Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

Before dinner I was about to outline the significant difference in relation to tax deductions between the MISs—management investment schemes—and the carbon sink forest tax incentive scheme, and that is simply permanency. That has an enormous effect on the rural sector. The food-producing land under the permanency factor of carbon sinks cannot make a comeback in many respects if returns should ever improve for food producers over and above the distortion that the tax incentive has created. In my own state of Victoria, land has made a comeback where managed investment schemes have vacated the land and, in some cases, farming food producers have actually made a comeback over and above the plantations. Under the MIS, there is a chance of that occurring within the market fluctuation; but, when a forest is permanent, food producers and farmers cannot ever come back to that land—not in 100 years under this foolish legislation, such is the danger of permanency.

The tax incentive scheme is a clear case of distorting the market and creating an unfair advantage that will inevitably lead to a misallocation and an inefficient use of resources. Often the supporters of the scheme will say that farmers can plant windrows and boundaries to take advantage of the tax incentive scheme. They cannot. It is worthy to note that farmers carrying on the business of food production cannot join this scheme or take advantage of the tax break. The so-called dual effect of planting windrows and a carbon sequester forest at the same time is not likely to be permissible as a tax deduction because a farmer’s intent of planting is related to the primary business, not to emissions offset as defined in the legislation. That could become a lawyer’s delight.

What exactly is the legislation saying? Many of the previous speakers have asked that. There is so much about the legislation that is open for interpretation. But we know for a fact that the National Farmers Federation, when they appeared before the Senate Standing Committee on Rural and Regional Affairs,  and Transport made the point that farmers cannot enjoy the tax incentive in regard to windrows. The Senate committee inquiry report, in referring to the NFF submission, states:

Concerns were also raised that the proposed arrangements would not allow a landholder to make a claim on the capital expenditure on non-contiguous plantings.

The NFF argued that this condition places a limitation on primary producers claiming the tax provisions for on-farm forestry practices that deliver carbon sink benefits. The NFF stated that on-farm forestry practices by agricultural producers will often involve multiple patches of small lots of trees in order to optimise the broader environmental and productivity benefits of such practices.

The NFF also argued that this same condition may instead lead to the perverse outcome of providing an incentive to farmers to plant trees in areas which deliver a poor environmental outcome, purely in order to maximise the potential claim.

This is a scheme for the big players—the big energy companies and traders that will buy large tracts of land to offset carbon emissions. It really is like giving Goliath the first punch in a fight against David. Further, the buy-up will be compounded by the fact that Labor’s proposed ETS is looking certain to be only a domestic scheme, in no way linked with international schemes; therefore, the carbon sink forest scheme will become even more attractive as a means to offset emissions and trade within the ETS. Obviously, you cannot plant trees on poorly productive land, as has been said by previous speakers, so the highly productive land will be the target of this new scheme. The forest-planting scheme will become a lazy way for the energy companies to offset rather than undertake the more expensive and long-term route of research and development, plant maintenance and upgrades or investment in alternative energies.

It is worth noting—and I note that Senator Boswell touched on this subject too—that Treasury has modelled the estimates on the number of new forest plantations that would occur under this scheme at different prices per tonne under the ETS. The Treasury modelling sets out certain scenarios according to different assumed stabilisation rates and prices per tonne of carbon, as will be traded under an emissions trading scheme. At the lower end of the assumptions, starting around the mid to high $20 per tonne in 2010, it is estimated that some eight million hectares of additional land will be given to new plantations by 2030. At the higher end of the assumptions, starting around the mid to high $40 per tonne, it is that some 40,000 hectares will be taken up in new plantations. It will become a case of forests before food.

Incredibly and foolishly, this massive loss of food-producing land runs parallel with two other flawed government policies that target reducing farm land—firstly, the $3.5 billion water buyback program for environmental flows along the Murray River. This policy has focused on buying productive rural properties, such as the historic Toorale Station in New South Wales, and turning them into reserves—unmanaged reserves, I would predict. At the same time, the Rudd government has ground to a halt the coalition’s $6 billion commitment to improving irrigation infrastructure—and that is the real solution to saving the Murray. Secondly, Labor’s Minister for the Environment, Heritage and the Arts, Peter Garrett, has his own land grab going on. He is about to hit the market in pursuit of 31 million hectares of new reserves.

It was only recently, in this parliamentary sitting, that the Minister for Agriculture, Fisheries and Forestry, Tony Burke, presented to the House a ministerial statement regarding world food security. Full of piety and anxiety, the minister delivered this statement—with hand wringing and pleas that Australia must do and can do better and, ‘We will lead the world in food security.’ I recommend anyone who wishes to read the minister’s speech to pick it up. He made the speech on 12 November. How hollow is that statement sounding tonight. It amounts to nought. It was as hollow as all the Rudd government’s statements that we hear—full of piety and no action at all. Let us read some of the statements that the minister made. He said:

The bottom line is that, wherever you are in the world, it is becoming harder for families to feed themselves. The world needs to act and we need to act now. Our actions need to be targeted, they need to be coordinated and they need to focus on the short, medium and long term.

Well, you cannot eat trees, Minister. He continued:

Australian agriculture is resilient and adaptable. We need to publicly acknowledge the critical role our farmers play as food producers. If we get in front of the game and act decisively—

in front of the game? This puts us right behind the game. He goes on:

… I am certain that Australia’s primary industries will adapt to these challenges and thrive. And the world will continue to look to Australian agriculture as world leaders.

This is the only scheme of its kind in the world. It is the only type in the world. Indeed, we will be leading the world in replacing food-producing land with forests. That is the hollowness of that presentation.

In a time of great concern regarding world food shortages, the long-term effect of a major food-producing country such as Australia reducing its productive land will simply exacerbate the situation. In fact, Australia will lose valuable export income. And then, of course, there is the effect on the rural communities. Given that the majority of the farming sector is made up of family farms, this efficient social and economic unit will be undermined by the distortions that will be produced by the tax incentive scheme. Farming families are the foundation stone of the economic and social life of small towns and regional cities. The small businesses, schools, hospitals et cetera of small towns and regional cities are primarily reliant on a viable farming sector for their own economic viability. These economic regions will be detrimentally affected by the loss of productive farming land because of this scheme—singularly because of this scheme.

Jacinta Collins (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

So how are you voting?

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

’How do I know?’ says the interjection. You have no care. You have wandered in here and just decided to interject willy-nilly. You are from the city. That is the whole idea—you are from the city. You do not have a clue.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

How are you voting?

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

Don’t you join in, Senator Conroy. You are the last person who would seek to represent the rural sector. The Environment Association, Senator Conroy, noted the undesirable impacts in rural Tasmania, stating their concerns before the Senate inquiry. They said:

Australia’s attempts to sequester carbon to mitigate global climate warming are likely to promote a mass expansion of artificial plantings in Tasmania. A great social concern for Tasmania is that farming activity is being replaced by artificial plantations which employ very few. The reduction in farming activity, the local production of food and associated employment is a long-term loss that may well have severe impacts for the viability of our community.

And the VFF, the Victorian Farmers Federation, gave similar evidence, backing up the Environment Association from Tasmania.

It is worthy to note that this debate has been very much centred on the theory of the scheme, though some people have properly touched on the practicalities of the scheme. As they have all said: ‘Who is following up on all of this in five, 10 or 15 years? When they get the deduction in the first year, who is going to follow up on that?’ I should inform the Labor Party that this is still a country of fires and floods and droughts. If you ever try to plant a mass lot of trees—and the two senators across there would never have tried to plant a tree, except in perhaps the backyard of their suburban home—it will be a case of get the tax deduction in the first year and run, because no-one will be checking to see what the results of that plantation are. (Time expired)

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

I rise tonight as a National Party senator to make a contribution to this debate, and I say as a National Party senator that this is an issue that goes right to the heart of a sustainable rural and regional Australia. To my mind, there is absolutely no doubt about that, which is why I am standing here today. It is an interesting situation to be in with my National Party colleagues, knowing that to stick up for what we believe in we actually have to cross the floor. It is not something we have taken lightly. It is something that we have given a great deal of consideration. To us, it shows how important this issue is.

During the week somebody referred to it as a 100th-order issue. To me and to my colleague Senator Joyce, sitting in front of me, it is anything but a 100th-order issue. For anybody to think this is a 100th-order issue shows just how disconnected they are from things that are important to rural and regional Australia. This is not a 100th-order issue; this is a top issue. It goes right to the heart of how we make a sustainable rural and regional Australia. That is the question that this country needs to ask.

Just last week I was on the North Coast talking to a farmer, and they said: ‘Does this country actually want a sustainable rural Australia? Does this country actually want farmers to keep producing? Does this country want farmers to keep feeding the nation? If they don’t, come and tell me, because I’m quite happy to pack up now and go and do something else.’ The view was that they are getting sent from pillar to post, because there is no support and they are coming up against things exactly like this carbon sink legislation. They are out there working their guts out and have done across most of Australia for the last seven years. They are up against drought and all sorts of other difficulties, yet they keep soldiering on. And what do we do to them? We give them no support. Then they turn around and see something like this carbon sink legislation put forward, which is going to give potentially huge tax breaks to the big end of town. What does that say to them about how much we care and how important they are to this country? I think it says we do not care at all. But I can tell you that we care about it. The Nationals care about it. That is why we are prepared to cross the floor to stick up for the people who need us to stick up for them.

I recognise the others in this chamber, the Greens and the crossbenchers, who are also prepared to stand up on this issue and say how important it is. This is about the protection of prime agricultural land. Do you know what that prime agricultural land does? It feeds and clothes the nation. To stand here and support a piece of legislation that potentially is going to rip that security away—take that productive agricultural land out of the system and replace it with carbon sink forests through a tax break—is simply wrong. It is flawed legislation, bad legislation, and it should not be going forward. It is unfortunate that the only way we can address this is through a motion to disallow the regulations. We believe by knocking the regulations out we will disable the legislation itself. Coming up later this evening is a piece of legislation through which we will again address the issue. But isn’t it unfortunate that we have to come in here and address this issue through a disallowance motion on a set of regulations?

This legislation goes right to the heart of food security in this nation. It is a debate this country needs to have and needs to have pronto. We need to decide if we, as legislators here in Canberra, are going to provide the tools and mechanisms to ensure that we have food security—not only in the food we provide for this nation but in the food we provide to the least developed nations and the work that we do here to assist them. That is part of our role as a developed nation—to ensure that we help where we can. Yet this legislation directly places that food security at risk. What we are going to see, with the reduction of prime agricultural land, is a reduction in food production capacity. What we are potentially going to see, through that reduction, is an increase in the price of food, not only hurting our country but potentially ensuring that we will have to rely more on imports. Once we start to rely more on imports—apart from the fact that we are not doing what we should be doing and producing the food and fibre that we need—there is the issue of quality. We have tremendous quality standards in this country. The minute we start importing we will have serious quality-control issues about the food that we provide for the people in this nation to eat. The issue of food security is one that we need to address, and this piece of legislation does exactly the opposite—it takes away that security.

We do not have a problem with the planning of carbon sinks. We have an issue with the government giving a tax break for doing it. If there is going to be competition for prime agricultural land in this country, there should be a level playing field for farmers and corporate entities alike. Why should corporate entities get a tax break to do something when farmers do not get one? Farmers do not get a tax break to graze their properties. Farmers do not get a tax break to plant a crop—

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

Build a shed.

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

Build a shed—I will take the injection from Senator Joyce. We—and I should say this as a farmer from the central west of New South Wales—do not get those tax breaks. But what is being proposed here is a tax break for the big end of town to deal with their carbon emissions by putting in carbon sinks on our prime agricultural land—on the very land that provides food and fibre for this nation.

Earlier today we heard a discussion around whether or not, under this 100 per cent upfront tax deduction for capital expenditure over four years, the land itself or leasing of that land is going to be classed as capital expenditure. We are standing in this chamber months and months after this was first raised, as my colleagues Senator Milne and Senator Joyce said earlier, and we still do not know what capital expenditure is going to be included in this.

I can only ask the Senate, with respect to the potential situation of a 100 per cent upfront tax break for large corporate entities, whereby they may purchase land and get 100 per cent tax deductibility for doing so: what does that say about our support for rural and regional communities? What does that say about how wrong we are getting it, how wrong this government is getting it in terms of providing that security? The issue of the lack of certainty alone should be getting every senator on this side of the chamber to cross the floor and make sure we knock out these regulations to disable—

Jacinta Collins (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Is Julian going to join you?

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

you would have to ask him, Senator Collins—this legislation, because it is not right, it is not fair, it is not on and it should not be going forward.

One of the other issues that is of particular concern to me and my Nationals colleagues is the fact that there have been no hydrological studies done on the impact on the water system and on the impact of interception. You do not have to be a rocket scientist to figure out that if you go out and plant a stack of trees they are going to have an impact on that water system. As my colleague Senator Milne said earlier, they are going to be taking water without paying.

We saw just last week in this chamber hours and hours and hours of debate around the Murray-Darling Basin system and what we should be doing to protect it to ensure that it is sustainable in the future. Yet this particular piece of legislation allows goodness knows how many acres of land to be planted with trees. We have no idea, because there have been no studies done; there has been absolutely nothing—

Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

Forty million.

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

Potentially 40 million—thank you, Senator Boswell. And not a single jot of work has been done on the potential impact on the water system. So here we are, on the other side of the chamber, hearing from the government week after week their words of dedication to making sure we fix the Murray-Darling Basin system, and yet they are allowing legislation to come into being that is potentially going to have an enormous impact on that water system. It is not right. It is not on. I do not see how anybody in this place can agree that that is an appropriate way forward for the management of the water system in this country.

The other issue that is of course of enormous concern to us particularly, as Nationals, and the reason why we are standing here and are going to cross the floor, is that there has been absolutely no work done on the potential social and economic impact on rural and regional communities of these plantations being put in—absolutely none. What we are so concerned about is that those who understand rural and regional communities know what the flow-on effects from the productive capacity of land in our rural communities generate for the economic wealth of our rural and regional communities. You take that productive capacity away and it is not only that farmer who is affected; there are the flow-on effects on businesses in all those towns—the chemical distributors, the newsagents, the professionals who come to town, the local doctors—

John Williams (NSW, National Party) Share this | Link to this | Hansard source

The schools.

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

The schools. Thank you very much, Senator Williams. It is the schools; it is the teachers; it is those who start leaving because the population starts declining. If you take that productive capacity away, you do not have the economic sustainability of that regional town. And that is exactly what this legislation is going to do. If allowed to go forward it is going to remove that productive capacity, because we know that the minute those carbon sink forests are planted on that land, that is all that will happen.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

The biggest threat is the government.

Fiona Nash (NSW, National Party, Shadow Parliamentary Secretary for Water Resources and Conservation) Share this | Link to this | Hansard source

The biggest threat is the government, says Senator Joyce, and I completely agree with him. That is what will happen. Can I reiterate, as I said earlier: we do not have an issue with carbon sinks being planted. What we do have an issue with is the fact that companies are going to get a tax break to do it.

The future of rural communities is at stake here. It is interesting to note that we are seeing the same approach from the government as we saw in the water debate last week. They have no idea about the impact their decisions are going to have on rural communities. I recently travelled from one end of the Murray-Darling Basin to the other, and every community along the way said how dislocated and disconnected they felt because the government were not taking them into consideration, because the government did not know, did not understand, the impact that their decisions on water were going to have. So we are seeing the broad approach from the Labor government and the complete disconnection from the impact their decisions are having on rural and regional communities. This shows up nowhere better than the fact that we are looking at this piece of legislation on carbon sinks. There have been no socioeconomic impact studies at all done on the effects on the communities. Look at water. Look at the buyback program potentially taking a huge amount of water out of communities. And guess what? There has not been a single bit of socioeconomic work done on the potential removal of that water. There has been an ABARE commissioned study. That is not going to report until the middle of next year. Guess how much entitlement is going to be bought back between now and then. It is indicative of the lack of respect that the government show rural communities and their lack of ability to understand the potential impact that their decisions will have on rural Australia. It comes back to the question: do we or do we not want a sustainable future for rural and regional Australia?

I come back to the farmer I referred to in the beginning. They will pack up and do something else if we are not prepared to support them. They will pack up and somehow find some other way to live their lives. Our role has to be to support those people who are providing food and fibre for this nation—and, if it is not, then it should be. If it is not, we need to address that. We need to make sure that that is one of our prime concerns, because all they are seeing at the moment is a whole lot of disconnection and a whole lot of dislocation from what they are doing and from what is being provided by way of support through government policy and programs to try and assist. They deserve to be assisted. They do not deserve to see a piece of legislation that is going to give a tax break to the big end of town that can afford it. I do not care how many speakers there are against this; there is no way you can get away from that statement. It is fact. This is going to give a tax break to the big end of town.

I do not see why mum-and-dad taxpayers, working families who work hard in this country to pay their tax, should subsidise the big end of town to put in carbon sink forests so they can deal with their carbon emissions. It is wrong. It is not their responsibility and they should not be asked to do it. The big end of town have enough capacity to do this without a tax break—it is as simple as that. They do not need it, they should not get it and they should not be having it. Why should the mums and dads of this country subsidise the big end of town under a Labor government? There is no reason for it.

The government knows that it can reverse this. It knows it is bad legislation. The only people who are prepared to actually say that it is bad legislation are those who are going to be sitting across on the other side, on the side supporting this, when we get to the vote. All I can say is that those sitting on this side and not joining us are doing the wrong thing by rural Australia, who so desperately—now more than ever, after seven years of drought—need our support, not a kick in the teeth. They need our support now. We are going to continue to stand up for them. My colleagues Senator Joyce, Senator Boswell and Senator Williams and I will continue to do that, not only through this piece of legislation but every time we turn around. We will do everything we can to support rural and regional Australia because we know how important those communities are to this country. They deserve our support, and we will be supporting this disallowance motion.

Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

The environmental and natural resource management guidelines, the subject of this disallowance motion, are required under section 40.1010(3) of subdivision 40-J of the Income Tax Assessment Act 1997. The guidelines commenced on 3 July this year. The coalition have come to the view—and I am summing up on their behalf—that disallowing the guidelines would not materially affect the operation of the act. It would see the remaining provisions of the section continue to operate, and the effect would be fewer restrictions on establishing and operating carbon sink forests. The guiding principle of course is that regulations by their nature must be subordinate to an act.

But I do acknowledge the differing opinion that disallowing the guidelines would see subdivision 40-J of the act rendered inoperative. I acknowledge that there are differing views. Whilst the coalition do not consider this to be the case, as I have just mentioned, either outcome would in our view be far from optimal and therefore the coalition cannot support the disallowance motion. In our view, carbon sink forests are an important tool in the fight against climate change and in reforesting areas of Australia that, arguably, should never have been cleared in the first place. That said, it is important that the provisions of the act are supported by guidelines, as originally intended.

Firstly, I will provide a little bit of history, very briefly. The Treasurer, the Hon. Peter Costello, announced the carbon sink forest tax provisions in his budget speech on 8 May 2007. Due to the November 2007 federal election, the bill introducing these measures lapsed. The Labor government reintroduced the provisions in the Tax Laws Amendment (2008 Measures No. 2) Bill 2008. The bill passed the Senate on 17 June 2008 and received royal assent on 24 June 2008. On 26 June this year, the Senate referred the implementation, operation and administration of the legislation underpinning carbon sink forests and any related matter to the Senate Standing Committee on Rural and Regional Affairs and Transport for report. The report was handed down on 23 September 2008. It was after that that Senator Milne moved a disallowance motion on the guidelines, on 24 September 2008.

As I just mentioned, there was a Senate report. The majority Senate report concluded:

The committee considers that the tax deductions for carbon sink forests under the Income Tax Assessment Act 1997 (ITAA) represent a valuable policy addition that will promote greenhouse gas reductions. The structures and processes outlined in the Act provide for a sensible legislative and administrative framework relating to the tax treatment around the establishment of forest carbon sinks.

I note and acknowledge concerns expressed by Senator Milne and several of my colleagues in the dissenting report. Let me now turn briefly to that report. In the dissenting report senators recommended that carbon sink forests should be registered on the property title, that native vegetation should be protected and water resources considered, that the forests should not be harvested or cleared and that carbon sink forests should not be planted on prime agricultural land. Some of these issues were already covered in the original guidelines. Following discussions with the coalition, the Minister for Climate Change and Water addressed matters not in our view already adequately covered in the guidelines and provided proposed amendments which address the issues of water resources, agricultural land use and legal recognition of carbon sink forests on land title.

It is fair to say that the nub of objections to the guidelines is the contention that ‘prime agricultural land’ is not adequately defined where there is no applicable land use legislation to refer to. Land use zoning is of course a state and local government responsibility. But defining the meaning of ‘prime agricultural land’ for the purposes of eligibility for carbon sink forest establishment in the tax law could be inconsistent with state and local regulation for land use. Moreover, it would be impractical for the Commonwealth to make assessments, for example, as to what parts of a farm might and might not be prime land. So we accept that precise definition is not necessarily appropriate in the tax act.

The minister also provided advice that the use of the term ‘felling’ in the act is a broad term that ensures that trees cannot be destroyed and tax incentives still claimed—that is, trees cannot be harvested, cleared or ploughed in consistently with a tax deduction still being claimed. I do thank Senator Wong for her cooperation in this matter and for provision of the amended guidelines, which I think do provide some significant improvements, which of course the coalition supports.

One of the main criticisms of the carbon sink forest provisions canvassed in the Senate report is that they will encourage the planting of carbon sink forests on prime agricultural land. The coalition does not accept this proposition because the economics simply do not support it. As part of the Senate committee inquiry, ABARE was commissioned to ‘assess the circumstances in which it may be financially attractive to replace agricultural land uses with carbon sink forests’. The conclusion was that a high carbon price in excess of $100 per tonne of carbon dioxide equivalent would be required to make it attractive to replace agriculture with carbon sink forests. Furthermore, the coalition noted that carbon sink forests do not offer high returns over a short period of time and that there are a very limited range of deductions that can be claimed. Let me turn to them. As the Australian Taxation Office guidelines indicate, costs that you are able to deduct may include the costs of acquiring the trees or seeds; the costs of planting the trees or seeds; the costs of pots and potting mixtures where the potted plants are being nurtured prior to being established in their long-term growing medium, in the ground, in a permanent way; the costs incurred in grafting trees and germinating seedlings; the costs of allowing seeds to germinate, whether by broadcasting, deliberate regeneration or planting seeds directly; any costs incurred in preparing to plant for the purpose of establishing trees for carbon sequestration; and the costs of surveying the planted area.

Equally, the expenditure you are not able to deduct is very clear, and that is where I must take issue with Senator Milne’s earlier contention where she says, as we understand, that there is advice that has been received by the Greens that, because the cost of purchasing land is not mentioned in the act under section 40.1020, the cost of the land may be deducted 100 per cent upfront. This is simply inconsistent with the Australian Taxation Office statement on what is and what is not deductible. The tax office clearly states that the expenditure that you are not able to deduct includes the costs of purchasing land to be used for establishing the trees and costs attributable to the land rather than to the establishment of trees. For the purposes of the record I should also set out what is not able to be deducted, which includes costs incurred on other plants, for example trees for felling or horticultural plants; cost incurred on assets separate from the trees, such as fencing, water facilities for trees of a carbon sink, roads within the carbon sink forest and fire breaks; costs incurred to drain swamps or low-lying land; costs incurred on rights to allow you to access the land to establish the carbon sink forests or for carbon credits to be traded in the future; and, relevant to the issue that has been raised, the costs of purchasing land to be used for establishing the trees and costs attributable to the land rather than to the establishment of the trees. It is clear that this is rebutted in the guidelines set out by the Australian Taxation Office. The coalition believes that it is highly unlikely that farmers would allow agricultural land capable of producing a crop or livestock for profit to be planted to a carbon sink forest when essentially all they can claim is a tax deduction for the trees.

It has been said that these provisions are managed investment schemes in disguise. The coalition is confident that this is not the case. These provisions are not a managed investment scheme. Managed investment schemes have a specific range of conditions and benefits attached to them that do not attach to carbon sink forests. For example, amongst other differences, only investors can claim the managed investment scheme benefit. This is not the case for carbon sinks. Under managed investment schemes 100 per cent of contributions can be claimed provided that at least 70 per cent of the MIS manager’s expenditure is direct forestry expenditure—that is, attributable to establishing, tending and felling trees for harvesting in the first year. This is not the case for carbon sinks—only a very limited number of deductions may be claimed, as I have specifically outlined.

So this act and the supporting guidelines are, in the view of the coalition, an important tool in the battle against climate change. The minister has given an assurance that the government will closely monitor carbon sink forestry establishment activity under the legislation, and we see no reason other than to accept that assurance. Carbon sink forests are an important carbon sequestration technique and tool. As the coalition has previously noted, carbon sinks have the potential to reduce our carbon footprint and, alongside a properly designed emission trading scheme, which we all await with interest, and a strongly supported renewable energy sector, which we all encourage, are part of Australia’s environmentally sustainable future.

These regulations are an important element of our broader environmental agenda and should, in our view, stand. Australia’s food security remains a key policy focus for the coalition. I have listened very carefully to Senator Nash’s comments and I understand the passionate sentiments behind her concerns, but I am confident that Australia’s food security can coexist with green initiatives such as carbon sinks. I have taken a bit more time than I intended. For those reasons it is very important that this chamber and the broader public understand the basis on which the coalition will not be supporting the disallowance motion.

Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Link to this | Hansard source

I acknowledge the contribution of various senators to the debate. I want to start by saying that the government has sought to take into account the concerns about these guidelines that were expressed in the dissenting report of the inquiry conducted by the Senate Standing Committee on Rural and Regional Affairs and Transport. As has been referred to in the discussions, I have discussed a range of proposed changes to the guidelines with the opposition as well as with Senator Milne. If the Senate votes down this disallowance motion, I do undertake to remake the guidelines in the form circulated to the opposition and other senators. On that basis, I table some draft revised guidelines and an explanatory memorandum to inform the chamber of my intention.

Senators may recall that there were a number of changes that the government proposed to these guidelines. The first was to take account of the concerns in relation to water availability, and there is a specific reference to surface and groundwater activity to take into account some of the issues raised. I note that some senators have said that the government should, through this process, require an entitlement or a water allocation. In relation to this issue and a range of other issues, it is important to recall that we are talking about guidelines under taxation law. There is a limit to how much broader natural resource management can be effected through that mechanism. So, whatever people’s views are about the natural resource management frameworks and policies which are in place either federally or at state level, the reality is that it is difficult for the federal government to effect an entirety of a natural resource management framework through this measure. What we have sought to do is to reference the issues which are of concern. I also note that we have amended the guidelines to require that they include adherence to applicable legislation regarding the establishment of alternative land uses. We have also noted the recommendation raised in the Senate committee report in relation to registration on the land title. Those changes are included in the indicative guideline that I have tabled today.

We are of the view that carbon-sink forests provide an immediate and medium-term opportunity for Australia to reduce its greenhouse gas emissions whilst also meeting broader environmental sustainability objectives. The government has provided a tax deduction to give an incentive for growing forests for the specific purpose of taking carbon dioxide out of the atmosphere and to assist national efforts to reduce greenhouse gas emissions. A carbon-sink forest is defined in the legislation as a forest established for the purpose of carbon sequestration. The tax deduction is not available for a forest established for the purpose of felling, for harvesting wood products, for clearing or for any other purposes. I also make the point again that the legislation excludes managed investment scheme activity. The tax deductions provide incentives for investment in carbon-sink forests prior to the implementation of the government’s carbon pollution reduction scheme, thereby maximising early contributions to reducing greenhouse gas emissions. Unlike other forest activities—for example, commercial plantations for harvest and landcare plantings—the costs of establishing carbon-sink forests was not previously tax deductible

I will not go through the detail of the measure. I would like to briefly remind the Senate that the tax measure provides that establishment costs are deductible in the year of expense for a five-year period from July 2007 to give an incentive for establishing carbon-sink forests. I also note that the environmental and natural resource management guidelines for the tax measures seek to promote complementary environmental and natural resource outcomes.

There has been some discussion—and this was an issue Senator Milne raised with me—about the clearing of vegetation. I make the point that the issue of clearing vegetation to establish carbon-sink forests is addressed in the legislation. Section 40-1010(2)(c) of the Income Tax Assessment Act provides that, to obtain a tax deduction, the area occupied by the carbon sink-forests must have been clear of trees on 1 January 1990. So the clearing of forest cover is addressed in the legislation in a direct way. Forest cover cannot be removed to establish a carbon-sink forest or to generate a credit under Australia’s Kyoto protocol account.

I also want to refer to the water issue, which has been raised by a number of senators. As I said, there is reference now in the revised guidelines to this issue. I make the point that interception activities in catchments that have been identified as fully allocated, overallocated or approaching full allocation are an area of priority under the National Water Initiative, and the guidelines already require water access entitlements for interception activities in those catchments. I have noted the concerns about groundwater and have proposed to amend the guidelines to include specific mention of groundwater, which picks up a recommendation of the committee’s report.

I simply adopt the contribution of Senator Coonan on the issue of prime agricultural land, in terms of the economic analysis and also the fact that it is significantly difficult to introduce in the context of these guidelines a definition of prime agricultural land where there is no such common definition elsewhere in Commonwealth legislation, nor a consistent method for assessing what constitutes prime agricultural land.

One of the issues raised during the debate was the issue of land deductibility—that is, the acquisition of land and its deductibility. I was going to read from the same ATO advice that Senator Coonan already has. I will not do so, but I simply indicate that my advice is very clearly in accordance with the ATO guidelines that Senator Coonan referred to. I make the point that there is a well-established tax principle that assets with limited effective lives are deductible. Land is excluded from this principle, as land is not considered to have a limited effective life—note section 40-30(1)(a) of the Income Tax Assessment Act. Improvements or fixtures are generally treated as separate assets, not as part of the land, regardless of whether they can be removed from the land or are permanently attached.

The measure before the chamber is modelled on the horticultural plant provisions, and the ATO has determined that the cost of purchasing land to be used for growing a horticultural plant is not establishment expenditure, as the cost is attributable to the land rather than to the establishment of the plant. Both horticultural plants and trees in a carbon-sink forest are covered by division 40 of the Income Tax Assessment Act. It would be internally inconsistent for land to be deductible under this measure. So the government’s very clear advice is that acquiring land is not tax deductible as a consequence of the measure.

Another issue that was raised—I think Senator McGauran may have raised this while I was out of the chamber—was about item 3 of section 40-1005(5). It was suggested that the definition that made reference to ‘use the land for the primary and principal purpose of carbon sequestration by the trees, as a result of holding the licence’ specifically excluded farmers because, as I understood the argument—it is not my argument, so I am having trouble rephrasing it—farmers would not have land that was used for which the primary purpose would be carbon sequestration. The understanding and the advice that I have is that that item refers to the specific land on which the forest is being established and not to the whole of the landholding. Therefore, the criticisms put by some in the chamber are really not on point.

In closing, I thank Senator Coonan for her willingness to engage on these issues. This is an interesting debate. Politics often does make for some rather odd companions. I note that Senators Boswell and Joyce—certainly while I was in the chamber—really used this as a basis to attack action on climate change and identified this as the first line in their opposition to a carbon pollution reduction scheme. I know that is not a view shared by Senator Milne, but I do make the point that that was very clearly the way in which those two senators were articulating these issues. In her contribution, Senator Nash made a range of accusations about this government being disrespectful towards or disregarding particular communities. I assume that, given that this is Mr Turnbull’s legislation from commencement, her suggestion that this legislation disrespects or disregards regional and rural communities is in fact a criticism of the Leader of the Opposition. I do make that point. As I said, I thank Senator Coonan for her willingness to engage in a discussion about these matters.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

Family First supports this disallowance motion. Family First also raised concerns about the unfair tax breaks for carbon-sink forests when they were last raised in the Senate, back in June. Farmers in Victoria have approached me to tell me about the pressure that this tax deduction for carbon sinks puts on productive farming land, because the land can be much more valuable with plantation forests than with other uses, like producing food. Tree plantations are subsidised while important food production does not receive similar levels of subsidy. Family First remains very concerned about the problem of land suitable for food production being diverted to tree plantations for carbon sinks. Food prices have skyrocketed in recent years, and we should not be doing anything that would put extra price pressures on food production. Giving such large tax breaks to forest planting creates enormous financial pressures that will see farmers and their families squeezed off productive land. Family First is very concerned that this could threaten the viability of small communities. This motion is a chance for the Senate to put some common sense back into the law and to ensure that we do not pull the land out from under the feet of hard-working farmers.

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

I rise to sum up the debate, to close it, and also to thank all of those senators who have contributed to the debate this afternoon and evening for the considered positions that they have taken right across the board in relation to this legislation. There are a number of issues to go through, and I will go through them as logically and quickly as I can. The first point is that the legislation says that ‘the tax deduction encourages the establishment of forests that can contribute to Australia’s target’. If you are establishing forests to as rapidly as possible contribute to Australia’s target then you want to have your trees maximising the volume of carbon that they can sequester in the shortest possible time. That is why the time frame is on this legislation as it is, and that does not lend itself to what the government says is its intention.

Everybody from both the Liberal Party—and I will say ‘the Liberal Party’, because it clearly is not the coalition’s point of view—and the government say: ‘This will not be many hectares. It will only be a small, peripheral kind of measure.’ They say that on the basis that it is going to be on marginal land and so on. But they have not thought it through. That is not what the legislation says. I want to come back to the primary document here, the actual legislation—not everybody else’s musings and interpretations of what the legislation says, but what the legislation itself actually says. When we get to discuss the Tax Laws Amendment (2008 Measures No. 5) Bill 2008, I will be asking the people from the tax office exactly where it says what is alleged to have been the intent.

First of all, you would expect a genuine carbon sink to be permanent. There is nothing in the bill that requires these trees to be permanent. It says it has to be your intention to have a carbon-sink forest and that you cannot get the deduction unless your intention is that you are not going to cut trees down. But there is no penalty if you do. It means you cannot depreciate after the trees disappear over time. But the point is that they are not for permanent plantings necessarily—they can be, but not necessarily.

Secondly, they are not biodiverse. If you are serious about permanent plantings that are going to do the things that everybody in the government and the Liberal Party alleges they are going to do, you insist that these plantings be biodiverse. If they are, you are going to build much greater resilience in the landscape in relation to climate change because you will be planting native species in the areas in which they are endemic in order to maximise the chances of them living and sustaining a biodiverse landscape. If you have biodiverse plantings and they are obviously going to be permanent, then you put them on land that is not your prime cropping land. It would make logical sense to be into restorative measures for areas of your property that were degraded, or for which you had no particular use at that time, and would therefore be suitable for restoration. You would be looking at things like connectivity in the landscape, habitats, improved water retention—all those kinds of things.

But this legislation does not require any of that. It does not say that they have to be biodiverse, and therefore they can be monocultures. If they are monocultures they are not there for the long haul. They are not going to live; the fast growing blue gums et cetera are not going to live for any great length of time but they will bulk up fast, which is the intention here—that is, to maximise the carbon as quickly as possible.

And you will get a water issue. The hydrological impacts here are absolutely critical. I heard both Senator Coonan and Senator Wong telling us that they are satisfied that the environmental and natural resource management guidelines cover that because now there is a reference to groundwater, as well as surface water, but the point is that the guidelines state:

Compliance with this guideline may be achieved by, for example:

Not ‘must be’ but ‘may be’. So there is no mandatory nature to these guidelines at all. They are not mandatory regulations; they are suggested guidelines that you ‘may’ adhere to in various ways.

The minister also said that there is a limit to the extent to which you can use tax law to drive a change of behaviour, which is an admission in itself that there is no way that compliance can actually be forced through regulations or mandatory requirements.

The next point is: who is going to enforce these guidelines? I note with particular interest that it will be the climate change secretary. The Commissioner of Taxation will seek confirmation from the Secretary of the Department of Climate Change that the trees established will be able to achieve the characteristics of a carbon-sink forest. That is a very interesting thing. So how exactly is the Secretary of the Department of Climate Change going to reassure the tax commissioner that this is going to be the case? Who is going to go out there and actually tell anybody whether the surface water or groundwater activity was taken into account and what was done about it? And what does ‘taken into account’ mean? Okay, I plant my trees and I say that I took it into account and decided to disregard it. But nevertheless I took it into account and therefore I am deemed to comply even though I decided in the end that I did not need to do anything about it.

In relation to land clearance, the minister just pointed out that you cannot clear native vegetation because the legislation is using the Kyoto rules:

… on 1 January 1990, the area occupied by the trees was clear of other trees that

– attained, or were more likely than not to attain, a crown cover of 20% or more, and

– reached, or were more likely than not to reach, a height of at least two metres

In other words, it does not preclude the clearance of vegetation that is not covered by the Kyoto forest definition, but you can have other native vegetation. You could have brigalow on the land, for example. You would be able to clear native vegetation if the native vegetation did not conform to the definition of a Kyoto forest. So that is wrong; the minister was wrong to say that. She should have quoted the entire bit, because that is the significant issue here.

In terms of land clearance, as I indicated before, you are deemed to have complied if you have avoided land clearing of remnant native vegetation as determined by the relevant state or territory legislation, which is a beautiful thing, except some states and territories do not have any legislation, so you will have complied if you do nothing because there is no legislation to comply with.

I note that the minister and Senator Coonan are also happy that we are including adhering to applicable state, territory or local government land use planning legislation, assuming that land use planning legislation actually protects agricultural land. I do not think so. There are constant changes to planning schemes to exclude the forestry sector from consideration. In Tasmania that is specifically the case. You can apply for your plantation forest under such provisions as would then exclude consideration by local government. They have been desperate to try to get local government control back over this but of course it has not been possible.

The other issue here that Senator Coonan and the minister were talking about related to the fact that apparently it is not going to be economic to put a carbon-sink plantation on high-quality agricultural land. Well, it will be because managed plantation investment schemes have offered tax-effective investment for wood growing for primarily hardwood chips for export. These provisions have generated a hardwood chip glut. That is what we have got now. And according to the government’s own projections, substantial plantation resources are poised to come on-stream by around 2010 and Australia’s existing hardwood and softwood plantation estate is nearing two million hectares and is capable of meeting virtually all our needs—wood needs—and substituting for all our native forest chip exports. Wood is therefore unlikely to provide a sufficient market for a significantly expanded tree-planting program to affect Australia’s post-2012 emissions targets.

In a recent submission to the government’s Carbon Pollution Reduction Scheme green paper, Judith Ajani and Peter Wood reported model findings that at relatively low carbon dioxide prices—around $10 to $15 a tonne—existing MIS hardwood plantation growers are likely to receive more revenue by switching their plantations from the wood market to the carbon market. If such a switch happens or if carbon-sink forests dominate Australia’s sequestration agenda, superior terrestrial carbon storage systems will be sidelined in Australia’s climate change mitigation policy. These ecosystems—native forests, rangelands, grasslands and woodlands—store carbon in resilient self-generating ecosystems and they offer low-cost, large-scale and permanent carbon storage that plantations, including carbon-sink forests, cannot. The Carbon Pollution Reduction Scheme as proposed is setting up native forests for wood production and plantations for carbon storage, which is the reverse of what should be occurring.

What is now going to happen is that the plantations in the ground are going to be kept for the credits that they generate under the Carbon Pollution Reduction Scheme and they will be tradeable. As a result, logging will be driven more intensely into native forests because under our current accounting system, which is the Kyoto accounting system, native forest logging is deemed to be carbon neutral. So, instead of getting out of native forest logging, this is going to create a perverse incentive for those plantation owners to keep these plantations for carbon and to drive the logging of native forest. That would be an absolute disaster in terms of a perverse incentive.

Contrary to what is being said by the Liberal Party or by the government, at a price of $10 to $15 a tonne on carbon we are in deep trouble here in terms of taking up land. Do not for a minute think that somehow this is going to be restricted to areas which are marginal agricultural land. There is nothing in the legislation—and let’s get back to this; it is the legislation itself that counts—to say that the trees planted have to be in the ground for any length of time; there is nothing to say that they have to be biodiverse, they can be a monoculture; and there is nothing in the legislation that requires a hydrodynamic modelling exercise as to either groundwater or surface water before you plant anything.

On the issue of land ownership, once again I have had the Liberal Party and the government quoting a tax office determination, but I want to know where that is in the legislation. The legislation says, in relation to the establishment of a carbon sink forest, that you can tax deduct all your capital expenses except those relating to the clearance of land or the draining of a wetland. Under those provisions, the only link with the MIS provisions which were set up under the horticultural division, the legislation specifies that if you have a tax deduction under the MIS scheme you cannot get it under this one. There is nothing else in the legislation that precludes the land costs. This is something which will end up being tested in the courts.

Honourable Senators:

Honourable senators interjecting—

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

And I am interested that Senator Conroy is not the least bit interested—

Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Order! There is a little bit too much conversation across the chamber.

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

Thank you, Mr Acting Deputy President. As I said, there is nothing in the legislation that precludes the land costs and this will end up being tested in the courts because the big end of town is coming after this, big time. As was indicated by Senator Nash when she was speaking about the tax break for the big end of town, this legislation is designed for the coal industry. It is designed for the big polluters, for the aviation industry, for the aluminium industry and so on. They will be able to establish fast-growing, rapid offsets using water and good land. They will offset their emissions and there will be a shift of taxpayers’ dollars to the mitigation effort of these companies.

They will get free permits under the emissions trading scheme and they will get taxpayers’ dollars to offset their emissions. They are getting a double take whilst driving up the price of land, driving up the price of water, displacing cropping land and displacing agricultural communities. That is the reality of where we are going. In terms of biodiversity, even more appallingly, the logging effort will be driven even more solidly into native forests as the MIS companies get a better price for holding their plantations as carbon rather than for harvesting them as wood product. In fact, what we will find is that the MIS companies will repackage. They will set up separate companies within the main company and they will shift the effort in relation to how much they put onto the wood market and how much they keep for the carbon market, and they will package that accordingly.

None of this was thought through in the legislation. It seems that there were some fairly naive people sitting around saying that it would be nice if we gave people a tax deduction to plant forests, on marginal land, that will never be cut down. If that was the intention that is not what the legislation delivers. I do not care what the explanatory memorandum says or what the tax office ruling has determined; this parliament has been misled. It has been misled by very poor drafting that does not give effect to what the government thinks it might be doing or indeed to what the Liberal Party might be doing.

We will be back to revisit this but not before there has been a megadisaster in rural Australia in terms of land use. We have already seen it in Tasmania and we have seen it in Victoria and in Queensland. Right around the country we have seen displacement as a result of managed investment schemes. People said at the time that it would not happen, but it did. I know that the Leader of the Opposition has been saying that this will just be marginal land and that the trees will be permanent. That will not be the case. This will be about monocultures and fast-growing ones. It will be bulking up the best land with displacement in rural communities and with a big tax deduction for doing so.

In summing up the debate, I thank all the speakers. I note that Senator Boswell talked about the land price distortions and undermining food security, and that is absolutely where we are going. It will mean double-dipping, as I said before, and, as Senator Boswell pointed out, it will mean that the managed investment schemes will convert to carbon sink forests and drive loggers into the native forests because of the distortion in the Kyoto accounting, which does not allow for emissions from native forest logging. I note that Senator Joyce talked about the destruction of rural communities, as did Senator Williams—and they are absolutely right.

Senator Brown also talked about the perverse outcome of driving the logging into native forests and the loss of the superior carbon stores in favour of inferior monoculture plantations. It is ludicrous that we subsidise the logging and clearing of the stores whilst giving a tax deduction for fast-growing plantations at the community’s expense. Senator Heffernan talked about the perpetuity laws. Senators Xenophon and McGauran also pointed out the impacts on rural Australia. Senator Nash spoke on rural and regional Australia and on the economic sustainability of country towns, and Senator Fielding mentioned his concern after having spoken to some farmers in Victoria.

In conclusion, it is very clear where this Senate is going to go on this motion. I have followed and thought about this issue very carefully for a long time. It disappointed me that, having moved for this disallowance motion, some six weeks later the government still had not got back to me when we had all discussed the possibility of negotiating an alternative set of guidelines which would be mandatory and which would give effect to these carbon sink forests in the way we wanted. The government did that while no doubt confident that the Liberals would be supporting them so they did not need to put the work into it, frankly.

This issue will come back to bite this parliament but, more particularly, the greatest concern is that it is too late once these people have bought up massive amounts of land, the deductions have taken place and the distortion is already in the market, because you cannot retrospectively come back in here and try to take it away after the event. We are indicating here that this is what will happen. Allowing the opt-in under the Carbon Pollution Reduction Scheme is a disaster because it provides the incentive, the driver, for this to go mad in the scheme. What should be happening is that subdivision 40-J, giving upfront deductions for carbon sink forests plus the coverage of reafforestation in emissions trading, should be suspended while policy incorporating the land use sector in Australia’s climate change mitigation strategy is developed. That is what we should be doing. We should be getting rid of this. We should not be allowing the voluntary opt-in of plantations into the Carbon Pollution Reduction Scheme; rather we should be looking at our whole land use sector, going back and getting full carbon accounting in terms of the carbon stores we have, separating the emissions from logging and looking at this in a holistic way.

I thank the senators for their contribution and I urge support for this disallowance motion so that we can come back and get it right. I urge the government to consider not putting in those plantations as an opt-in in the Carbon Pollution Reduction Scheme, because that will be the price signal that really drives this in a way that you have not thought about but we all have.

Question put:

That the motion (Senator Milne’s) be agreed to.