As you probably know Great Southern Plantations Limited have
now joined the land grab by forest operations companies in Tasmania and are now
paying $5000 per hectare. Only the prime cropping and dairying properties are
outside their grasp at this stage. What happens when milk prices take a dive
and/or vegetable growers suffer another blow before they have a chance to get
off the canvas? It may be too late to act at that stage.
Much of the debate on the taxation of plantation forestry
shows little understanding of all the issues and has focused mainly on the 12
month prepayment rule whereas the more crucial issue is that expenditure on
tree establishment is immediately deductible compared to say expenditure on
planting an orchard which is written off over the effective lives of the
orchard trees. I’m sure you’ll agree that this seems a little unfair and likely
to lead to sub optimal resource allocation decisions.
I realize income tax is the province of the Federal
legislature but it is important to understand how trees are treated under
Federal income tax laws before I cover a couple of State taxation issues. I
will be grateful if you can read the attached short submission which I have
just made to the Federal Review of Taxation of Plantation Forestry in which I
point out that different trees attract different tax treatments, ranging from
an immediate write off for plantation trees, to a write off over the effective
lives for horticultural species, to nil deductions for trees involved in carbon
sequestration projects.
It’s a cop out to glibly state that the growth in forest
operations companies is just another example of the market at work. It is not.
It is another example of how anomalies in the Tax Act can produce
unsatisfactory resource allocation outcomes. My suggestion is to require
plantation establishment costs be written off in a similar way to expenses
incurred in the establishment of a horticultural crop. In the case of a
eucalyptus nitens plantation with an effective life of 15 years it should be
allowed a write off of 13% per annum.
Another issue in the broad debate about plantation forestry
is whether plantation growers pay their fair share of municipal rates. The
Valuation of Land Act 2000 defines land in Section 3 to include plantations and
all trees and timber on land. But when one looks at the duty of the Valuer
General in section 11(7) one discovers where land is used primarily and
effectively for growing trees to be cut for commercial or industrial uses, in
the case of an artificially established plantation of not less than one
hectare, the value of the trees is not included in the value. How fair is that?
Once again we are allowing the traditional distinction between different types of
trees that emanates from olde English case law (see my submission to the
Federal review) to affect how we value land. What nonsense! Fruit growers and
those growing trees as part of a carbon sequestration project have their trees
included in the value of their land and pay municipal rates accordingly, but
not plantation growers. The latter have, in a lot of cases, removed unwanted
houses and other capital improvements thereby reducing the capital value of
their properties, and replaced them with plantation trees which aren’t included
in the land value. How good is that? Not to mention the negative externalities
produced by forest plantation companies by way of extra use of scarce water
resources and extra wear and tear on country roads. And we give them a discount
on their rates. It’s a crazy world. Little wonder they keep lining up to buy
more of our land. Compare this, for instance to all the obstacles faced by a
dairy farmer who wishes to use additional scarce community water to irrigate
his pastures.
A simple amendment to the Valuation of Land Act would soon
fix the problem and restore, as economists would say, a little more horizontal
equity between ratepayers. And if valuers have trouble valuing trees, then let
them start with the rosy projections contained in the managed investment scheme
(MIS) product disclosure documents which presumably all investors would have
read and accepted before agreeing to invest. And maybe if some of the product
disclosure claims came under a little more scrutiny by professional valuers
then some of the suspect projections might be revised downwards which would in
turn lead to a fall in demand for trees by investors—a sort of self correcting
market mechanism that occurs when the market has more and better information.
The Land Tax Act 2000 covers land tax. An exemption is
granted to primary production land. Arguably the reason for the exemption is
that farmers hold a disproportionately high percentage of their assets in the
form of land compared to other businesses and to tax them would be inequitable
(ie resulting in horizontal inequity between business taxpayers). I’m sure the
exemption would not have been granted had the only beneficiaries been high
marginal rate taxpayers from Sydney’s North Shore seeking tax relief by buying
trees in Tasmania. They are investors and should pay the General rate of land
tax. They are primary producers in only a narrow legalistic sense. A simple
amendment could exclude land used by MIS companies from the definition of
primary production land in section 7 of the Act.
My aim in writing to you is to try to explain the situation
from my viewpoint as a economist and a tax practitioner. Hopefully people of
all political persuasions can find common ground and move rapidly to take fair
and reasonable steps to ward off potential disaster that awaits us if large
tracts of Tasmania continue to be gobbled up by forest operation companies. As
I said at the outset land is now being bought at $5000 per hectare. If trees
are planted at a cost of $4000 per hectare and the woodlots (ie trees only) are
sold to investors at $10000 per hectare, forest operations companies are left
with unencumbered land on their balance sheets plus a crop of trees (off
balance sheet) which they control and it hasn’t cost them a penny, having been
paid for principally by mainland investors disinterested in the actual business
of growing trees, motivated only by tax savings, oblivious or perhaps just
negligently neglectful of the resultant social dislocation, water shortages.
public health problems and planning disasters that are being thrust on the
people of Tasmania, and all this subsidized by you and I, the taxpayers of
Australia. It’s got to be better than this
Please talk to your colleagues. The solutions aren’t
difficult. I’m only suggesting restoring a little more equity to the system,
not the reverse. I’m not suggesting we marginalize or discriminate against a
section of our community. I’m yet to encounter any serious counter arguments
from the people to whom I’ve spoken.
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