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Thursday, 28 May 1998
Page: 4066


Mr BRUCE SCOTT (Veterans' Affairs) (9:37 AM) —I move:

That the bill be now read a second time.

This bill establishes the farm management deposits scheme. The bill introduces an important element of the government's integrated rural policy strategy to build a competitive, sustainable and profitable rural sector. The government's new Agriculture—Advancing Australia initiative is the first attempt in many years to comprehensively address the range of issues facing rural Australia. This scheme delivers on a major commitment given by the coalition at the last election.

Extensive consultation with state and territory governments, farmer groups, financial institutions and the public has contributed significantly in shaping the measures introduced today. The initiatives in this bill have received widespread endorsement from key farming bodies such as the National Farmers Federation and from the financial sector, including the Australian Bankers Association.

The farm management deposit, FMD, scheme enhances and expands the previous income equalisation deposit, IED, and farm management bond, FMB, schemes operated by the Department of Primary Industries and Energy. This bill has been carefully designed to meet the coalition's longstanding desire to encourage increased financial self-reliance among farmers, while also taking account of the high variability of farm income streams and the vulnerability of farming businesses to natural events.

Mr Speaker, the bill takes the operation of the FMD scheme out of government hands and commercialises it. The FMD scheme will be a tax-linked financial risk management tool that allows farmer taxpayers to transfer income between high income and low income years. The government's aim is to improve primary producers' capacity to manage financial fluctuations caused by environmental and market conditions. It helps them do this by allowing them to set aside considerable cash reserves earned during high income years for use in a low income year, in a tax effective way. Financial institutions are likely to offer a range of products, providing farmers with more choice as well as increased flexibility in their investment decisions.

The Minister for Primary Industries and Energy (Mr Anderson) will be asking the Department of Primary Industries and Energy and the Australian Taxation Office to ensure reporting arrangements are in place so that the scheme retains its integrity and can achieve its objectives. The restriction of the scheme to prudentially controlled deposit taking institutions or those with government guarantees on the deposits will increase the security of deposits.

The key features of the enhanced FMD scheme will be:

. A limit on holdings in the scheme of $300,000 per taxpayer;

. The investment component will be set at 100 per cent on the entire balance—this means interest will be able to be earned on the whole deposit which has been made out of pre-tax income;

- currently the investment component is only 61 per cent for IEDs;

. Eligibility will be restricted to primary producers with a taxable non-primary production income of not more than $50,000;

. The scheme will be commercialised and delivered through financial institutions, making it far easier for farmers to make deposits and withdrawals;

. Investors will be able to elect only one institution with which to hold deposits, however, this institution may be changed at any time;

. Financial institutions will pay an interest rate determined in the market;

. Deposits will be fully tax deductible in the year of deposit and taxable in the year of withdrawal;

. There will be a minimum deposit period of 12 months;

. Interest will be taxable in the income year it is earned;

. On withdrawal 20 per cent of the amount withdrawn will be deducted for tax purposes but this deduction may be exempted if the depositor demonstrates to the Department of Primary Industries and Energy that he or she is in serious financial difficulties;

. As with current arrangements, FMDs will not be available to companies, trusts or partnerships, although individual beneficiaries of trusts and individual members of partnerships will be able to use them.

IEDs and FMBs have, to date, had a low rate of uptake, mainly because they have been inflexible and not commercially attractive or tax effective. Some $222 million is currently invested by more than 6,600 people in IEDs and $110 million by more than 3,300 people in FMBs. Primary producers with existing IED or FMB accounts will be able to transfer them to FMDs with no loss of tax benefits.

The revised conditions in the new FMD scheme, including its commercial nature, larger investment component and flexibility of withdrawals, should secure an increased uptake of the new scheme. This is appropriate as the aim of the package is to encourage more farmers to use such deposits to manage risk. The government will be closely monitoring the operation of the scheme; in particular the interest rates offered by financial institutions and the fees and charges they levy on FMD accounts.

The Income Equalisation Deposits (Interest Adjustment) Act 1984 applied only to interest payments made under the IED scheme during the period 29 June 1984 to 22 November 1984 inclusive. All relevant periods for amendment or appeal processes relating to that time period have expired. The bill repeals the Income Equalisation Deposits (Interest Adjustment) Act 1984 as it has become redundant.

Mr Speaker, today really is a great day for the primary industries and energy portfolio. The farm management deposit scheme and the new financial risk management capability it offers will be of great benefit to the farm sector. I have great pleasure in commending the bill to honourable members and present the explanatory memorandum.

Debate (on motion by Mr Melham) adjourned.