cabinet review

decision to make 70% go towards plantations in order to qualify as a tax deduction is a positive imo.

in any case market likes it, so who can argue;

"THE Howard Government faces an election-year showdown with the powerful forestry sector - and Macquarie Bank - after deciding to crack down on tax breaks for mass-marketed timber plantations.
Cabinet's decision, taken this week, will also ignite another partyroom brawl, with regional MPs resisting the plan to wind back the tax breaks for the so-called "managed investment schemes". More than $2 billion has been ploughed into MIS plantations since 2000, with a small group of investment firms reaping millions of dollars in commissions and fees.

The Government has been forced to get tough amid concerns "Pitt Street farmers" were snaring lucrative tax breaks at the expense of legitimate agricultural operations.

Ministers fear rich investors are abusing the tax break, with too much money in some schemes spent on managers' salaries and commissions or inappropriate projects rather than legitimate forestry plantations.

MIS funds will now have to prove that at least 70 per cent of the investment is for actual tree plantations, or their investors lose the full tax deductibility.

Senior ministers believe the tax changes will weed out speculators, and cut down on the huge fees being paid to the small number of pooled fund managers.

"The reality is that a lot of it is city money. But this will flush them out," a senior government figure told The Australian. Another source said cabinet had agreed to the crackdown because of concerns it had been "open slather" for tax-minimisers.

"The clear view is that a lot of the money (going into MIS) is being pilfered out of it by investment bankers and advisers," the source said.

Senior ministers held a robust debate about the contentious tax plan in Sydney on Monday. It is understood Peter Costello has led the charge against the tax breaks.

Macquarie Bank, Timbercorp and Great Southern Plantations have been the main backers of MIS forestry since special tax rules were introduced in 2000.

The three have formed a peak lobby group - Agriculture Investment Managers Australia - to argue their case in Canberra.

AIMA claims that commissions paid by agri-MIS projects "are no higher than other financial products". They also point to the strong growth in plantations with more than 500,000ha of timber planted since 2000 - helping Australia meet its Kyoto target.

The National Association of Forestry Industries, which played a crucial role during the 2004 election by opposing Mark Latham's Tasmanian forestry plan, has warned that changing tax laws would "disadvantage" forestry growers and reduce much-needed regional investment.

Catherine Murphy, NAFI chief executive and a former adviser to John Howard, last night backed the MIS arrangements, which she said had worked well.

"We believe that the current MIS arrangements have delivered over $2 billion to rural and regional Australia, as well as contributing four percentage points or 20 million tonnes of CO2 annually towards offsetting our Kyoto targets," she said.

Wilson Tuckey, a former forestry minister, yesterday warned the Prime Minister he would face another partyroom revolt if he tried to tighten up tax laws.

But another Liberal backbencher, Geoff Prosser, said management fees charged by MIS firms were exorbitant and distorted regional economies.