I FIRST called for a Royal Commission into misconduct in the financial sector in June, 2014, when I sat on the Senate Inquiry into the Australian Securities and Investments Commission that uncovered the scandals in the financial advice arm of the Commonwealth Bank.
Since, I have watched financial scandals spread across all the major banking institutions of Australia. None of these scandals have shocked me as much as the rise and fall of forestry Management Investment Schemes. These forestry MIS could serve as a topic for a Royal Commission all on their own.
The Senate economics committee tried to get to the bottom of the MIS collapses in an inquiry I initiated in 2014. The scale of the disaster uncovered was staggering, and the pain and suffering of its victims was confronting.
However, the schemes have hardly entered public consciousness and the financial calamity is at risk of being lost to history. A huge $4 billion investment was squandered — about $1 billion courtesy of tax deductions, money that could have funded schools or health.
Tens of thousands of mum-and-dad investors lost their savings, and many are now fighting to keep their homes. Water catchments and farm land have been devastated by poorly sited plantations, and rural communities have been thrown into upheaval.
The reason government legislated to allow forestry MIS in the first place — and the reason it refused to change course when a meltdown was becoming obvious — was to make Australia self-sufficient in timber products. However, when Australian-owned and funded tree schemes went into liquidation they were sold to foreign investors for a few cents in the dollar.
Forestry MIS were an utter failure of tax policy, financial policy and industry policy.
At the inquiry’s final public hearing, ASIC Commissioner Greg Tanzer said forestry MIS were not “an investment class that retail investors could have confidence in”. So why did such a feeding frenzy occur that devoured the savings of so many ordinary Australians? Why were forestry MIS touted to everyday investors?
Many people and groups profited from forestry MIS. Accountants, timber firms, financial advisers, promoters, brokers, consultants and, not least, banks that underwrote dodgy loans and financing advice that sucked in growers, encouraging them to borrow to fund their investment.
Serious questions remain as to why government did not act when alarm bells sounded.
Consistent evidence from victims was they were advised the products were safe investments and would provide income annuity into their retirement, but they were not safe. People were swindled.
Like the mortgage backed securities in the US that led to the Global Financial Crisis, forestry MIS were a very risky product that lacked transparency, liquidity and turned out fundamentally flawed. New debt-fuelled and tax-driven investors were needed to keep cash flowing. The whole thing looked like one big Ponzi scheme.
To date, next to no one has been held to account for this financial scandal that hurt so many people and changed so many lives. While the Senate has done its best to shine a light down this dark and depressing well, only a Royal Commission has the resources and the investigative powers y to lay out for all to see those who were responsible.
Serious questions remain as to why government did not act when alarm bells sounded. Why did cabinet ignore advice from the Australian Taxation Office to change the tax incentives? What was the role of industry lobbyists in convincing government to keep the tax incentives and a highly ambitious plantation target? In Tasmania, what was the role of the proposed Tamar Valley pulp mill is inflating market demand?
The “profit first” culture that drove forestry MIS also needs going over. Financial scandals that have come to light in recent years would indicate there is a systemic problem that goes deep into the heart of the banks.
The grounds for a Royal Commission are irrefutable. It’s what the community wants and the financial system needs.
The Federal Government is threatening to hold an early election if the senate does not pass the draconian Australian Building and Construction Commission legislation that would treat building workers worse than criminals. Yet corruption in the financial sector — white-collar crime — continues to get a free pass.
It is time to turn this around. We need to ensure we do not repeat the failures of forestry MIS and that ordinary Australians do not get ripped off again.
*Formerly an economist and winemaker, Peter Whish-Wilson is a Tasmanian Greens Senator.
• John Hawkins in Comments: I supplied this submission to the MIS Senate enquiry: HERE In my submission I mentioned that a key to protection of MIS scams was the then Minister for Forests Senator Erich Abetz. The $60,000 paid by Gunns to the Liberal party 3 weeks after Abetz was made the Minister was I suggest a strong reason why Abetz protected the nitens scam from predation by the ATO. Abetz is still the Liberals Number One Gun in Tasmania. How and Why?