Mr O'KEEFE (5:59 PM) —This is the second tranche of legislation which seeks to complete putting in place the new arrangements for the marketing of wheat internationally and domestically into the future. To put this into context, I make the point that it was resolved some 10 years ago when John Kerin was the federal primary industries minister that we would start to change the statutory marketing arrangements for a number of commodities including wheat and that we would move towards a structure which resulted in grower ownership of whatever model developed. We also decided back in 1989 that whatever corporate structure became the body that ran what we know as the single desk and managed the collective selling of the wheat pool would need a capital base. So from 1989 growers began to contribute to a levy to provide a capital base for the company or structure to take over this role about now.

Over time that capital base has grown not only through contributions from growers but also through its own earnings on the investment. There has been a capital growth and that is in itself the subject of some debate between the industry and the government, which I will come to further down the track in this contribution. That capital base became known as the Wheat Industry Fund. I mention it now in setting the background and also in explaining the reasons why I am proposing the amendment that will be circulated in my name and moved at the end of this contribution.

When the first tranche of this legislation was introduced into the House, we found that the government had chosen to go in a particular direction to try to take account of a grower corporate model—some kind of corporate structure that growers would own and control—and also some way of integrating that capital base into the grower corporate model. The structure chosen by the government was an A- and B-class share structure which gave specific rights in the corporate model to growers as growers of wheat—in other words, if you were a grower, you got a share and you were in the game. The government tried to blend into it as well capital rights for the holders of contributions in the Wheat Industry Fund. It tried to give those voting shares in proportion to the amount of capital that had been invested.

It became evident to us in October last year, when this legislation first arrived, that the structure the government had adopted was a complex one, that it was legalistic and had a number of problems. There were other ways of doing this but this was the model which had been chosen.

I made the comment in the last debate, when we virtually had a mirror image of where we are now, that the government should not take the Wheat Marketing Legisla tion Amendment Bill 1998 through the House—pending at that time an examination by the Senate standing committee which had given itself a reference to have a look at this—because there was substantial concern among growers about the way it had been unfolding. At the time the minister had assured me that he had industry support for the plans. But we suddenly found that on the Senate committee the majority members—that is, the government's own members on the committee—were deeply troubled by this structure. Arising out of their inquiry, they finally came to an accommodation with the first tranche of legislation but that was subject to a number of things taking place in the second tranche.

Now the second tranche has arrived and the problems have not been resolved, certainly not to my satisfaction and not to the satisfaction of a substantial number of growers who have been in contact with us during the last fortnight. Therefore, I am proposing as an amendment tonight that we defer the implementation of this legislation for 12 months and that we extend the existing arrangements—the underwriting of the Wheat Board—for a further 12 months while the growers come to consider more fully the model which they are now coming to, the model which, interestingly, my instincts took me to when I took over this portfolio area from Bob Collins on behalf of the opposition and I had my first look at it.

Before I met with industry representatives, I looked at it and thought: how would I do this? Now I find that so did a lot of other people, and they have all reached the same conclusions. What has now come to the fore is that there was no need to go for a convoluted corporate structure that tried to somehow build ownership and representation of the money bank, the WIF, into the grower corporate model, which will be doing the management of the arrangements, running the single desk and representing the farmers. There were other ways of doing it. It was always my view that a far better way to do it would have been to set it up as a corporate cooperative in the same structure as a number of modern corporate cooperatives in the dairy industry, both in Australia and in Europe, have been formed in line with cooperative principles but under a corporate structure and to separate the money base, the WIF, quite independently. That is now emerging as what should have happened.

Let me explain why this is so. Western Australian growers in particular were aware of this from day one. I now discover that growers in New South Wales—in their original discussions with the New South Wales Farmers Federation, which were representing their views at peak council—had the same concerns but gave way because growers in Queensland, Victoria and South Australia—although not a majority in quantity producers but a majority in numbers—decided that the minister's model was the better way to go.

We now find that the Western Australian and New South Wales growers were looking at a different model altogether. Their instincts were right because—even with the provision, which I will turn to in a minute, that is incorporated in this legislation to give direction to the way the company is run and the undertakings in the memorandum of understanding which underpin the corporate directions—what cannot be overcome is a core flaw in the structure. What everybody has been trying to accommodate is what you do for the wheat grower who has contributed money to the Wheat Industry Fund to give a capital base to the new company. When we get to the point where the company has been set up—it is a private sector grower company and its capital belongs to the wheat growers—what happens if the wheat grower wants to have his or her money back?

They have contributed compulsorily up to this point as part of the industry arrangements. But, from the point of handover to a private sector grower corporate model, it is their money to do with as they want. Everybody accepted that there has to be a way of enabling a grower who wants his or her money back to be able to do that. The model the government set up was to issue tradeable shares in the B-class structure, which enables growers to cash in their money by selling their shares to someone else. That is fine if they sell the shares to another wheat grower, because you still have a corporate model owned and run by growers, which was always the objective, but what if the shares are sold to someone who is not a grower? What if the shares are sold, for instance, to an AMP or a National Mutual that thinks it is a good idea to have an investment in the wheat industry, as will certainly happen?

That leads you to the point where you have emerging a conflict of interest, because if you are a shareholder as a grower what you are seeking to do out of this whole exercise is to maximise your return as a grower; you want the highest wheat price you can get. If you are an investor of money into the corporate structure, you want the best return you can get on the finance you are providing to the structure. The only way that the structure can pay a better dividend to the people who provide the finance is by paying the grower a lesser price for the wheat. It is an essential conflict of interest that cannot be walked away from, no matter how you try to set it up, even with the conflict of interest paragraph in the bill, which states:

Company B will be required to pay for wheat and it is obliged to be managed with the objective of maximising the net return to growers who sell wheat into the pools.

In other words, to overcome this potential conflict of interest, the bill sets up in the memorandum of understanding a direction so that everybody who invests money in shares knows that the objective is to provide the growers with the maximum return. The government well understands that the more growers there are who take their money out the more institutions are going to hold shares that are in direct conflict with the growers' return versus the institutional investors' return.

What is emerging from the Western Australian growers and, as I have now had confirmed, the New South Wales growers is that they want time to rethink an alternative model which sets up the grower ownership and control separate from the money, and the wheat industry fund money becomes a financial resource. There are other ways of dealing with this. I make it very clear that I am very happy with that part of the arrangement where the company administers the single desk. I am not all that enthusiastic about the review of those arrangements under competition policy in the year 2000 which is prescribed. I am an unabashed supporter of the wheat single desk, and I will not be doing anything to pull that apart. This is not a `no ifs and no buts promise but forget about it' like sugar tariffs and things like that. Let us not get too sexy about some of these things. I am saying very clearly that I am an unabashed supporter of cooperative operations and cooperative national marketing structures. So the single desk is no problem, and having a grower corporate model managing the single desk is no problem.

What has changed between 1989 when the WIF was established and now is that there is now a huge pool of capital available in Australia in the form of the superannuation funds and other equity investments. Whereas before the wheat industry had to borrow offshore to find capital—because Australia had such a deficiency of capital, there was a high interest rate regime when all this was established—it was a wise decision at the time to say that the growers would need to protect their debt to equity ratio when they formed their own company by having a capital base established. That is what we did and that is what they have contributed to.

However, the situation has changed in the last nine years. There is now a substantial capital pool in Australia and there are people like Mortimer and Greiner wanting to put together the capital pool to underwrite the whole structure. The growers could all have their money back tomorrow because it is no longer necessary. This makes it quite possible to have an alternative structure which manages the single desk, manages the pools and gives all growers equal representation but does not have to find a convoluted way of tying the money into the corporate model.

That is the essential difference I am putting forward, and I hope the government members will listen to the wheat constituency which, as late as last week, has taken some very considered professional advice from people who have been involved in setting up modern corporate cooperatives. In fact, one of the advisers to the Western Australian growers, when talking this through with me, was quite surprised to find that I understood this exactly as he did. The reason for that is that a considerable part of my background before coming into parliament was in the cooperative movement, and I understand what you can do with these things. I see the success that the dairy industry has had with a couple of its models, and this particular consultant has actually helped the dairy industry do exactly what the wheat industry now has the chance to do.

What I am saying to the government is that the minister has always been wrong to tell us, as he constantly has, that he had the support of the industry. What he has had is the industry squabbling with each other. We have had the New South Wales growers giving it away because they thought everybody else wanted to go in another direction. One lot has been played off against the other. The Western Australian growers have stuck to their guns. They now have a situation where they are all rethinking this, for the reasons that I have now put forward. There is nothing very spectacular about accepting my proposal. To defer the implementation of this for 12 months to allow the growers to consider this model is no big deal. If I can draw a parallel, only a month or so ago the minister announced that, because of the change to the market situation in Asia and therefore further perceived difficulties for the wool stockpile, the government had decided that the handover date of the wool stockpile was being extended. My response to that was that it was a good policy decision. The circumstances have changed and it made sense to extend the government underwriting of the wool stockpile, because we are going to have to manage the industry through changed circumstances.

Here I would say that for different reasons the circumstances have changed. The WIF is not the necessary capital underwriting of the wheat industry that we perceived it would be in 1989. The situation has changed and the wheat industry could raise the capital anywhere, because it is a sensible and sound investment, as people like Mortimer and Greiner well understand. I have got to say— and I do not say this to in any way say, `Aren't I smart?'—that when Mortimer and Greiner came to the government and the wool industry six months ago and said, `What about letting us, on behalf of the private sector, provide the capital and move in and buy the stockpile and remove from everybody the onus of having to manage the stockpile in wool?', the collective answer was, `Oh no, we can't do that.' Of course, now we have actually had to defer the arrangements because the situation has deteriorated. Had people with a bit of understanding and vision about this stuff actually embraced what was a very sound recommendation, the fact that the circumstances have changed would not be the problem of the government, it would be the problem of the private sector.

There is significant discontent in the wheat industry, as was shown when the first tranche came through. The government majority on the Senate committee went back to the minister and said, `Look, we don't think you have got this right. We will go along with it under sufferance, but we don't think you have got it right and we've got a lot of concerns about it.' Now, that momentum has built—for exactly the reasons I have outlined. I think the government should consider giving support to my proposal to defer those arrangements. As I say, given that only a month or so ago the government deferred the arrangements for the wool industry and the underwriting of its stockpile, it is no big deal to do that.

I go to a couple of other issues. On the conflict of interest paragraph within the bill, if it is decided to defeat my proposal, if in the Senate the government is able to secure support for the passage of the legislation, all I am saying is that in five years time we are all going to have to come along and fix this up again because there will be a significant number of wheat growers who will take the opportunity to withdraw their capital. They will be replaced by the Mortimers and Greiners of this world who want to be in there underwriting the wheat fund. By definition, no matter what you have in the memorandum or articles, there will be that conflict of interest and it will have to be resolved, or our next complaint will be that the growers have lost control of their own operation. My view of this is that, if we are going to have to fix it in five years time, let us get it right now.

I am not sure where the government is on the question of capital gains in the wheat industry fund. Just to explain briefly, the situation there is that the grower contributions are, as I recall it, in the order of $350 million or $400 million. The fund has actually made a capital gain over time and sits in the order of $550 million now. I apologise to the House if those figures are not spotlessly correct, but it is something of that order. I know that the Treasurer (Mr Costello) has told the industry that he regards the capital gain that has been made on those contributions as taxable under the capital gains tax when it is realised in the hands of the industry. I know that the industry was requesting that the government clarify its position about this. I am not sure if there has been an answer to that yet. I have not heard of there being an answer to it, so I suppose the industry is still waiting. But I have to say that I find it a bit rough, because these growers were made by the government of the day to contribute to this WIF and they could at any time have invested that money elsewhere.

Mr Forrest —Not by us.

Mr O'KEEFE —Of course it was the former Labor government that required them to invest in the WIF. I do not have any problems with that. But we are not the ones who have suddenly decided that it is capital gains taxable. You have come into office, and you guys from the National Party are supposed to be the farmers' friends. That is why these people find themselves in such a dilemma with you. No-one ever talked about them paying capital gains tax on the gain in the WIF, and then all of a sudden your Treasurer has let them know that they are up for $60 million or $70 million worth of capital gain when they realise that profit.

It was a compulsory contribution to a fund. Had they made those contributions elsewhere and raised the funds in some other way, they would have been able to make all sorts of structural arrangements, the way everybody does, to minimise their capital gains contribution. But they have no choice with this very late announcement by the government. The government has to deal with this. It is not reasonable to just tell these people, `This is the structure you are going to have and, by the way, you are going to have to pay capital gains tax on the gains it has made.' The growers' support for the structure at the time was conditional on a satisfactory answer from the government on this question. It has not been received, as far as I know.

Members of the government will find, as they go to check the veracity of what I have said in the House today, that as late as last week significant bodies were rethinking their position now that they have come to understand two things: they have seen a deferment in the wool industry, so they know it is possible to have a deferment; and they have come to better understand the inevitable conflict of interest and, as it is no longer necessary to have their own capital base to underwrite the grower corporate model, why can we not consider the model that has been hugely successful in the dairy industry? Those matters are coming to the fore now. Everybody involved should give the industry a chance to rethink its position. The following amendment gives effect to deferring for one year the implementation of the arrangements under this bill to allow the industry representatives to look at alternative arrangements and be fully satisfied about those arrangements before they are finally enacted. I move:

That all words after "That" be omitted with a view to substituting the following words:

"the House calls for the enactment of the proposals to be deferred for one year and the existing arrangements extended for this period so that further consideration can be given by industry representatives to the best arrangements for the industry and so that all parties can be fully satisfied about those arrangements before they are finally enacted":

Mr DEPUTY SPEAKER (Mr Hollis) —Is the amendment seconded?

Mr Kelvin Thomson —I second the amendment and reserve my right to speak.

Sitting suspended from 6.26 p.m. to 8.00 p.m.