On 2 April 2019, the Federal Government released the 2019-2020 budget which offers some reasonable relief for Australian agribusinesses.
These are the top seven budget announcements that we like (and dislike) for the sector.
1. North Queensland flood response
The government’s response to the North Queensland flood is substantive, with $3.1 billion committed in a Flood Recovery Package over five years.
The package includes $300 million in tax exempt grants, with a cap of $800,000 per producer comprising $400,000 for stock or crop replacement and $400,000 for farm infrastructure. These measures will go some way to getting farmers back on their feet.
To speed up the process for farmers, we would also like to see measures introduced to fast-track grant applications, however no mention of this has been made in the budget papers.
2. Mandatory dairy code of conduct
The government has committed $8.7 million to the previously-announced mandatory code of conduct, which aims to increase fairness and transparency between dairy farmers and processors.
The funds will support the design and implementation of supportive legislation which (election permitting) will come into effect in July 2020.
While this code is a positive measure and serves to address some of the current imbalances of power, we would encourage farmers to consider modifying their business models in order to supply the artisan cheese and dairy produce makers where higher prices can be sought, rather than supplying the large monopoly milk and powder producers.
3. Enhancements to trade and biodiversity
The government will increase investment in agricultural trade by $29.4 million, and in enhancing productivity through biodiversity by $34 million.
Funding for productivity enhancements is always welcome and can create a long term competitive edge for Australian farmers.
Improving our export market reach and reducing foreign tariffs should be considered a priority for the Australian agribusiness sector, given it is largely unassisted.
These enhancements to trade and biodiversity will help encourage innovation and profitability across the sector.
4. Innovation, regional infrastructure and community funding
Over $300 million in regional funding for infrastructure and airports will help keep the regions connected with essential infrastructure – a non-negotiable if regional economies are to continue to grow and expand.
Smaller allocations have been committed to encourage innovation and for Harvest Labour Service. These initiatives will ensure farms remain competitive and have access to seasonal labour.
5. Luxury car tax
The government’s proposed amendments to the Luxury Car Tax enable eligible primary producers to apply for a refund on any luxury car tax paid, up to a maximum of $10,000 (currently a maximum of $3,000), for vehicles purchased on or after 1 July 2019.
6. Broader tax rate cuts
The proposed company and personal tax rate reductions, while minor in the short term, will be substantial into the longer term and will assist both smaller and larger farmers with reduced tax payments and the ability to reinvest more in their farms.
The flatter thresholds will also reduce the tax burden in “good” years, when small farmers can be caught out with high tax obligations due to their above average profits.
A scheme, known as primary production averaging, is currently available to primary producers to help smooth out tax payments across the peaks and troughs of the agricultural cycle. The revised tax rates will further improve the effectives of that scheme, creating a lower long term average tax rate.
Overall, we believe the lower and simpler tax rates and thresholds will encourage farmers to focus more on increasing profitability, and less on reducing tax – a much better investment of time and energy..
7. Instant asset write-off
As previously announced, the government has increased the thresholds and timing for the instant asset write-off.
Currently small businesses with a turnover less than $10 million can claim an upfront income tax deduction for certain assets costing less than $25,000 from January 2019 until the end of the 2020 financial year. The government has announced it will increase the asset write-off threshold to $30,000 and the turnover threshold to $50 million for expenditure from 2 April 2019 until 30 June 2020. (Note, there are certain assets (e.g. leased assets) that are not eligible for the write-off.)
Primary producers who were previously over the $10 million turnover threshold, but below $50 million, can now review their capex plans and consider whether capex should be brought forward before 30 June 2020.
We don’t like
1. The hurdles to jump
These measures still require the Liberal Government to win the next election, and then to design and implement the supportive legislation.
However, we believe that most of these measures will have bi-partisan support due to the currency and harsh impact of the drought and floods.
2. A tax on trusts
The opposition has proposed to charge a 30% tax on trusts, which would impact many farmers.
While the proposal reportedly includes an exclusion for primary producers, the detail on this proposal is yet to be provided. There is no firm definition of what primary production is, and if it extends to land holding trusts and other entities common to farming families.
This proposal has the potential to make a substantial impact on farmers’ tax positions if not all entities receive an exclusion.
3. There could have been more provided
With an annual total revenue of around $289 billion, Australia’s agribusiness sector is one of the largest in the country. Given this, proposed funding in some areas (such as trade, innovation and biodiversity measures) is relatively small, particularly given the size of opportunity in the Agribusiness sector, and the challenge to protect and grow our clean green image, while drought proofing the agricultural landscape.
4. Delayed timing of the Future Drought Fund
While the future drought fund has been proposed with $3.9 billion in seed capital, there are some shortcomings:
- It’s not legislated
- It’s been taken from other unused political fund allocation, namely a 2015 Education fund, and may be vulnerable if a new government in elected
- The fund will only produce a usable dividend in 2020, which leaves farmers experiencing the harsh impact of drought now, without seeing any benefit for a considerable amount of time.
5. Lack of practicalities
Future funding for disasters and floods is substantial, but no money or directives appear to acknowledge the cost to farmers to access the measures. For example, the Regional Investment Corporation (RIC) application process can be tedious and expensive, without further support from other agencies or grants to cover application costs (as with the FHA). In our experience, the NGOs charged with this support are not always able to assist in full, and commercial providers (such as accountants and business advisors) are required to assist. Because of the amount of detailed paperwork required, commercial providers are generally unable to do this work for free, which limits access to loans when farmers are most desperate.
Similarly, there are no measures proposed to reduce application costs or to provide quick access to funding to cover those costs.
There is in adequate resourcing of these agencies to enable efficient applications. Currently applications appear to be taking up to five months leaving families and commercial financiers in limbo during the RIC process application.
6. Lack of connectivity
There is currently no national initiative to improve connectivity for primary producers.
Many farmers experience difficulties in remote areas with poor infrastructure, poor internet and inadequate phone plans.
Given the nature of some remote farms and the critical role they play in connecting their staff and any local populations, connectivity should be a key priority.
7. Sale of livestock
The forced sale of livestock measure is great in theory, however Farm Management Deposits (FMDs) are inflexible, do not allow access to cash in a time when its needed, and not all banks offer offsets of FMD deposits against farm debt where at least it could be used to reduce finance costs.
The proceeds from forced sales may also be required to cover operational expenditure, so therefore it cannot be reinvested into FMDs as it is simply impractical or impossible.
In most cases, the forced sale of livestock measure would lock up a substantial amount of capital and potentially cost a large amount of money in interest to gain access to a $40,000 Farm Household Allowance, therefore making it relevant to marginal farmers only.
Budget summary for primary producers
This is a summary of the key measures announced by Treasurer Josh Frydenberg on 2 April 2019, which are particularly relevant for Australia’s primary producers.
Agriculture Stewardship Package
The government will provide $34.0 million over four years from 2019-20 to grow stewardship and biodiversity practices in the agriculture sector.
The measure includes funding of:
- $30.0 million over four years from 2019-20 to develop a national policy on agriculture biodiversity and trial a grants program to increase the adoption of biodiversity practices to deliver business production improvements and biodiversity outcomes; and
- $4.0 million over three years from 2019-20 to develop and trial a farm biodiversity certification scheme.
Beef Australia 2021
The government will provide $3.9 million over three years from 2019-20 to support the delivery of the Beef Australia 2021 national exposition to be held in Rockhampton, Queensland in May 2021.
Concessional treatment for the forced sale of livestock under the Farm Household Allowance Program
The government will provide $3.1 million over two years from 2018-2019 to exempt net income generated from the forced sale of livestock from Farm Household Allowance (FHA) payment assessment, when that income is invested into a Farm Management Deposit. This measure will ensure that FHA recipients, who are destocking, retain access to income support and are able to make long-term financial plans for their future.
This measure builds on the 2018-2019 MYEFO measure entitled Assistance for Farmers and Farm Communities in Drought.
Dairy code of conduct
The government will provide $8.7 million over 11 years from 2019-2020 to implement a mandatory code of conduct for the Australian dairy industry. The code will establish a set of rules for the conduct of business transactions between dairy farmers and larger processors. The Australian Competition and Consumer Commission will raise awareness of and monitor and enforce compliance with the code of conduct.
This measure will be partially offset by redirecting funding from the Rural Research and Development for Profit Program.
Enhancing Australia’s agricultural trade
The government will provide $29.4 million over four years from 2019-2020 (and $2.6 million per year ongoing) for a package of measures to enhance agricultural exports and trade.
The package provides funding to increase industry access to export markets and capitalise on emerging export opportunities, including:
- $5.1 million over four years from 2019-2020 (and $0.2 million per year ongoing) for actions to reduce the impact of policies other than tariffs that affect trade on agriculture and food exports
- $11.4 million over four years from 2019-2020 (and $2.4 million per year ongoing) to improve technical market access for horticulture exports, including by addressing pest and disease risk and import risk analysis
- $6.8 million over four years from 2019-2020 to extend the Agricultural Trade and Market Access Cooperation program to assist Australian industry in breaking down technical barriers to trade for Australian agricultural exports, and to secure new and improved access to premium markets; and
- $6.1 million over four years from 2019-2020 to extend the Package Assisting Small Exporters program to continue to support small exporters to overcome barriers to their participation in the export sector.
National agricultural workforce strategy
The government will provide $1.9 million over four years from 2019-2020 to develop a national agricultural workforce strategy.
National leadership for agricultural innovation
The government will provide $2.9 million over three years from 2019-2020 to drive national leadership for agricultural innovation.
National drought map and indicators
The government will provide $4.2 million over four years from 2019-2020 (and $0.5 million per year ongoing) to improve and maintain the National Drought Map.
The National Drought Map brings together information on drought conditions and support measures across Australia to assist drought relief responses. Additional work to develop a drought indicators system will also be undertaken.
This measure delivers on the government’s obligations under the intergovernmental National Drought Agreement.
National leadership for agricultural innovation
The government will provide $2.9 million over three years from 2019-2020 to drive national leadership for agricultural innovation.
Acceleration of the red imported fire ants eradication program
The government will provide $18.3 million over three years from 2018-2019, by bringing forward money from 2021-2022 and beyond from the National Partnership on Pest and Disease Preparedness and Response Programme, to support the immediate commencement of fire ant eradication in newly defined areas.
Improving connectivity in the Western Australian Grainbelt Region feasibility study
The government will provide $2.0 million in 2019-2020 for a detailed feasibility study to assess options for improving digital connectivity in the Grainbelt region of Western Australia.
The study will examine opportunities to increase broadband connectivity to support agriculture, transport and local communities, using existing infrastructure in the region.
Continuation of the Australian Competition and Consumer Commission Agriculture Unit
The government will provide $2.7 million in 2019-2020 to the Australian Competition and Consumer Commission to continue the operations of its Agriculture Unit. The Unit is responsible for enforcement and compliance activities to promote competitive agricultural markets.
Revised start date for the biosecurity imports levy
The government will change the start date of the 2018-2019 budget measure from 1 July 2019 to 1 September 2019 for the biosecurity imports levy entitled Agriculture, Food and Biosecurity.
This change will allow an industry steering committee to make recommendations to the Minister for Agriculture and Water Resources on the design and implementation of the levy. The change is estimated to reduce revenue by $20.0 million over the forward estimates period.
Further information can be found in the press releases of 24 February 2019 and 5 March 2019 issued by the Minister for Agriculture and Water Resources.
Primary Industries — changes to agricultural production levy
From 1 July 2019, the government will decrease the Emergency Plant Pest Response component of the banana levy from 0.75 of a cent per kilogram to zero, in consultation with the Australian Banana Growers’ Council. This component of the banana levy funded the costs paid by the government on behalf of the industry in relation to the 2013 emergency response to banana freckle in the Northern Territory. This measure is estimated to have no budget impact over the forward estimates period.
North Queensland Flood Recovery Package
The government will provide $3.1 billion over five years from 2018-2019 to support North Queensland’s livestock industry and associated communities to recover from the impacts of the 2019 flood event.
The package includes:
- $32.9 million over five years from 2018-2019 (including $1.0 million in capital funding) to establish the North Queensland Livestock Industry Recovery Agency in the Prime Minister and Cabinet portfolio. The agency will coordinate the Commonwealth’s efforts to support North Queensland’s livestock industry and affected communities, with a focus on long-term recovery to complement existing disaster recovery funding arrangements
- making available up to $1.75 billion in loans to authorised deposit-taking institutions to support interest rate relief for existing and new business loans to eligible flood affected primary producers (sheep and cattle primary producers in the first instance), with $0.7 million over three years from 2019-2020 will be provided to the North Queensland Livestock Industry Recovery Agency and the Treasury to administer the loan facility from 1 July 2019
- making available up to $1.0 billion for loans through the Regional Investment Corporation to assist farm businesses with restocking, replanting and refinancing existing debt, with farm businesses suffering extreme hardship able to refinance up to 100% of their commercial debt
- $300.0 million for grants of up to an interim cap of $400,000 across two programs for primary producers to help rebuild their businesses and assist with the costs of tax exempt. The programs support (1) restocking or replacing damaged crops (or permanent plantings), including associated transport costs ($150.0 million), and/or (2) repairing or replacing damaged on-farm infrastructure ($150.0 million)
- $4.0 million in 2018-2019 for Special Circumstances funding for eligible North Queensland schools experiencing financial difficulties, to help ensure the viability of these schools, with $1.0 million to be met from within the existing resources of the Department of Education and Training
- $0.8 million in 2018-2019 to assist isolated families through a one-off payment of $1,000 per student currently receiving support through the Assistance to Isolated Children Scheme or ABSTUDY.
Regional Airports Program
The Regional Airports Program will provide $100 million over the four years to 2022-2023 to provide assistance to the owners of regional airports to undertake essential works, promote safety and access for communities.
Harvest Labour Services Scheme
The budget provided $24.1 million to reform the Harvest Labour Services Scheme, so as to encourage Australian workers to fill persistent vacancies in manual farm labouring.
Building Better Regions Fund
There is a further $200 million to extend the existing Building Better Regions Fund, which sources private and public funding for local development projects, into a fourth round.
Future Drought Fund
$3.9 billion has been committed to the Future Drought Fund, paying $100 million a year by 2020.
Emergency Response Fund
Another $3.9 billion has been committed to the Emergency Response Fund, with $150 million available from 2019-2020.