsequently this was supplemented by the transfer of $1.9 million from the allocation for dried vine fruit assistance and a further $3 million was made available in 1986-87 on the same cost-sharing basis.

Research

In February 1985, the Government announced a substantial increase in the maximum levels of Commonwealth contributions for rural industry research through Rural Industry Research Trust Funds (RIRFS).

The Government set as an objective over five years to increase its matching contribution to individual RIRFS to 0.5% of the annual gross value of production (GVP). This would constitute on average a doubling of the Commonwealth contribution.

This new approach better enables the industry to predict the level of funding available. In addition, as Government funding is based on a three year moving average GVP (past year, current, and estimated next year) the impact of fluctuations in GVP on research funding are reduced.

The new funding arrangements are closely linked to the Government's reforms of the RIRFS, announced earlier that month. These reforms constituted a major upgrading of the arrangements for rural research which had not been substantially altered for 30 years. The meat and livestock industry was the first to incorporate these organisational reforms with the establishment of the Australian Meat and Live-stock Research and Development Corporation on 1 July 1985.

Each RIRF is now administered by a Research Council and the Commonwealth Special Research Grants Scheme has been replaced by a statutory based Australian Special Rural Research Fund.

Overall, the new arrangements achieved the following objectives:

To make each research body as autonomous as possible

To ensure appointments to each research body are based on relevant skills and experience.

To provide each research body with clearly identified goals.

The prime objective of the Rural Industries Research Act 1985, however, is to increase the commercial returns to the industries concerned.

The reforms became operational from 1 April 1986.

New funding and administrative arrangements were recently announced for the Fishing Industry Research Trust Account. The Commonwealth will be providing funding to a ceiling of one per cent of the gross value of production of the fishing industry.

Commonwealth contributions to RIRFs, the Special Research Fund and the Fishing Industry Research Trust Account

$m

1982-83 ...

21.8

1983/84 ...

27.1

1984/85 ...

31.4

1985/86 ...

35.6

1986/87 (est)...

44

Fisheries Adjustment

Grants of $3m per year over three years were announced in the first half of 1985, to apply from 1985-86 for the Northern Prawn Fisheries Adjustment Scheme. The first annual allocation has been applied to buy out fishing access rights. The major aim of this initiative was to reverse the problems of excessive exploitation of fish stocks. The scheme also addressed low returns to fisherman by offsetting the effects of reduced subsidies under the Petroleum Products Freight Subsidy scheme.

The industry, however, subsequently benefited from the decision to provide, as from 1 November 1985, a full rebate of the excise on diesel fuel to eligible primary producers including fishermen.

By early 1986 there were significant reductions in the price of diesel fuel and the Northern Prawn Fisheries were experiencing buoyant conditions. It was therefore announced in the Economic and Rural Policy Statement of 15 April 1986, that the remaining grants of $6m over two years would be extended to other fisheries which satisfied the same conditions for adjustment assistance as the Northern Prawn Fisheries-the existence of effective management plans and a willingness of fishermen to make a significant contribution to the cost.

Fisheries Management

The development of the Australian Fishing Zone and the conservation and optimum utilisation of its resources has received high priority from the Commonwealth. In the 1984-85 Budget $2.48m was allocated to protect fisheries from over-exploitation through the implementation of management plans in Australia's major fisheries.

Plans have been negotiated with the States for each of the southern blue fin tuna, south eastern trawl, northern prawn, east coast trawl, scallops, southern shark and other major fisheries.

Fisheries Administration

The Commonwealth co-ordinated in early 1985 the first national fisheries conference for over ten years. The major initiative to arise from this conference was the decision to establish the independent National Fishery Industry Council, a consultative body to represent the commercial fishing industry at the national level.