Friday, 6 March 2015

Things that can't last......

Things that can’t last forever usually don’t.

This morning’s Examiner reported on a leaked email from Forestry Tasmania (FT) Chairman to FT staff responding “to mounting concerns that the cash-strapped company may be dissolved and folded into a government department.”

In that event a radical transformation will occur.

A government department engaging in a profit making activity needs to apply full cost attribution FCA to the pricing of its products.

To quote the Office of the Tasmanian Economic Regulator (OTTER):

“The application of FCA means that the total cost of the resources used in providing the activity are to be accounted for by the government body, irrespective of who pays for those resources. The full cost must take into account the direct cost of providing the activity and a proportional share of indirect costs. Costs will include wages, workers’ compensation, rents, rates, travel expenses, equipment maintenance, capital costs and, where appropriate, tax equivalents and the other provisions .....”

On all evidence available FT will fail to meet this benchmark as it currently operates.

Big changes will be needed.

Up till now FT has avoided National Competition guidelines by selling timber at below  cost, often in competition with private providers, often by citing the legislative need to supply a minimum quantity of high quality sawlogs every year (currently 137,000 tonnes).

It is doubtful whether the requirement to supply a minimum amount of sawlogs each year will override the principles of competitive neutrality which require full cost attribution, and which FT has avoided in the past with its corporate veil and pretending payments from government were compensation payments for loss of resource, or reimbursement for community service obligations and/or FT’s legitimate non profit activities.

However the gaping hole represented by FT’s commercial operating losses can’t be ignored forever.

The ongoing losses identified by Ms Giddings and funded in her last budget were dismissed by Messrs Hodgman Gutwein and Harriss as they needed to produce a better budget bottom line and naively assumed they could simply grow the industry by steamrolling a few legislative changes and waving a magic wand.

Unfortunately the losses haven’t gone away.

Nor have competitive neutrality guidelines.

Nor, unfortunately, has Mr Harriss’ chutzpah in leading FT employees down a garden path.

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