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Friday, 3 April 1987
Page: 1820

Senator BROWNHILL —My question is addressed to the Minister for Finance. What has been the impact of the decision in 1983 to modify the income equalisation deposits scheme for farmers? Does the Government accept that this decision has reduced lending moneys available to the Primary Industry Bank of Australia Ltd by about $150m per annum, as well as denying farmers the ability to smooth out their tax burdens should farm incomes show a significant improvement? Would it be in the best interests of all Australians for the export-oriented farm producers to regain their access to a more meaningful and effective income equalisation deposits scheme?

Senator WALSH —I find it somewhat ironic that Senator Brownhill should refer to the income equalisation deposits scheme enabling farmers to smooth out their taxable income, because the plain fact is that when John Howard was Treasurer and the National Party of Australia was last governing Australia the income equalisation deposits scheme had been corrupted by changes to the tax averaging provisions introduced by the Fraser Government and John Howard at the insistence of the National Party in the late 1970s. It enabled farmers to opt in or out of the tax averaging provisions at will.

I will not go into all the technical details because they are too complicated, but the plain fact is that, because of that corrupt change introduced by John Howard at the insistence of the National Party, there was a positive incentive for farmers to destabilise their taxable incomes by putting money into income equalisation deposits in years of low income and drawing it out in years of high income. So the income equalisation deposits scheme in its corrupt form, as last practised by John Howard on the instructions of the National Party, had an effect which was the reverse of that which it was supposed to have.

As for the Primary Industry Bank, again at the insistence of the National Party, when John Howard was Treasurer a pea and thimble trick was pulled under which money was made available from income equalisation deposits. At one stage I think the interest rate paid on the depo-sits was 5 per cent and the money was lent out at the same rate. The pea and thimble trick, of course, was that this was some costless way of providing money to the farm sector at below commercial rates of interest. Of course, it was not costless. Moreover, to the extent that that money was made available to the Primary Industry Bank to make soft loans, sometimes at sub-commercial interest rates, it fed the land price speculation boom of the late 1970s and the early 1980s and encouraged many farmers to buy land at excessive prices, which is the direct reason for a significant number of them being insolvent today. In other words, from any aspect at all, the income equalisation deposits, both in principle and in effect, as practised by John Howard when the National Party was last the de facto government of Australia, operated to the disadvantage of the farm sector and the country as a whole.