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Thursday, 20 May 1993
Page: 1045


Senator FERGUSON (11.47 p.m.) —I want to bring to the attention of the Senate a matter that I raised today in Question Time. It is a matter which not many people would be aware of but one which is of vital importance to Australia's rural communities. This matter relates to sales tax paid by primary producers and farm machinery dealers.

  Honourable senators may be aware that primary producers can register with the Tax Office for exemption from sales tax. The intention is that our farmers, who contribute so much to our export earnings as well as our quality of life, will not be burdened by sales tax when buying goods for use in primary production. In addition, farm machinery dealers can register with the Tax Office for an exemption from paying sales tax, on the basis that they are selling mainly to exempt primary producers, and this is commonsense. If a farmer can buy goods from a supplier and not pay sales tax, it makes sense that the farm machinery dealer who sells almost exclusively to primary producers can buy those same goods free of sales tax.

  Last year I, along with many senators, fought to ensure that under the new sales tax legislation the right of farm machinery dealers to register for exemption was retained. We fought so that dealers already suffering a massive downturn in business due to the rural recession would not have to pay an extra cost that they said would put them out of business. So it saddens me to have to bring to the attention of the Senate an apparent anomaly in the current sales tax legislation which means that our rural communities will contribute an extra $10 million a year in sales tax.

  The problem with this new streamlined sales tax system, which is a contradiction in terms, is that farm machinery dealers, and ultimately primary producers, will end up paying sales tax on reconditioned farm machinery. This is because dealers must pay sales tax on spare parts bought to recondition farm machinery. A farmer buying a spare part to repair a tractor or any other piece of machinery can buy that spare part free of sales tax but the farm machinery dealer must pay sales tax. Who will the dealer most likely sell a second-hand tractor or harvester to? A sales tax exempt primary producer, of course. The end result is that dealers will put up the price of reconditioned farm machinery by the amount of sales tax that they have to pay on those spare parts.

  One dealer has told me that he spends an average of $3,000 reconditioning each piece of second-hand farm machinery that is traded in. It is not uncommon for a dealer to spend $10,000 reconditioning a header. Sales tax applied at 20 per cent means an extra $2,000 per second-hand header. Because of the reduced number of dealerships in the country now, even if a dealer sells only 50 reconditioned headers a year, on average he will have to pay out $100,000 in sales tax, which cannot be refunded. I use this case as an example to stress the seriousness of the situation for all rural Australians. How many farmers in Australia at present can afford to pay an extra $2,000, or anything extra, for a second-hand piece of machinery? How many dealers can afford to absorb an extra $100,000 in sales tax?

  My office was first alerted to this apparent anomaly in the sales tax legislation when we contacted many dealers throughout rural South Australia to inquire how the new system was working. We were told that dealers were confused about the new system because it was poorly implemented and poorly explained. These dealers had each implemented the streamlined sales tax system differently. All dealers expressed fear of an audit in case they had got it wrong. One dealer complained that he had used three systems over the last three months and he still was not sure whether he had got it right.

  Fortunately, this situation is now being clarified and at last information is getting through to dealers; however, I cannot be so positive about the situation regarding sales tax on spare parts. Because of the downturn in the rural economy, the price of new machinery is out of the reach of many farmers and they now look to reliable reconditioned machinery. Naturally, the proportion of second-hand machinery sold by farm machinery dealers has increased. Anyone who has seen the statistics that have been released in the last few days will realise just how much they have increased.

  One dealer on South Australia's Eyre Peninsula—an area that over the past three years, during this rural recession, has suffered greatly due to drought, high interest rates and the fall in commodity prices—has told me that 75 per cent of the machinery he sells now is second-hand. Farm machinery dealers provide an invaluable service to farmers across Australia. They sell new and used agricultural machinery to farmers as well as provide parts and maintenance.

  As a normal part of business, dealers buy used machinery such as tractors and harvesters from farmers as a trade-in on new machinery. Dealers have to recondition that traded-in stock to make it acceptable to a prospective buyer. Some repairs are only minor but, because farmers and primary producers are holding on to their machinery for much longer, most of the traded-in machinery requires major repairs and a substantial outlay by the dealer, who has no guarantee that that piece of machinery will be sold.

  I do not think I need to spell out how farm machinery dealers across Australia have reacted to the news that they will have to pay sales tax on all spare parts used to recondition second-hand machinery. It is of little comfort to them that the Australian Taxation Office has advised the Tractor and Machinery Association of Australia that sales tax is payable because dealers are using the parts for the business's own use and the parts have not been sold directly to a sales tax exempt primary producer. As with everything else the dealer stocks, the spare parts could be sold directly to the primary producer free of sales tax. There is not even a chance of a refund of the sales tax when the machinery is sold to an exempt primary producer.


Senator Bolkus —Are you reading your speech?


Senator FERGUSON —I am getting through it all; do not worry. Farm machinery dealers must carry the cost and pass it on to farmers. I think we all know that dealers cannot afford to carry the cost. The whole situation is ridiculous because the dealer will ultimately end up selling the reconditioned equipment to an exempt farmer. Surely it is perfectly logical that a dealer buying spare parts to recondition machinery which will be sold to a tax exempt primary producer should not pay sales tax on these parts.

  The Government gave assurances through a Senate committee that no additional sales tax would be imposed on farm machinery dealers, but there is no doubt that dealers will be forced to pass on the cost of this sales tax impost to the primary producers. This indirect tax will cost Australian farmers an estimated extra $10 million a year. This is a conservative estimate. Try explaining that to farmers in New South Wales and Queensland, who are experiencing drought, or to farmers in South Australia, who are currently desperately waiting for rain to sow their crops. As I said, this $10 million figure is only a conservative estimate that has been provided to me by the Tractor and Machinery Association. With the increasing number of farmers buying second-hand machinery, it is only feasible that this figure will rise considerably.

  I cannot stress enough the importance of the farm machinery dealers to farmers across Australia. Australian farmers are some of the most efficient in the world and in order to maintain this efficiency they need a support network of manufacturers and dealers. Dealers not only provide a valuable service to farming communities, but they also provide jobs in country centres throughout Australia.

  Farm machinery dealers have suffered alongside farmers in this rural crisis. Figures from the Farm Machinery Dealers Association show that the number of dealers in Australia has declined from 2,400 in 1986 to approximately 600 at the current time, which is almost a quarter of the number of dealers that there were in 1986. This is not surprising when one looks at the drop in sales of machinery in the 1980s. In 1983 there were 1,685 retail sales of combine harvesters—that is, both power take-off and self-propelled harvesters—in Australia. In 1992, this figure had dropped to 450, which was actually an improvement on the disastrous figure of 1991 when only 220 machines were sold Australia wide.

  Almost 12,000 tractors were sold in 1983 and only 5,798 were sold in 1991. Overall, 16,500 people have been lost from farm machinery dealerships across Australia since 1984. That is 16,500 people our rural communities could not afford to lose and 16,500 people our unemployment queues could not afford to gain.

  Statistics released by the Tractor and Machinery Association of Australia for the first quarter of this year indicate that the industry is once again facing a tough year for tractor and farm equipment sales. After some signs of recovery in 1992, this year's opening quarter is little better than in 1991, the worst year on record for the industry.

  I look forward with interest to the TMA's state of the industry report due for release next Thursday, 27 May, at the association's annual conference in Canberra. The report is expected to predict a conservative outlook for tractor sales.

  The downturn in farm machinery sales has implications for agriculture as a whole. Farmers are aware of the vital role that machinery plays in supporting agriculture and the effect that modern equipment has on farm productivity. The Government must also recognise this connection. The TMA is concerned that several years of dismal sales have caused a major downturn within the farm machinery industry and the survival of its remaining manufacturing and service base looks very fragile. The TMA's president, Mr John Henchy, has stated:

Constructive, long term planning for the recovery of Australian agriculture and some incentives for farmers to invest in modern equipment are badly needed.

However, far from giving incentives, all the Government has given the industry is a new tax worth $10 million. If this causes more farm machinery dealers to close, even more farmers will be left with a depleted service. Not only will they have to travel further to their dealer, but also their productivity will also drop because they will have to wait longer for spare parts and service when their machinery breaks down.

  Australian farmers have always prided themselves on their efficiency compared to the rest of the world. But we risk falling behind other countries if we let farm machinery dealers go out of business and we allow farm machinery to run down further. The Tractor and Machinery Association has sent three letters to the Federal Treasurer (Mr Dawkins) about this situation. Apparently this issue is not deemed important enough even for a reply. I call on the Government to respond to this matter immediately. This apparent sales tax anomaly is nothing more than a revenue collecting exercise, but it is one that will have tragic consequences unless it is removed.

  The Australian Taxation Office has apparently been very helpful to the farm machinery industry, despite the confusion caused by the legislation. But the Tax Office has been powerless to act because it is the legislation that is at fault. I therefore call on the Government to immediately remove this extra $10 million burden on the farm machinery industry—a burden which any sane person would know cannot be carried by Australia's rural community.

(Quorum formed)

Friday, 21 May 1993