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Tuesday, 31 October 2000
Page: 21769


Mr SECKER (9:48 PM) —It is with great pleasure that I speak to the Wool Services Privatisation Bill 2000. I would like to let members know of my own history as a wool producer. I am a stud breeder of corriedale sheep. I also grow merino wool and some comeback wool. We are shearing at home today and have been for the last few days. I was brought up in the wool industry and I think I have something to add to this debate because of my own experience in the industry and also the fact that my predecessor, the Hon. Ian McLachlan, was the person appointed to do the report on the wool industry. I think it is pretty well known that this government has basically accepted most of those recommendations.

The wool industry is a very important part of the Barker electorate. It produces about a third of South Australia's wool—in fact, a little over that. As a result, many of my farmers have been taking a very keen interest in what the government is doing about the wool industry. I am part of the government wool committee, which is ably chaired by my neighbour the member for Wannon. In my travels, I speak to many wool growers, and they often ring me up because they are showing an interest in this bill and the direction of the wool industry. But can I say that, almost without reservation, they support the measures of this government to hand the responsibility and power back to them to run their own industry. I have not seen such unison in the wool industry in the past 10 years. Obviously they think we are doing the right thing as well.

Unfortunately, on listening to the member for Corio, it is obvious that he has not learnt this or listened to the wool growers, for he continues to see a role for government intervention. The member for Corio, in fact, accused the government of not giving enough information. But he has two arms, two legs, two ears, one mouth, like I have, and I have had no problem finding out how the set-up of the wool industry will work. Unfortunately, he still does not seem to understand that this is about the wool industry making decisions for themselves, not about the government making the decisions.

At least the member for Corio has taken the opportunity to speak on this bill. It just goes to show. He is the only Labor member in this chamber to do so. He has probably been forced to do that only because he is the shadow minister. It was probably no more than a token effort. This just proves that Labor only gives lip-service to country people, and most of them could not be bothered.

The Wool Services Privatisation Bill 2000 will establish Corporations Law company arrangements to replace the Australian Wool Research and Promotion Organisation, commonly known as AWRAP. What it will do is change the delivery of the wool industry services. The new, privatised arrangements are the culmination of an extensive process to identify the most appropriate structures to replace AWRAP. On 8 August this year, the government announced the details of the new arrangements whereby AWRAP would be converted from a statutory corporation into a Corporations Law company limited by shares. This is referred to as HoldCo in the bill but it is expected to be called Australian Wool Services Ltd. Shares in the company will be issued to Australian wool taxpayers.

The government announced that the company will have two main subsidiaries. One subsidiary, nominally called CommercialCo, will be responsible for commercial activities including the commercial development of the Woolmark and its sub-brands and their intellectual property. The other subsidiary, nominally called R&D FundCo, will manage the proceeds from the wool tax and outsource research and development and the management of future intellectual property. The establishment of the two subsidiaries will provide greater transparency and accountability in the expenditure of funds as well as maximising the commercial potential of assets. Unfortunately, with the operation as it was, I think it was generally perceived by wool growers that there was a lot of money wasted. There were not proper business programs put in place, and as a result many of the wool growers in Australia were quite unhappy about what was happening with AWRAP. These arrangements have received wide support from the peak wool industry bodies. A voluntary dual class register of eligible shareholders is also under development with an information kit detailing the shareholding arrangements expected to be released to wool growers in October 2000. The dual class register will facilitate the hiving off of the two subsidiaries as independent companies if this is the decision taken by the HoldCo board. I have received that myself as a wool grower, so I can vouch for that happening.

The bill provides for specific taxation treatment to apply during the transfer to the new arrangements, which have been agreed with the Treasurer. These taxation reliefs include exemptions from stamp duty, assessable income, and exemptions from capital gains tax for a range of matters including transfer of assets, liabilities and contracts, and the issue of shares to wool growers. The bill also provides for a new wool levy or charge to be imposed by regulations made under the Primary Industries (Excise) Levies Act 1999 and the Primary Industries (Customs) Charges Act 1999 to be collected by the levies and revenue service of Agriculture, Fisheries and Forestry Australia, AFFA. The wool levy would replace the current wool tax imposed under the various wool tax acts, which is collected by the Australian Taxation Office. The new collection arrangements are expected to facilitate the developments of the share register of levy payers for the new company arrangements. The new wool levy would continue at the current rate of wool tax—that is, three per cent—until the wool growers vote otherwise.

There is a very important background to this whole bill. Following the 1993 report of the Wool Industry Review Committee, commonly known as the Garnaut report, two new wool statutory bodies, Wool International and AWRAP, were established. AWRAP was given responsibility for the promotion of wool and wool products and R&D, whereas Wool International was charged with the disposal of the stockpile and discharge of the related debt, and was converted into a Corporations Law company, Woolstock Australia, on 1 July 1999, with wool growers as its shareholders and controllers. AWRAP received the majority of its funding from wool taxes imposed on growers, and this was supplemented mainly by the government's matching contribution for R&D and the Woolmark licence fees. Wool growers have faced very difficult times since the 1990s, with low prices and poor demand exacerbated by the Asian economic crisis in 1998. The vote of no confidence in the AWRAP board in November 1998 was an expression of wool grower dissatisfaction and frustration with the depressed market circumstances, low profitability and in many case losses, and the apparent inability of AWRAP and the Woolmark Co. to counter these problems. In response to this, the government appointed the wool industry Future Directions Taskforce in December 1998, chaired by the Hon. Ian McLachlan, to help set future directions for the industry. The majority of the task force recommendations in a report released in July 1999 focused on the need for growers to take responsibility for their businesses and their wool. The recommendation for the government related to reforming industry structures and wool tax arrangements.

The Wool Working Party was established by the Minister for Agriculture, Fisheries and Forestry in October 1999 to conduct Wool Poll 2000, which was a voluntary wool grower ballot held in March this year to give wool growers the opportunity to have their say on the future services they required from AWRAP's successor and, more importantly, the rate of wool tax they were prepared to invest in those services. The results of Wool Poll showed a clear preference for a two per cent wool tax rate to be invested in research and development, technology transfer and delivery including post-farm innovation, and some information services. On 1 July 2000, the wool tax rate was lowered from four per cent to an interim rate of three per cent to cover the cost of transition to the new arrangements. The wool tax rate will be further lowered to two per cent as soon as practicable after the transition costs are met.

Following Wool Poll 2000, a scoping study to identify the most appropriate Corporations Law structure to replace AWRAP was undertaken by the Office of Asset Sales and Information Technology Outsourcing and AFFA, in conjunction with a government appointed industry advisory board chaired by Mr Rodney Price and the Wool Growers Advisory Group, WAG, which is chaired by Mr David Webster. The scoping study identified a number of potential viable structures against a number of key objectives, these being ownership and control by wool tax payers, minimal government involvement, contestability and transparency in expenditure of wool tax funds, being commercially disciplined, an efficient commercial and legal structure, and flexibility to accommodate evolution of the organisation. The preferred structure identified in the scoping structure was endorsed by the IAB and WAG and supported by other industry bodies, and was subsequently agreed to by the government on 8 August 2000. The new arrangements provided flexibility for the new board to consider the demerger of HoldCo within 12 to 24 months, leaving the two subsidiaries as stand-alone commercial companies directly owned by wool growers as shareholders.

There are many key elements to this bill. It provides that AWRAP be privatised into a Corporations Law company, with two subsidiaries, at a date to be proclaimed. Commonwealth income tax, state and territory stamp duty and other taxes do not arise in relation to certain steps, which are required to be certified by the Minister for Agriculture, Fisheries and Forestry, to be taken as part of the AWRAP privatisation. The minister may transfer assets, contracts and liabilities within AWRAP and/or its subsidiaries prior to conversion to the new arrangements without raising new taxation liabilities. The minister must have prepared a list of eligible wool growers to whom shares in HoldCo will be issued and must be satisfied that it has been prepared in accordance with regulations currently being developed. There will be a six-month period in which shareholdings will be adjusted, where appropriate, to ensure accuracy. Shares issued to wool growers will have a nil cost base for capital gains tax purposes. The Commonwealth will enter into a contract with the company in relation to Commonwealth payments, which provides for accountability for the Commonwealth, as it should, in relation to the expenditure of those payments. The current wool tax will be replaced by the imposition of a wool levy or charge on transactions upon which wool tax was formerly imposed. The rate of wool levy will be determined by a three-yearly poll of wool growers, and AFFA will collect levy payments and levy pay information through the LRS by amendment to the Primary Industries Levies and Charges Collection Act 1991. This information on levy payments will be utilised for levy ballot purposes and for the maintenance of a comprehensive share register by the new company.

The consultation process has been extensive. The Wool Industry Future Directions Task Force consulted widely with the industry. It held meetings across Australia, visiting most capital cities and several major regional wool centres. It also undertook a program of consultation with overseas customers and processors, which was very important because it is no use producing an article unless those customers and processors are getting what they demand. The Wool Working Party, which included three wool grower representatives, consulted widely with industry across major regional centres, explaining Wool Poll 2000. This was supported by an extensive publicity campaign to encourage grower participation. These efforts resulted in more than 22,000 voting papers being lodged, representing a majority of the Australian wool clip and surpassing the turnout for the most recent wool tax ballot undertaken by AWRAP in 1997, which received approximately 18,000 votes. So there has been a huge response from the wool industry and a very much unified one.

Following Wool Poll 2000 the WAG was established to act as a conduit between government and industry during the scoping study phase. Its members included National Woolgrowers Forum delegates and two independent wool growers. Their participation in the development of the preferred model to replace AWRAP ensures that the new arrangements reflect the requirements of wool growers. During the scoping study phase, a number of consultative meetings were held at which industry groups were present, including the zone advisory committees of AWRAP. Wide industry support for the preferred model has been established beyond doubt. In the development of the new arrangements and the bill, the views of all interested agencies were sought, including the Department of the Prime Minister and Cabinet, Treasury, the Australian Taxation Office, the Office of Legislative Drafting, the Office of Regulatory Review, the Attorney-General's Department, the National Archives, MINCO, the Department of Employment, Workplace Relations and Small Business and the Department of Transport and Regional Services. So you can see that the government has been comprehensive in the attitude it has taken to the changes that it is bringing in for the wool industry.

The reforms are in response to wool grower calls for changes to the structural arrangements funded through their collective wool tax. There may be some industry criticism of the time taken to effect change since the 1998 Goulburn vote and the time allowed for industry consultation over the last 12 months. But, given the diversity of views within the wool industry, it is likely that any decision by the government will attract criticism from some quarters. The high level of support for the proposed structure indicates that the time taken was absolutely justified. There has been some industry concern about the need for the industry to pay for the cost of transition through the imposition of the three per cent interim wool tax rate. However, government practice in these change processes is for the industry which benefits from the reform to pay for the process rather than the taxpayers generally. This has been the case in the reforms of the Australian Wheat Board, the red meat industry and, most recently, Wool International.

There has been extensive debate on the issue of the nil cost based consideration for shares under the new arrangements. The IAB and the WAG remain opposed to the government's denial of a non-zero capital gains tax base for wool grower shares in the new company. However, the initial grant of shares will not attract a tax liability and, given that wool tax payments were an allowable deduction at the time they were made, the tax-free allocation represents quite a concession. There may be some industry criticism if the new arrangements are not established by the 1 January 2001 target date due to the finalisation of a comprehensive due diligence process or delays in establishing the share register. I think the biggest problem they will face will be establishing that share register because many farmers are notorious for not filling in those sorts of forms until they have to at the last minute—and that includes me.

Whilst it might be possible to develop a list on a voluntary registration basis, as proposed by industry, this is a major logistical exercise and provides a key risk to meeting the target date. A human resources management strategy will ensure that employees of AWRAP will continue under the new organisation and under their existing contractual conditions. As these expire, future employment will be subject to normal contract renegotiation with the management of the new companies. So it is with great pleasure that I support this bill. I think it is heading in the right direction. There is no doubt that the industry wants to take over control and responsibility for its decisions, and that is exactly what this government is delivering to the wool grower.