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The Forum > Article Comments > Growers dealt the poor hand in MIS house of cards > Comments

Growers dealt the poor hand in MIS house of cards : Comments

By Kane Loxley, published 16/6/2009

Timbercorp and Great Southern: industries that relied upon referrals and investor appeal are now like financial swine flu.

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I too have read the Environinvest case but disagree totally with your central contention that scheme assets can be used to satisfy secured creditors. This is just wrong. What was found was that the schemes were non viable , due to very poor growth, and should be wound up with the proceeds from the windup distributed to the growers. Given the poor growth rates this wont be very much. As for the secured creditors the advantage they get through wind-up is the ability to access the underlying land security and sell it on the open market which they could not have done if the schemes were viable. I have spoken to CBA which is involved in all of these schemes and they agree that the process is to sell the land and the trees together and then apportion value between the trees and the land. The problem for a grower with a 1-5 year old tree is that it is not worth much but a tree closer to maturity will get closer to fair value in which case the grower wont lose much.

But your central contention of the finding in the case is just wrong! If you dont agree show me the section in the judgement where it says that the secured creditors have rights over scheme assets. I just dont believe it to be the case...

This is not to say that I disagree with your view that the growers will lose a lot, they will. But the legal conclusion you draw is wrong.
Posted by lordolean, Tuesday, 16 June 2009 10:47:05 AM
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While I don't disagree with the central thrust of the article that MIS is now probably 'poison' to many investors simply because perception is everything, there are other facets to this issue that have largely gone unreported.

Most investors signed up to MIS because they could get an upfront 100% tax deduction, which they duly got. Many were reportedly philosophical or uncaring about whether or not they subsequently got a later return - although presumably some were counting on it.

Few have acknowledged that MIS has dramatically increased rural tree cover to an extent far beyond anything that could otherwise have been achieved. Prior to MIS, most plantation development was by direct government expenditure on public land from which native forest was cleared for pine planting.

When governments ceased this practice, plantation development became restricted to private lands and private funds which were not forthcoming due to the high cost of aquiring and planting land whilst then waiting decades for a return. For all its flaws, MIS spectacularly overcame this impasse.

There should also be a distinction made between MIS forestry and horticultural projects. Unlike the horticultural projects, the vast majority of the plantations have no ongoing management requirements. Apart from some that are growing on inappropriate sites, most will grow into a usable resource that will eventually provide socio-economic benefits in rural areas.

Not enough credence is given to the comment attributed to the ITC spokesman. TC and GS were fund managers to whom woodlot sales comprised virtually their whole income stream. Most of the remaining MIS forestry players are wood products companies who were using MIS to expand their resource base. There is a big difference.
Posted by MWPOYNTER, Tuesday, 16 June 2009 1:37:44 PM
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“MIS is a dirty word.”

Surprise surprise eh?. This is a classic example of the planned chaos that results when governments try to direct productive activities.

The difference between an MIS “industry” and an ordinary industry is that MIS’s are entirely an artefact of the tax system. Without the tax benefits, they would not make sense.

So how does the government decide in what areas of production scarce capital funds should be invested? Why pine plantations? Why not web-sites, or widget factories?

The whole purpose of political decision-making on resources is to use some basis other than profit or loss, ie whether the mass of consumers are actually willing to pay for the product. In the absence of economic calculation based on profit and loss, governments have no way of knowing what use of scarce resources should be going to what priority. They are flying blind and the only possible outcome is the planned chaos that is in fact the outcome.

In my district, there are hundreds of miles of these fake crappy pine forests, full of feral pigs and foxes. They drivie up both the price and costs of agricultural land trying to produce things that people actually want enough to pay for voluntarily; thus destroying businesses at the margin. So people become unemployed, and people in the world whom we might otherwise feed are going hungry, because the government is overriding the signals of profit and loss to divert scarce funds into these schemes ‘for the environment’ based on totally unaccountable political fads, and rules and regulations.

It is not a valid function of government to ensure “rural tree cover” as a value presumed to be over and above other values of human need. In the absence of government intervention, if people want rural tree cover, they can simply buy the land to grow trees on. The very fact that, in the absence of government intervention, there may be less than more tree cover, simply means that people place a higher value on food or fibre. There is no reason why government should change that.
Posted by Wing Ah Ling, Tuesday, 16 June 2009 4:10:00 PM
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I was wondering which way they forestry spin was going to go this time. MWPoynter has answered this both in this piece and his age piece. Forest cover! Is that the best you can come up with this time? I think even the government might wake up to the forest lobbyist this time round. Lets put a few facts on the table. Analysis I carried out in 2006 when I submitted to the then MIS inquiry showed firstly that MIS promoters receive Government assistance equivalent to 34% of their gross Income.

Further the economic cost of your blanket of mono-culture blue gums has been great. The cost/benefit analysis of the MIS timber we carried out, that on average, substitution of broadacre farming or dairy farming country for blue gum plantation production destined for the woodchip significantly reduces the level of economic activities at a local level. For every 10,000 hectares of broadacre farming converted to blue gum plantation, local economic activity is estimated to reduce by $27.6m over an eleven year period and for Dairying farming the loss is $361m for the same period. That was based on the assumptions of 25 MAI. Based on the current debacle I have greatly underestimate the devastation Timber MIS has caused to small country towns.

If getting more tree cover was the only thing that the government was wanting to do then the $4.9bn of tax payer money that has been poured into these schemes could have been much more efficiently spent through direct support. Instead the MIS debacle will mean the only people who will win are a few ex-CEOs of the very mis companies that hundreds of investor entrusted their life saving with and lawyers.

But what I found out in 2006, other than these guys play rough, was this is not about getting the best for the Australian community it is simple about politics of the forest industry. And as Professor Judith Ajani pointed out in her book – forest wars ,self interest of the forest industry will always over ride common good.
Posted by horse, Tuesday, 16 June 2009 7:19:45 PM
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A number of enquiries have now found that there is little if any tax benefit received by MIS investors that is not available to farmers. Additionally farming is subsidised on so many other levels it is perhaps the most subsidised industry on the planet. Farmers always cry poor and usually get help due to political reasons. This is pretty much an established fact. So to continue with the argument that these schemes are unfairly benefitted just doesnt sit with the governments own facts. The recent non forestry MIS enquiry is an example where treasury struggled to conclude there was a tax advantage despite coming from a biased position of trying to get rid of these schemes by having the ATO crack down on them.

Second I think supporting tree cover is important. If we continue with land clearing and factory farming practices which produce highly noxious methane and degrade the soil we will continue toward destroying the earth. Its pretty clear given the UN FAO report that agriculture is the largest producer of greenhouse gases (not that the politicians will address this dirty secret) and if we dont do something to stop meat and grain production the world will not have enough food to feed itself and the environment will collapse. So yes I think tree cover is important as an offset to this. Additionally the amount of land we are talking about even with the MIS schemes is a small part of the national landscape. Lastly we have a trade deficit in timber products of about $2bn. If we dont plant any trees this will get worse. The public sector is stopping the business so who will take up the slack?
Posted by lordolean, Tuesday, 16 June 2009 9:43:10 PM
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Lets put this one to bed regarding MIS not getting a tax benifit - with some facts rather than spin hope you can follow.

Value of tax subsidy - MIS scheme:

Assumption 1: apply average costs as per BRS survey, quoted by Minister McGauran
Assumption 2: use of Great Southern scheme - cost of $9000 per hectare to investor.
Assumption 3: investor paying top marginal tax rate - 48.5%

Cost to investor: $9,000 (GST inclusive)

Income Tax revenue foregone @ 48.5% $4,365


Scheme sale (GST exclusive) $8182 (GST = $818)

Cost of offering scheme:
Site preparation $1,910
Product Development $1,490
Corp overheads $ 650
Land lease $ 270

Total operating cost $4,320

Profit (pre-tax) = $8,180 - $4,320 = $3,860

Tax @ 30% company tax rate = $1,158

After tax profit = $2,702 or 30% of the cost paid by investor.


ATO loss = investor tax foregone - promoter tax paid
= $4365 - $1158

= $3207

Therefore, the direct tax subsidy/loss of the MIS scheme is $3,207 per hectare (35.6% of the scheme cost).

It would be cheaper for the Government to pay farmers a grant to plant the trees ($1910) than forego the tax

I think the facts speak for themselves.
Posted by horse, Wednesday, 17 June 2009 8:28:11 AM
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