Thursday, 6 December 2012

It would be brave to say no

Of small comfort in the crazy world of Tasmanian forest politics is that Lewis Carroll would have felt right at home.

“But I don’t want to go among mad people,” Alice remarked. “Oh, you can’t help that,” said the Cat, “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”

Finally we have a Tasmanian forest peace deal and a bill to go before state Parliament next week. The treaty of Versailles didn’t take 30 months, unlike this forests agreement. So what’s in it—and what will it mean for the flailing industry?

First there was a statement of principles by parties involved, then an intergovernmental agreement in August 2011 (including $276 million of government money). Then came the Tasmanian Forests Agreement, a “heads of agreement” deal between the parties. It’s not an exhaustive document to be used in a court of law, rather an indication of agreement on areas and quantities to be logged and/or reserved, plus a consensus view of the future. Then a parliamentary bill emerged—which is where we’re at now.

The final hurdle will be a debate in Tasmania’s upper house on December 11, which essentially provides the framework for matters in the first agreement.

The only figure agreed by the parties which is included in the bill is the minimum quantity of 137,000 cubic metres of high-quality hardwood sawlogs needed annually from public native forests, a reduction from the current statutory minimum of 300,000. The latter figure has long been recognised as unsustainably high; a plan prepared a few years ago by the Forests and Forest Industry Council assumed a future figure of 150,000 pa even before the forest agreement was mooted.

Forestry Tasmania, the custodian of public native forests, regards the need to supply the 300,000 cubic metres as an unfunded “community service obligation”, estimated at $10 million each year. Hence it was neither unreasonable nor surprising to see the agreed minimum reduced to 137,000 annually.

The bill doesn’t specify quantities of speciality craft or other timber types. These will be determined by regulations.

The bill itself is quite innocuous in that it merely establishes the framework for protecting land and creating reserves that will subsequently occur pursuant to the agreement. It doesn’t formally do so. Nor does it agree to forgo carbon credits or mandate methods of native forest residue disposal as has been alleged (nor does the agreement for that matter).

If all goes to plan, the formal protection of 504,000 hectares of high conservation value forests will occur in three stages, supervised by a special council comprising the parties involved.

It comes at a time when most major players in the forest industry have either folded or suffered severe balance sheet losses. The cash cows of managed investment schemes and woodchipping which contributed 90% of profits and cash flow have disappeared, never to return.

Furthermore, growers who outlaid $1 billion to plant trees under managed investment schemes in Tasmania will suffer losses of 80%.

Forestry Tasmania is a cadaver, completely and utterly insolvent. It is now selling timber below the cost of harvesting, cartage, roading and other direct costs. Payment of overheads such as wages will require cash injections from the government. It needs a new model that secures higher prices. Cash deficits and accounting losses are projected to last at least another five years.

The amount of money on the table tends to sway opinions; $276 million implies $12 billion for Australia as a whole if the gross-up is on a per capita basis, or $17 billion on a GDP basis.

Relatively speaking, $276 million for Tasmania is a lot of money. Tasmania is sometimes labelled a mendicant state, but anyone who thinks beggars can’t be choosers obviously never met former independent senator Brian Harradine. Uncle Brian obtained riches beyond his wildest dreams when the sale of the first tranche of Telstra was manoeuvred through federal Parliament. His achievement provided a template for future carpetbaggers. Demands for more money, or compensation to be polite, are not uncommon.

But how much? Forestry Tasmania in its recent annual report estimated a $97 million fall in the value of its forest estate if further areas are removed from production as contemplated by the agreement. Why is more required?

An insurance loss assessor adjudicating a loss of profits claim for the forest industry would be untroubled to come up with a nil payout.

Many of the claims for compensation resulting from the loss of production forests are based firstly on the mistaken view that such operations are profitable and secondly on a sophist static view of the economy that assumes the freed resources won’t find alternative uses and that new resources won’t be attracted into the new environment and that compensation should be based on turnover.

The IGA funds are already being dispersed. Head of the queue was Gunns, given $23 million as a belated ex gratia payment after it had already decided to relinquish its sawlog entitlements. Next was $11.5 million to Forestry Tasmania as payment for monies owed by an insolvent Gunns. Hardly in keeping with the spirit of the IGA?

Following earlier Regional Forest Agreements, FT has received compensation of $223 million to invest in income-earning assets including plantations. If the latest changes go ahead, its forest estate will have a value of only $90 million and that includes native forests. Compensation well spent?

All states have fiscal problems. Tasmania’s are different but little worse than others. It is however more vulnerable to future shocks because of its size, and also because it has been tardy in facing reality.

Tasmania’s share of national GDP has now fallen below that of the ACT, just marginally ahead of NT. It is in danger of relegation.

The current bill is like a preliminary final, a knockout event. Next season awaits the loser. A no vote in the Legislative Council would be an endorsement of paternalism. Notwithstanding that most industry players agree and the majority of the remainder just want to move on, does Parliament really know best?

The forestry issue has completely white anted public policy making. It has diverted attention away from all other matters. There will come a time, and it will come soon when Tasmania collectively will have to make a few serious decisions.

Does anyone believe the expected release of revised estimated Budget outcomes before Xmas as occurred in the immediate aftermath of the Great Recession is not a portend?

Does anyone believe that 2013 will bring a more favourable environment and provide breathing space for the forest issue to once again return to square one?

Does anyone apart from a few Libs think that Forestry Tasmania or a restructured alternative can survive without large cash infusions, simply by growing the industry?

The Leg Co is conservative but unpredictable. The numbers could replicate the no vote on the recent same-s-x marriage proposal. Who’d have thought the two issues had anything in common?

Specious arguments keep surfacing. The threat of fire for ‘locked up forests’ for instance. Chopping down trees isn’t the only method of forest management and the Nature Conservation Act 2002 does contemplate a number of different classes of reserved land.

Then there’s the eleventh hour scare campaign about the loss of carbon credits to the State if the bill is approved. The expected windfall quite incredibly, or so it is inferred, will escape the attention of the Commonwealth Grants Commission and will be disregarded when GST is split between States. A similar argument advanced by WA, incidentally rejected by the Greiner Brumby Review, in regard to mining royalties? What’s mine is mine and what’s yours is mine too if possible.

Long live cooperative Federalism.

Everyone agrees the process has been an abomination.

The Agreement looks at times like it was drafted on the kitchen table which makes criticising it as easy as shooting goldfish in a bowl.

It’s a consensus document, a Heads of Agreement. Only a little bit finds its way into the bill.

The vision, included as a Schedule in the bill, although an unapologetic motherhood statement, is quite encompassing and probably acceptable to most on all sides. There’s not too many things ruled in or out.

Unfortunately, reading the bill and the precursor agreements is not a prerequisite for many participants in the current debate.

The bill is not very prescriptive. It is quite clever and that is not meant in the pejorative sense. As with much legislation, however, detail is often left to Regulations.

The bill may be amended to prescribe in greater detail the matters to be covered in the Regulations. The form and content of durability reports for instance.

The bill is not perfect. It is only a framework, and what may follow is not absolutely certain. But the alternative is a return to boundless uncertainty, a capital-deprived industry, a government business that requires life support regardless and no plan B except for the undiminished optimism the feds will deliver. It would be brave to say no.

(An abridged version was posted on Crikey 5th December 2012)

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