KEY ISSUES: INDUSTRY DEVELOPMENT
Federal Budget 2007-08
The 2007-08 Australian Government Budget was generally positive for business in Australia and included some specific commitments of relevance to the plantation products and paper industry. Key announcements of relevance to the industry include:
- Additional funding of $2.5 billion over 5 years for the Department of Agriculture, Fisheries and Forestry.
Key Economic Announcements
- Projected Budget surplus of $10.6 billion.
- Significant across-the-board tax cuts from 1 July 2007 and 1 July 2008 via increases in the tax thresholds.
- Reduced inflation (2.75% to 2.5%), solid wages growth (4.25%), low unemployment (5%).
- Major education spending including $5 billion endowment fund for university capital works and research facilities, $843 million for teacher education and quality and $549 million of 1st and 2nd year apprentices in skill-shortage trades.
- $10 billion over 10 years for water and $741 million for climate change initiatives (including $200 million Global Initiative on Forests and Climate previously announced).
Trading of Forestry Managed Investment Scheme Interests
The Government will allow investors in forestry managed investment schemes (forestry MIS) to trade their interests once they have been held by the initial investor for a period of at least four years.
This decision delivers a key outcome that A3P has been seeking for many years, as proposed in the FWPRDC funded study “Impediments to Investment in Long Rotation Timber Plantations” which was published in 2005. (see A3P's media release)
From 1 July 2007, initial investors in a forestry MIS will be allowed to trade their interests once they have been held for a period of at least four years. The four‑year restriction will apply only to the initial investors in a scheme. The measure will apply to interests in a pre‑existing scheme, meaning that taxpayers who invested in a forestry MIS prior to 1 July 2003 will be able to trade their interests from 1 July 2007.
The Government believes that trading of forestry MIS interests will introduce pricing information into the market and increase liquidity of the interests. The Government will introduce legislation to amend the income tax law to:
- allow existing interests to be traded, to support depth in the market;
- require initial investors (both existing and future) to hold their forestry MIS interests for four years;
- extend the amendment period for forestry MIS investors to allow the Australian Taxation Office (ATO) to enforce the holding period rules;
- introduce a market value pricing rule at the time of first sale from an initial to secondary investor to reduce tax arbitrage;
- treat secondary investors (other than those holding interests as trading stock) on capital account for acquisition and disposal of their interests. For these purposes harvest proceeds will be treated as a disposal; and
- allow secondary investors a deduction for ongoing costs, to limit the incentive to front‑load fees, and introduce a matching provision to recoup on revenue account these deductions from the sale or harvest proceeds.
In relation to all Forestry MIS the Government announced that it would impose administrative requirements on promoters to:
- notify the ATO when they first receive income from a forestry MIS to ensure that the ATO is aware of all industry participants;
- document the basis on which the scheme satisfies the 70 per cent direct forestry expenditure rule which requires at least 70 per cent of the investors’ contributions to be spent on expenditure directly related to developing forestry; and
- notify the ATO should the trees not be established within 18 months.
$22.3 billion for Australia’s Land Transport System
The new funding will be available over five years under AusLink 2. Highlights of the additional funding include:
- $16.8 billion over five years for road and rail projects on the Auslink National Network.
- 14% increase and five year extension for Roads to Recovery Programme
- An additional $250 million for Auslink Strategic Regional Programme in 2006-07 and $300 million to be allocated in two rounds (2009-10 and 2011-12).
- 33% increase and five year extension of the AusLink Black Spot Programme.
- Key project funding in 2007-08 including $781.1 million for the Pacific and Hume Highways and $60.1 million for the Geelong bypass.
The AusLink Strategic Regional Programme is probably of greatest relevance to the majority of the plantation products and paper industry because it is targeted at helping local councils to build transport infrastructure to boost regional and local economies and create jobs. It would appear that the additional $250 million in 06-07 will go to fund projects for which applications have already been made – this may include some of relevance to the plantation products and paper industry. Industry will need to continue to work with local government to access the later funding rounds.
Global Integration industry package of $1.4 billion over ten years;
This package announced on 1 May focuses on export, small/medium business, R&D and nanotechnology. Highlights of the package include:
- $254.1 million Global Opportunities Programme to help Australian firms win work in global supply chains and major projects.
- $351.8 million Australian Industry Productivity Centres.
- More than $500 million to extend eligibility of the 175% Premium R&D Tax concession.
- $90.3 million Commercial Ready Plus Programme for R&D by small firms.
- $57.7 million for nanotechnology.
Of these, the change to the R&D tax concession is possibly of greatest relevance to the plantation products and paper industry. The beneficial ownership test for the 175% Premium R&D Tax Concession will be changed to allow claims for R&D projects undertaken in Australia, regardless of where the intellectual property is held. The Australia arms of multinational enterprises account for a disproportionate share of manufacturing jobs and R&D. The change to the 175% concession will give these businesses a reason to expand their operations in Australia.
Deductibility of establishment costs for forest carbon sinks
The Government will allow carbon sink forest operators to depreciate the costs of establishing a qualifying carbon sink forest under the horticultural plant provisions, with effect from 1 July 2007.
As an additional enhancement to encourage the early establishment of carbon sink forests, the Government will introduce immediate deductibility for costs incurred in establishing a qualifying carbon sink forest during a five‑year period commencing 1 July 2007. The immediate deduction will take precedence over the general horticultural provisions during this period. Deductions under this measure will not be available to carbon sink forests established through managed investment schemes.
To be eligible for tax deductibility, businesses establishing carbon sink forests will need to participate in the Government’s Greenhouse Challenge Plus programme, a government/industry partnership that encourages industry actions to reduce greenhouse gases. Carbon sink forest operators must also demonstrate that their projects comply with environmental and natural resource management guidelines applicable to their geographic location.
These requirements aim to ensure the integrity of carbon sink forests in meeting national objectives on climate change and on natural resources management, for example by making sure that carbon sink projects do not have unintended consequences for flora and fauna habitats or on water resources.
$50 Million for Environmental Stewardship
Farmers and other landholders will be paid to help preserve and restore “high-end” environmental assets under a $50 million environmental stewardship programme. Contracts will be signed with landholders over the next four years with follow-up payments for up to 15 years.
The programme will provide ongoing payments for environmental work beyond that expected as part of business responsibilities which could include fencing, replanting and restoring degraded areas, weed and pest management. The first priority will be the nationally endangered box-gum woodland areas that span inland from Queensland to Victoria.
This programme is unlikely to provide direct financial benefit to plantation growers. However, it could be seen as a precedent or first step towards financial recognition of the significant public good environmental benefits provided by plantations particularly as a result of the fact that in most plantations 10-30% of the gross area is excluded form commercial planting.
Extension of Natural Heritage Trust
The Government has committed $2 billion over five years to continue the work of the Natural Heritage Trust. This programme commenced in 1997 and funds a wide range of activities generally in conjunction with State Governments and regional catchment management bodies. It encompasses activities in relation to soil protection and salinity and water quality management, biodiversity, weed and pest control.
Timber Information
Free technical information on the source, selection, properties and other atributes of plantation timber based products available for use in building and construction applications.