Tasmanian Times

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

Economy

Timber plantations to the rescue

Jarvis Cocker

Thankfully, timber plantations have come to the rescue.

You see it’s all much easier to sell Managed Investment Products. There are no entry fees. There are no exit fees, simply because you can’t exit the investment. You can’t quantify a return, because legislation prohibits it. All the adviser can do is stress the tax advantages.

The actual investment return is irrelevant, because most potential clients aren’t interested. They are looking for the quick fix, the immediate tax break, and they don’t care how they achieve it.

Little wonder so much money has flowed into these schemes in the last few years. Believe it or not, the economy is pretty robust at the moment. There are plenty of taxpayers who, every June, visit their accountant and demand a solution to their ‘tax problem.’ More and more often, the response is a recommendation to pump some money into a MIS.

THIS is a story of greed, lust and extended lunches.

A sordid tale of wine and walnuts, truffles and tree farms.

Across the country, new and exciting commodities are being packaged up by financial institutions, and flogged off to unsuspecting consumers in the form of tax-effective investment packages, most of which hold scant prospects of any eventual reward.

Young, tertiary educated men (the finance industry still regards the fairer sex as a bit flighty) travel the country seducing financial advisers with promises of high commissions, luxurious holidays and financial kick-backs.

This, of course, is nothing new.

I recall with fondness a trip to Australia’s Capital, Sydney, in 1995. One of our leading financial institutions was treating advisers to an investment briefing at their plush office complex near Circular Quay.

Being incorruptible, but more than open to a free weekend away, I picked up a business class flight to Sydney Airport, where I was met by a limo to take me to my humble lodgings at The Regent.

After a more than adequate dinner at Rockpool, we retired to the Regent’s lounge bar where my hosts suggested Bollinger might be a suitable refreshment to help me unwind after a long day.

Being partial to the stuff, of course I agreed.

The first bottle quickly vanished, followed by a second, and by the time the bill arrived at around 2am, six of us had managed to build the bar tab up to well over $1,000. This was the Regent, remember.

Before you could say junket, mine hosts whipped the account away, and suggested some company-funded entertainment at Kings Cross might be in order.

I declined, not because of any puritanical streak, simply because I had become somewhat cross-eyed from unjudicious consumption of Bollinger, a simple pleasure I can heartily recommend.

Returning to the airport the following day, an executive of the company involved suggested if I could see fit to put more business their way over the coming year, I would be added to their `A’ list, which was currently enjoying a similar standard of hospitality, but in Prague rather than Sydney.

Those days are gone. Gone, that is, except for those advisers who have turned to the dark side and championed the cause of Managed Investment Schemes.

Over the last few years, the financial services industry has been dragged kicking and screaming into the modern world. Overseas conferences, subsidised software packages and exorbitant commissions are now largely a historical footnote. Growing pressure from consumer organisations is finally starting to force some advisory networks to move to fee-based remuneration platforms, although the transition is moving at a snail-like pace.

Advisers are now required at law to provide full disclosure of entry and exit fees, risks, and a range of alternative investment options to consumers. Fund managers now focus on adviser education rather than bribery. A shame in some ways — in 1998, I received a record 17 leather-bound diaries in the weeks leading up to Christmas from financial institutions. Useful for passing off to relatives during the festive season. Unfortunately, within five years, the gifts had been replaced with computer-generated Christmas cards.

Thankfully, timber plantations have come to the rescue.

Imagine the delight of the financial advisory community when they found out that by recommending forestry investments to their clients, not only could they pick up an 8% commission, but a free holiday as well.

Strangely, that newly found enthusiasm for recommending forestry investments has come at the same time commissions on traditional investments have been slashed.

In fact until a few years ago, plantation investments were regarded with suspicion by most discerning advisers, who rightly recognised that shares, cash and property were the only real pathways to sustainable wealth. Suddenly, alternative investments, including forestry schemes, have appeared on most advisory networks ‘recommended’ lists.

Not that I would doubt the research skills of those advisory networks’ technical staff, but few of any of the schemes on offer have yet proved an ability to provide any sort of sustainable investment return.

But financial advisers are only human, and if selling Managed Investment Schemes can pay an 8 per cent commission, then surely they warrant a closer look.

Great Southern Plantations are one of Australia’s largest MIS promoters, and they’ve learned a few lessons from the 1990s.

A recent ‘study tour’ paid for by Great Southern showed advisers the best Western Australia has to offer. Wineries, olive groves, timber plantations, and some very comfortable accommodation at one of Perth’s finest hotels.

All quite legitimate of course, and a welcome break for advisers from the boring day-to-day routine of helping clients make money, and the associated paperwork needed to disclose entry and exit fees.

You see it’s all much easier to sell Managed Investment Products. There are no entry fees. There are no exit fees, simply because you can’t exit the investment. You can’t quantify a return, because legislation prohibits it. All the adviser can do is stress the tax advantages.

The actual investment return is irrelevant, because most potential clients aren’t interested. They are looking for the quick fix, the immediate tax break, and they don’t care how they achieve it.

Little wonder so much money has flowed into these schemes in the last few years. Believe it or not, the economy is pretty robust at the moment. There are plenty of taxpayers who, every June, visit their accountant and demand a solution to their ‘tax problem.’ More and more often, the response is a recommendation to pump some money into a MIS.

There are three winners here:

• The promoters of the schemes, who escape the regulatory scrutiny of fund managers by offering intangible, unquantifiable returns from investments that have an unknown future demand.

• Financial advisors, who have found a way to return to the glory days of the 80s and 90s, where commissions were high, the lunches were long, and the client was irrelevant.

• And the forestry/walnut/truffle/grape/olive businesses, who can see a bright future for their taxpayer-subsidised industries.

Pull the pin on the tax breaks though, and a different story emerges.

Jarvis Cocker is an independent media and communications consultant specialising in the Australian financial sector. He has previously worked as a senior manager with one of the country’s largest stockbroking firms and as a policy advisor to a Federal Government department. Now living in Tasmania, he tries to temper his sometimes rabid capitalist views with infrequent visits to the Tasmanian wilderness.

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15 Comments

15 Comments

  1. Mark

    March 2, 2007 at 11:24 am

    By the way, the figure of $70,000 taxable income being argued as average income on marginal tax rates creates a few more questions:

    1. How can someone on only $70,000 pay a mortgage, school fees, food and clothing AND invest so much “disposable income” into a MIS?

    2. Forget taxable income, what is the “gross income before deductions” of these poor average punters?

    Tax rorters? You be the judge.

    PS A recent program highlighted olives in Australia using extensive irrigation in the Murray River area whereas 90% of the international trade is in dry crops.

  2. A view from the hill

    March 2, 2007 at 12:24 am

    Excuse me ladies and gentlemen, but you are missing the plot, imho.

    The MIS allows the instigating organisation to corral a heap of tax shy dollars, buy up land which it puts in its own name, not those of the investors, and then carry on some activity which produces MAYBE, some income. The investors may or may not get a return, but the instigating organisation gets the prize, it owns the land, paid for with someone elses money.

    Vast amounts of land are disappearing out of the market into MIS ownership. It is an easy bet that these agregations will not be broken up under our current political/economic paradigm. The social and economic effects of this will play out over a very long time. It will certainly push up the price of land, BEN, my property is worth 4 times what I paid for it just prior to FEA’s purchase of just about all of my view. Why so much? Because not so many properties available, and you cannot create new titles on rural land!!!!!.

    I am puzzled by the move to restrict the scheme to plantation trees for “timber”. Why do this?

    I have wondered for some time whether conversations between the architects and beneficiaries of the MIS scam prior to its introduction into law could be prosecuted as a conspiracy to defraud the commonwealth? Perhaps a better legal mind than mine would care to comment?

    Perhaps the restriction has something to do with the original beneficiary not being able to cope with too much competition?

  3. Mark

    March 1, 2007 at 8:24 pm

    I can’t see why the share prices collapsed when the olives, timber, grapes etc are supposed to be independently competitive on the international market.

    As a sideline, I read a quote from Peter Costello today in relation to any future nuclear industry not having access to tax benefits, “The government is not in the business of making uncompetitive industry competitive.”

    Oh, the hypocrisy!

    PS Chuck the forestry MIS into the mix, too.

  4. Brenda Rosser

    March 1, 2007 at 12:33 pm

    Ben Brian said: “The average income of all those seeking finance for their investment in Great Southern’s MIS projects in 2006 was $70,000..”

    Could you supply the source of this information please? Because I was under the impression that most of the funding for these monopolies was coming from compulsory savings from superannuation corporations.

    You also said: “At least Minister McGauran is prepared to have a second look and get some advice before proceeding with the destruction of thousands of jobs and rural businesses..”

    Actually the very beneficiaries of the MIS scheme have had a major hand in this process of destruction along with the MIS schemes themselves. That is the very point. That such discriminatory tax-lurk regimes are decimating the local economies of rural Australia.

    Family farmers are hit with rising land prices because MIS has given this handful of ‘forest’ transnationals’ surplus unearned dollars to bid up the price. Farmers are now barred from selling to other small family farmers and are left to sell in a rigged market to a very small number of buyers. Costs and income on family farms are again unfairly raised due to the power of a few big corporations to charge what they like.

    The appalling thing is that this corruption of the ‘free’ market is done under its very name! What we see with MIS is actually a planned autocratic economy designed for a wealthy and tiny clique.

  5. Ben Brian

    March 1, 2007 at 1:20 am

    Jarvis,

    You really have no understanding of MIS. The average income of all those seeking finance for their investment in Great Southern’s MIS projects in 2006 was $70,000. Thats a marginal tax rate (including medicare levy) of 31.5 cents in the dollar. TAX RORTERS?? Hardly.

    Let’s be generous and say that the average tax deferral (not saving) to investors in MIS schemes is 38.5 to 40.5 cents in the dollar. When you consider that the fund managers themselves pay 30 cents in company tax and that revenue has to be brought into account in the year it is received, the net cost to consolidated revenue is between 8 cents and 10 cents in the dollar. That means that if $1.1 billion was invested in MIS in FY 2006, the cost to revenue would be around $88 million to $110 million. Yet the benefits to rural communities, jobs, etc. are immense. On top of that, future profits from the schemes are fully taxable as income to investors.

    All I read in the press is qoutes from people like Senator Bill Heffernan that MIS projects are simpy tax rorts for the “city rich” and clearly the facts prove this to be nonsense.

    Sure there are rich people who invest. But there are many more who are not rich. Why don’t you and like minded bigots such as Senator Bill Heffernan go and check the facts and then make your “informed” comments.

    At least Minister McGauran is prepared to have a second look and get some advice before proceeding with the destruction of thousands of jobs and rural businesses not to mention the massive blow to those ordinary investors in companies such as Great Southern, Timbercorp and the like who’s share values have crashed since the announcement on 6th feb.

  6. Justa Bloke

    February 25, 2007 at 4:54 pm

    “Unethical, unviable, enviromentaly disastrous” (Post #2) But apart from that it’s not as if there’s anything wrong with the practice.

  7. Brenda Rosser

    February 25, 2007 at 1:22 pm

    The link between the existence of vast monocultures and the spread of disease is well researched and understood. It is ‘a’ [major] factor in the spread of pestilence scale attacks.

    In the context of the existence of vast geographic plant and animal monocultures the question as to whether this one species is ‘native’ or not becomes irrelevant.

    The monoculture nature of the lodgepole pine estate is a significant factor mentioned in literature on the subject. And yes, this follows the pattern of the way ‘forests’ (monoculture Eucalypt plantations) are managed in Tasmania. Same age, same species, vast geographic areas covered, heavy dependence on toxic insecticides to control pest outbreaks.

    Rat, what is the point in having beliefs that aren’t supported by evidence?

    See:
    dnr.metrokc.gov/dnrp/climate-change/conference-2005-results/agriculture/pdf/presentation-coakley.pdf

    “Climate impacts Pests and Pathogens
    ..
    • abundance of monoculture ideal”

    +
    Uganda: The plague Has Come to Eucalyptus Plantations
    http://www.wrm.org.uy/bulletin/82/Uganda.html

    +
    ““As genetic improvement falls into the hands of fewer companies and the trend towards intense multiplication of a limited range of genotypes (monoculture, cloning) develops, there is mounting concern that large populations may have increasingly uniform vulnerability to particular pathogens.”
    Meredith M. 2004. Zoonotic disease risks-2004 update. American Association of Swine Veterinarians.
    http://aasv.org/news/story.php?id=1221〈=en.

    “Crop heterogeneity is a possible solution to the vulnerability of monocultured crops to disease..”
    http://www.nature.com/uidfinder/10.1038/35021046

    “Problems associated with monoculture crops include the loss of agricultural biodiversity, and vulnerability to disease outbreaks..”
    http://www.afaa.com.au/n_questions_answers_environment.asp

    “[modern high-tech agriculture] increases vulnerability to nature, especially to climate and microclimate change, pest outbreaks and atmospheric and water pollutants. This is because of large scale monoculture, the selection of varieties for maximum yield under optimal conditions and the loss of beneficial fauna and flora.”
    http://pubs.socialistreviewindex.org.uk/isj72/levins.htm

    …man more refs.

  8. rat

    February 24, 2007 at 2:11 pm

    I cannot usually be bothered reading her posts let alone following her links, but having followed this one I can say Rosser should have been more careful reading the Christian Science Monitor article.

    I believe it is about NATIVE lodgepole pine forest in Colorado (yes, native vegetation communities can be described as “monocultures” by a “staff reporter”) that is susceptible to attack from a native mountain pine beetle when more than 80 or (sic) 100 years old. The problem has occurred not because of the monoculture but because the forest is of a relatively even age due to suppression of fire and the way the forests were cut in the 1800s for mining operations.

    A retired Colorado forester says about the cure for the problem: “We’ll try to break up the age class structure in the forest and get special diversity back – similar to what existed in the past”.

    Not dissimilar to the way forests are managed in Tasmania!

    Whether the article either supported Rosser’s thesis or not, it wasn’t a very authoritative reference to supply anyway. A bit like using Readers Digest as a source of peer review science.

  9. Brenda Rosser

    February 23, 2007 at 3:22 pm

    Ben Brian said: “Next thing you’ll be advocating that corporations should stay out of farming and leave that to the “traditional” family farmer. Let’s go back to the nineteenth century!!..”

    Ben, clearly you put your money where your mouth is. However, from what you’ve written above it is clear that your MIS investments would go down the gurgler if this discriminatory tax breaks on corporate agriculture/’forestry’ were removed.

    Your writing appears to be addled with ideology like: ‘Driven by competition and aided by technology, farms must become larger and more efficient, though less numerous.’

    Trouble is these dead economists that you aspire to mimic have no definition of efficiency that encompasses the continuation of the integrity of our biosphere. And your paradigm fails even under it’s own neoliberal economic ‘logic’.

    Big, ‘efficient’ corporate monopolies don’t tend to pass on savings to the consumer. Often they get taken over by overseas transnationals and when consumers and workers are squeezed enough by the associated exploitation the market for the products plummet through lack of purchasing power.

    When you dominate the entire ‘market’ in whole industries, why invest in R&D? What would be the incentive to be more efficient when you’ve got Government in your pocket and resource guarantees on huge areas of native forest.

    Of course, when the stock of old-growth temperate rainforest disappears Gunns Ltd, FEA and others can simply move out of Tassie altogether and expand their overseas clearfelling in PNG and other depressing nations.

    Before/if you care to reply, take a look at the efficiency of vast areas of land covered by monoculture pine trees in Colorado these days.
    http://www.csmonitor.com/2007/0222/p01s01-usgn.html

    http://www.geocities.com/rosserbj

  10. Ben Brian

    February 23, 2007 at 1:52 am

    Jarvis,

    You really need to get out more. Get out of Tassie and into the real world that is. Your understanding of the investing public, be it MIS or any other managed investment is woeful. In fact your comment `Never underestimate the stupidity of the investing public.’is an insult to your fellow man.

    I have spent 25 years advising people on their investments and be assured they are not stupid. Then again, I can’t vouch for people in Northern Tasmania. Two heads and all that.

    Next thing you’ll be advocating that corporations should stay out of farming and leave that to the “traditional” family farmer. Let’s go back to the nineteenth century!!

    As for facts, all you have is “anecdotal” evidence. I know my facts.

  11. Jarvis Cocker

    February 19, 2007 at 10:16 am

    Ben, I’m sure you are a serious investor who critically reviews the opportunities available to you.

    I’m equally sure you can’t speak for the thousands of others who simply write a cheque on the recommendation of their advisor/financial planner/accountant.

    Do I think `thousands of investors have been conned by salesmen seeking high commissions?’ Yes, I do. There’s a saying in the financial services industry. `Never underestimate the stupidity of the investing public.’ The majority of those seeking financial advice have blind faith in what they are told. Studies show some 80% never even read the prospectus or investment documentation they are shown, they simply accept verbal advice.

    That advice is often given by someone with limited qualifications, and a background in car sales, flogging insurance products, or admin work in a bank.

    In fact most people spend more time considering their footy tipping entries than planning their financial future.

    And Ben, you may care to check some of your facts. Your `4% of rural properties’ comment is typical of the sort of claim Minister for Slash and Burn Erica Betz makes from time to time. It is misleading. Try looking at the statistics for land sales in North East Tasmania for example, and you will find a very different situation.

    You should also ring Great Southern, and get an update on both their cattle and wine projects. After doing that, you may wish to ring a couple of cattle farmers and get their view on whether Great Southern are really `not competing with farmers.’

    Have a nice day,

    Jarvis.

  12. Ben Brian

    February 11, 2007 at 3:32 pm

    A couple of points.

    Do you seriously believe that people invest only due to the tax breaks. Sure they’re nice but nobody pays 100 cents in the dollar (Provisional Tax was abolished several years ago) so why risk losing $1.00 to gain 45 cents. Don’t forget, any return on investment is fully taxable as income so the correct term is “deferral” not “deduction”. And do you really believe that the thousands of investors in the schemes have been”conned” by salesmen seeking high commissions? Give your fellow man more credit than that please!

    Second, I believe that 60% of Great Southern’s investors are repeat investors seeking to develop a future income stream in retirement (I’m one of them). Tax rorters? Rubbish.

    Finally, the industry is generally not competing with farmers. Let’s take a look at Great Southern. 65% of its vineyards are established properties, not newly created ones, the produce being grown under contract to established wine makers for the export market. Its cattle properties are all existing stations, no increase in the number of new properties, simply a change of ownership of established businesses. Its olive projects supply just one single Western Australian Olive Oil manufacturer which exports 50% of its product to the UK where demand far exceeds supply. Hardly what you’d call creating unfair competition.

    As for some farmers’ view that MIS companies push up land costs, only 4% of rural properties changing hands in 2006 went to MIS companies. That may have resulted in upward pressure in some isolated regions but could hardly be blamed for pushing general property values beyond of the reach of the average farmer.

    Appropo to Peter Dutton’s announcement last Tuesday on MIS non forestry schemes, I agree that legislation should be tightened to avoid any possible rorting of the system and that MIS managers must make their projects commercial rural enterprises, not tax schemes. However the measures taken last week are extreme to say the least and I feel the government should repeal the decision and seek consultation with interested parties to ensure we have a fair and honest system encouraging investment into rural areas. In the meantime a moratorium on the industry for at least three years would appear fair and reasonable to protect jobs, businesses and shareholder values.

  13. David Mohr

    January 18, 2007 at 2:59 pm

    I wonder if Jarvis or any other stock market gurus could inform TT readers why Gunns share price has risen sharply in the last few weeks despite the current turmoil over the pulp mill assessment process.

  14. steve

    August 21, 2006 at 9:35 am

    Tasmania is the only state that converts native forest into plantations and with no tax breaks for rich people who should be paying tax instead of hiding it in burning log heaps this unethical, unviable, enviromentaly disastrous practice would cease.

  15. Mark

    August 21, 2006 at 7:22 am

    But they do qualify as ethical investments, don’t they?

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