An overview of the World of Forestry in Tasmania – as protected and promoted by Paul Harriss, the Minister for Forests – at great expense to the taxpayer is to be found in the attached extract from an essay by Andrew Macintosh titled “Chipping away at Tasmania’s future”, published as the Australia Institute Paper No 15 December 2013.
In this paper Macintosh argues that the ongoing emphasis on forestry is misplaced and counter-productive, economically, socially and environmentally.
Treasurer Peter Gutwein cuts jobs in the public sector as he and Paul Harriss still find the money to fund Forestry Tasmania to the tune of millions of taxpayer dollars annually.
This money is required to service contracts granted to third parties by the previous management of Forestry Tasmania that cause it to incur even larger losses the more timber they supply.
I ask Gutwein and Harriss – as the people’s representatives to the board of Forestry Tasmania:
Why do you continue to support this madness?
An extract from Chipping away at Tasmania’s future.
Perceptions of the forestry industry’s importance
The forestry industry is only a small part of the Tasmanian economy. Forestry and forest product manufacturing accounts for approximately two per cent of Gross State Product, roughly half of which is attributable to native forestry. Current employment in the forestry industry is unlikely to be much over 2,000, with the total in native forestry probably below 1,000, meaning native forestry accounts for less than 0.5 per cent of total employment in Tasmania.
While the statistics paint a picture of a relatively small industry at the periphery of the state economy, the Tasmanian community appears to believe forestry is one of the state’s major industries. A survey conducted as part of this research project found that the average Tasmanian believes forestry makes up almost 30 per cent of GSP, a quarter of the workforce and more than 1/3rd of exports. In truth, at the time of the survey, it was responsible for around two per cent of GSP, 1.5 per cent of employment and five per cent of exports.
Scale of the assistance to the forestry industry
For decades, federal and state governments have provided substantial subsidies to the forestry industry to ensure its ongoing survival. Prior to the IGA/TFA, there were three previous major attempts to restructure the industry and simultaneously expand the reserve estate: the Helsham Agreement (1989), Tasmanian Regional Forest Agreement (1997) and the Tasmanian Community Forest Agreement (2005). In these previous agreements the Australian government provided funding to the forestry industry on the pretext it would help put it on a financially sustainable footing: it received $42 million under the Helsham Agreement, $110 million through the Regional Forest Agreement and $203 million via the Tasmanian Community Forest Agreement. The sacrifice for the industry that was made in exchange for the funding was lost production forests, which were transferred to reserves.
Chipping away at Tasmania’s future
The IGA/TFA[ Now repealed by the Liberals but with no refund of public money] has followed the same general structure. Large capital and operating subsidies have been coupled with an expansion of conservation reserves. The headline conservation figure that is often quoted is that the IGA/TFA will result in an additional 504,012 hectares (ha) of conservation reserves. However, the projected reduction in production areas (the areas targeted for harvesting for wood products) as a result of the IGA/TFA is approximately 190,000 ha.
In return for these conservation outcomes, the industry has or will receive $250 million of the total $420 million IGA/TFA funding package. Separately, the Tasmanian government has undertaken to provide $100 million to keep Forestry Tasmania (the state forestry agency) solvent over the period 2013-17, which comes on top of $110 million in funding the corporation received under the Tasmanian Community Forest Agreement of 2005.
Few industries receive such generous assistance when market conditions turn against them. In this case, in the space of three years, more than $180 million has been spent on buyouts and structural adjustment assistance for the forestry industry, which equates to approximately $140,000-$280,000 per worker ‘removed’ from the industry over this time.
Ta Ann, a Malaysian timber company that operates in Tasmania through a subsidiary, Ta Ann Tasmania Pty Ltd, has been one of the main beneficiaries. Under the Tasmanian Community Forest Agreement, it received $10 million to help it build its rotary veneer mill near Smithton [Southwood?]. As part of the IGA/TFA process, the Australian government will provide Ta Ann $26 million as compensation for reducing its contracted peeler log supply [Plus $2.6 million in GST] and $7.5 million to help it build a plywood mill in northern Tasmania. In addition to the direct Commonwealth subsidies, Ta Ann has received Tasmanian government assistance in selecting the site for its mills, planning and approvals, and it is rumoured to have received subsidised electricity.
The return on the taxpayers’ investment in Ta Ann is small. Since commencing operations in 2006, Ta Ann Tasmania Pty Ltd has recorded a profit in only two years, 2009 and 2011, of $400,000 and $1.8 million respectively. Its aggregate net loss over the period 2006-2012 was $26.3 million, its current liabilities exceed current assets by $26 million and it only remains solvent because of a line of credit from its immediate parent company. As a foreign company, even if it made a profit most of the associated economic benefits would accrue to the foreign owners, not Australian taxpayers. Further, due to the extent of its accumulated losses, it has paid no income tax. Because of its financial structure and the subsidies received from the Australian and Tasmanian governments and Forestry Tasmania, the only material return to taxpayers from Ta Ann Tasmania Pty Ltd’s operations is in the form of compensation to employees. In 2012, it had 82 employees and its total personnel expenses, including payroll and fringe benefit tax, were $6.6 million. [This paper does not determine the number of Ta Ann employees on 457 visas]
The Ta Ann story is indicative of the problems associated with the historic approach to Tasmania’s forestry industry. Governments appear to see forestry as inherently good for Tasmania, irrespective of the sector’s economic performance, the opportunity cost of the capital, labour and natural resources used in the operations, and the broader environmental and social impacts. This has resulted in a tendency for governments to provide extensive subsidies to the sector, even when the operations are manifestly uneconomic.
Should the forestry industry continue to receive subsidies?
Governments usually justify the provision of subsidies to industry on the grounds they create employment and enhance social welfare. Although this is sometimes true, there is significant risk with all subsidy programs that they will have the opposite effect.
In the case of the forestry industry, there are several issues that suggest it is a poor target for further government support, including:
• relevant domestic and international wood fibre and product markets are highly competitive and most of the competition is based on price rather than quality;
• the industry is highly cyclical, experiencing sharp downturns every 10-15 years;
• the long-term history of the industry has illustrated that it generates low returns relative to other industries and is likely to require ongoing government assistance; and
• the industry is not labour intensive, meaning it generates fewer jobs per dollar of government assistance than many other industries.The last of these points is illustrated in Table S1, which shows the number of jobs per $1 million in income in forestry and logging, wood product manufacturing and pulp and paper manufacturing, compared to the equivalent figure from selected service industries. Generally, forestry is less labour intensive (or more capital intensive) than most service industries, meaning it is likely to create fewer jobs per dollar of government assistance.
Forestry Tasmania, the state-owned entity responsible for the management of the public native forest estate, recorded an aggregate net loss before tax and other items of $122 million over the four year period 2010-2013, $30 million a year. In the most recent financial year, 2012-13, it lost (before tax and other items) $48 million and only remained solvent through $15 million in ‘deficit financing’ from the state government. [In the current year 2013 -2014 FT lost a further $43 million] Due to the state of the forestry sector and the corporation’s finances, the government has budgeted to provide a further $25 million each year in 2014, 2015 and 2016, and $10 million in 2017, to ensure Forestry Tasmania remains a going concern. This $100 million from Tasmanian taxpayers is on top of the $110 million Forestry Tasmania has received since 2006 as part of the Tasmanian Community Forest Agreement. In 2013, it also received $1.7 million as part of the TFA process. The ongoing government financial support for Forestry Tasmania, and extent of the corporation’s losses, highlight how the state and federal governments are keeping the native forestry sector alive by providing subsidised logs. Forestry Tasmania sells logs to wood processors at prices that do not cover its costs and the losses are then transferred to taxpayers. Without this subsidy, the sector would collapse.
EARLIER on Tasmanian Times …
