Christine Milne (Tasmania, Australian Greens) Share this | Hansard source

I move:

That the Environmental and Natural Resource Management Guidelines in relation to the establishment of trees for the purposes of carbon sequestration, made under subsection 40-1010(3) of the Income Tax Assessment Act 1997, be disallowed.

This is an incredibly important disallowance motion and an incredibly important initiative for rural and regional Australia and for the Australian environment. The history of this tax amendment, which gives 100 per cent tax deductibility upfront for the planting of trees whether they be plantation monocultures or otherwise, was brought in by the Howard government by the then Treasurer, the Hon. Peter Costello, before the 2007 federal election and was deemed to be essential legislation. However, I got up in the Senate and said that, if they passed it, I would tell rural and regional Australia what they were up to. As if it were not bad enough that the coalition had introduced a managed investment scheme, they were also introducing a provision which was effectively a managed investment scheme on steroids, and rural and regional Australia were going to be significantly distressed by what the coalition were doing.

The legislation then went from essential to non-essential and we went to the federal election without it and I had assumed that that would be the end of it. So I was shocked when the Labor Party not only brought it back but brought it back through the House of Representatives in one tax bill then inserted it into another tax bill as well so that it came to the Senate in two different tax bills. Having identified it in the first tax bill, the chamber was unaware that another tax bill went through, one which was non-controversial, so the matter was not debated in the Senate even though we had grave concerns about it and had noted them.

Now the operation of that legislation to give that tax deduction is contingent upon guidelines being struck by the federal minister. In fact the legislation makes it clear that, for people to be eligible for the 100 per cent tax deduction upfront, the taxpayers must be carrying on a business and the carbon sink forest must meet environment and natural resource management guidelines. Therefore the effect of disallowing these guidelines is to make the legislation null and void—that is, inoperative, because nobody would be able to get a tax deduction as they would not be able to comply because the guidelines would be non-existent. This is critical not only because the legislation needs to go but also because the guidelines themselves are so poor. I will get to why they are so poor shortly.

The issue here is: what is the genesis of this legislation? Who put it up to the coalition when the Howard government was in office? One can only speculate about that but it is very clear that the people who thought up the managed investment schemes were very keen to get a similar provision for trees that were not being cut down. You could get a managed investment scheme for trees to be cut down under the 2020 forest plantation vision but you could not get a tax deduction for planting trees for a carbon market. It was very clear that those Collins Street investors were in there to maximise their returns in the future at the expense of people living and working in rural Australia and at the expense of the environment.

Why do I say these things? Look at what has happened with managed investment schemes. We have seen wholesale conversion of native vegetation and native forest to plantation establishment right across the country. We have seen adverse outcomes in terms of water. Whole catchments have been converted from native forest and native vegetation to plantations, with massive interception of water, and the plantation companies have not had to pay for that water. They have intercepted it and taken it out. They got a 100 per cent tax deduction for doing so and disadvantaged people on the land trying to produce food, and that is still the case.

In spite of the fact that these guidelines make some mention of water, the fact of the matter is that there is no consistent management of water around the country. There is inconsistent and patchy provision and legislation in relation to water and its use. We have a situation in Tasmania in some catchments where the run-off is so significantly reduced that Launceston City Council will probably have to build a new reservoir facility because of the amount of interception that has gone on in those plantations. In other catchments we have hydrologists saying that plantations are going to have to be logged in order to free up some of the water. That is the reality of what has gone on as a result of managed investment schemes.

Only as recently as September this year there was an article in the Land titled ‘Out with the old forests …’ It talks about managed investment schemes, saying farmland, water catchments and 100-year-old trees are falling prey to tax-friendly investor schemes. It points out:

Graziers—

in New South Wales—

are furious that a separate piece of State Government legislation, the Plantation and Reafforestation Act and Code 1998, governs land management for timber plantations, over-riding the more strict native vegetation laws that farmers are bound by.

So, while farmers cannot clear land, the forest companies can clear land under provisions in New South Wales, to the great detriment of the natural environment.

Let me get back to the actual provisions of this legislation’s regulations. For a long time the government argued—and this is up on the Australian tax office website—that the capital cost of land is not included as part of the tax deduction. It was never clear to me how that could be correct. The reason for that is that under this particular provision costs in relation to the establishment of a carbon sink forest are tax deductible. The provision goes on to specify that there are two instances in which tax deductibility would not apply: for the costs of land clearance and for the costs of draining a wetland. If you specify in the legislation the conditions under which you are not eligible for tax deductibility, you effectively lead the courts to interpret in the widest possible way the phrase ‘costs in relation to the establishment of carbon sink forests’. Therefore, every cost except those costs associated with land clearance and draining a wetland would be tax deductible. Because of the way this legislation is written, up to 2012 you can tax-deduct the whole lot in the first year. Imagine what that is going to do to people on the land in rural Australia! It means that the cashed-up coal companies and the cashed-up aviation companies can go in, purchase land and have it tax deductible.

What is even worse, and we know this, is that the best land, the best water and the best climate grow the best trees. But it just so happens that the best land, the best water and the best climate give the greatest returns in terms of agriculture as well. So you are in direct competition with food-producing land in Australia. The coal companies and the aviation companies are not interested in who they displace or the ecological impacts associated with water or biodiversity. All they are keen on is bulking up those trees as fast as possible so that they maximise the standing carbon and therefore maximise the offsets of the emissions at their stacks or, in aviation, as a result of their operations. On the one hand they are there in the negotiations on the Carbon Pollution Reduction Scheme saying: ‘Give us free permits. We need as many free permits as we can have.’ On the other hand they are saying: ‘We will minimise our emissions by cost-shifting,’ such that, instead of the costs applying to those companies, taxpayers will bear the cost of mitigating their emissions through funding the purchase of land by these companies for this purpose.

Not only is this a disaster for rural Australia but essentially it is a land grab. It will lead to very substantial accumulations of land and related assets by energy companies or companies supplying carbon uptake products through carbon sink forests—and managed investment scheme companies will just rebadge themselves, grow a new arm or expand their operations to actually do that. What is more, if you are somebody who needs to minimise your tax, you can employ one of these companies to package up the land, the water rights and all the other associated costs and deduct them in the first year for you. So you have a massive potential, as I said, for incredible rorting of the tax system. In my view, this is not something that either the Howard government or the Rudd government intended, but it is the outcome of this very poorly drafted legislation.

When I made these points before—and colleagues in this parliament from other parties have also made these points—the government stood up and said, ‘No, the cost of land is not tax deductible.’ But it is tax deductible. So, in the end, I went and saw one of Australia’s leading tax barristers about this. He said that it is absolutely clear that the land is tax deductible. He is in the media today responding to this as well, saying that it does not matter what the explanatory memorandum says. He says the High Court have had many such cases. Where there is a difference between the actual legislation and the explanatory memorandum, they will always take the law as it stands ahead of that. So let us get rid of that.

The tax office has a view about this on its website, but the view of the tax office is not the law. The law is the law, and it will be interpreted as it stands. We know that in the committee hearings on this the government said, ‘The cost of leasing will be tax deductible.’ That was bad enough for a start. So you can approach a farmer and say, ‘Let me lease so many hectares of your property and then all of the costs associated with the leasing are going to be tax deductible over time, but now let me talk about water for a minute.’ I asked the barrister, ‘Can you claim the capital cost of getting a water right as well as the land?’ The issue here is: often the water right is attached to the land, and therefore the cost of the land reflects that, so you would get the tax deduction for the water right by virtue of the value of the land. But let us say it is not attached to the land; then the issue becomes: it depends. If you have to buy a water right which gives you the ability to, year by year, pump a volume of water through a permit, the capital cost upfront of the right will be the capital cost with the land and it will be tax deductible. If, however, it is not an upfront cost and it is a permit year by year, then that will not be tax deductible in that sense, but all your leasing costs will be tax deductible. So it depends what you are doing in relation to the water right how it is constructed.

What we are going to have is high-income taxpayers, in a year when they need to minimise their tax, approaching these carbon sink businesses, like managed investment schemes, and they will organise for purchase of the land, they will get all the costs upfront, tax deductible upfront, and then they will come to some arrangement to onsell this property—just like they have with the managed investment schemes. The people who will be doing it will be not only the forest industry but also the coal industry and the aviation industry, because it helps them to minimise their offsetting costs. So they get free permits and they get the taxpayer to set up the offsetting strategy for them, to the detriment of rural and regional Australia. If carbon sink investors eventually do switch to food production—and I believe this will be the case—we are going to see increasing pressure on food production. There will be food shortages because of climate change, because of peak oil, because land has been taken out of agricultural production, because of incursion by subdivision and so on. When that occurs, there will be a temptation for them to go back.

Can they ever cut the forest down? Of course they can. When they onsell a property, the next person can say, ‘It was not my intention for these trees to be a carbon sink. In fact, I can get more money now by converting it to something else,’ and they can do so. In terms of the tax deduction, who pays it back? There are no enforcement provisions. There are no disincentives in this. There is nothing at all in the future to stop you from saying, ‘At the time I planted it, it was my intention that it be a carbon sink, but since then I have changed my mind.’ There is nothing to say you cannot cut those trees down. You can get the tax deduction in the first place only if it was your intention for that to happen. But, in the event that you do, the penalty you will pay will be in relation to the carbon you have given up under any subsequent arrangements you have in selling carbon into the carbon market, and you will have to make good. But with the tax deduction, especially if you have onsold the land, you have no consequences in terms of what benefit you got out of it in the first place, if a changed ownership leads to those trees going.

If the trees are not cut down, there are other ways to kill trees—like not watering them, for example, or bushfires that go through them and so on. It may not be your intention to cut them down, but—oh, dear—they were destroyed, they died, or something happened to them along the way. We have seen plenty of that with the managed investment schemes. In Tasmania there is a plot that was put in on a managed investment scheme which has currently got cattle grazing on it. I have drawn it to the attention of the authorities, because to me it seemed like a rort in the first place.

This is really serious. The guidelines are not really worth the paper they are written on, because they say that you must be in compliance with state legislation and with local government in terms of planning schemes. In the case of Tasmania, there is no land-clearing legislation. So you will comply with this if you do not do anything and you keep on land clearing, because there are no regulations. In Tasmania, there has been not a single assessment of groundwater in any catchment. And there is no requirement in these guidelines for a hydrological analysis before these plantations go in. So we will have the situation where it will suck the water out as interception. And, in a place like Tasmania, without any provision on land clearance and without any provisions in relation to groundwater, let alone water rights, you know what the inevitable outcome is going to be. In terms of land clearing, whilst the guidelines say ‘compliance may be achieved by avoiding clearing land of remnant native vegetation, as determined by the relevant state or territory legislation’, as it is there is no enforcement. Who is going to come and check on any of this? Who is going to look to see what you did in relation to this in the longer term? So what if you complied in the event there is no legislation there in the first place? Yes, you ticked the box to say, ‘I complied. I cleared this area.’ The clearance is an important issue because there will be the Kyoto sink forest definitions about what you can clear or cannot clear, and of course there is plenty of native vegetation that can be cleared that would not fit that definition. So this is a disaster from one end to the other.

I particularly want to talk about the legal advice I received today, which I will deal with in the tax bill as well. It is important that people looking at these guidelines realise that they are going to create the biggest shift in agricultural land and water away from food production, with large-scale impacts occurring in a manner not seen since the introduction of managed investment schemes. The impact of the guidelines will be equivalent to, if not worse than, that of the MIS, and the farmers out there know it. During the Senate inquiry process, we received a lot of submissions from sugar growers, dairy farmers and so on around the country. They have lost their properties and their viability because of the impact of managed investment schemes in their areas reducing critical mass. It will happen again; it will be a disaster. I urge the Senate to support the disallowance motion to get rid of these guidelines. If we want proper carbon sinks then we must make sure that they are biodiverse, that they will go only on marginal land and that they actually fulfil the purpose of being in the ground for 100 years—not this shonky MIS dressed up as something else.