Chapter 2
Drought and industry exit assistance in Australia
National Drought Policy
2.1
In 1992, Commonwealth and state ministers agreed to the National Drought
Policy (NDP), the objectives of which are to:
-
encourage primary producers and other sections of rural Australia
to adopt self-reliant approaches to managing for climatic variability;
-
maintain and protect Australia's agricultural and environmental
resource base during periods of extreme climate stress; and
-
ensure early recovery of agricultural and rural industries,
consistent with long‑term sustainable levels.[1]
2.2
The NDP states that:
During severe downturns, Governments will act to preserve the
social and physical resource base of rural Australia, and will provide
adjustment assistance in the recovery phase. Support will be available to those
with sound prosects who are temporarily in financial difficulty.[2]
2.3
In situations such as severe droughts, an Exceptional Circumstances (EC)
declaration may be made. ECs are considered to be 'rare and severe events that
are outside those that a farmer could normally be expected to manage using
responsible farm management strategies. Specifically, they are events that
occur on average once every 20 to 25 years and have an impact on income for a
prolonged period (e.g. greater than 12 months)'.[3]
2.4
State and territory governments may lodge an application with the
Commonwealth Minister for Agriculture, Fisheries and Forestry if they believe
there is a case for EC assistance for a certain area. The Minister may then
refer the application to the National Rural Advisory Council (NRAC) for
assessment against the EC criteria. NRAC's recommendations are provided to the
Minister who makes the decision whether to make an EC declaration.[4]
2.5
Aspects of the NDP have proved controversial. After conducting an
inquiry into government drought support activities, the Productivity Commission
concluded that 'in contrast to its objectives, the NDP’s programs focus on
providing relief primarily to farm households and farm businesses suffering
hardship during severe drought'.[5]
Assistance available during
exceptional circumstances
2.6
Once declared, eligible farmers in the EC-declared area may be entitled to
assistance through a number of government programs. One program is the Exceptional
Circumstances Exit Package which was designed to assist farmers who choose to
leave farming as a result of difficult circumstances to re-establish themselves
in another sector. The main component of this package is the Exceptional
Circumstances Exit Grant (a one–off payment of up to $150,000). If eligible for
this grant (see paragraph 2.15), farmers may also be eligible for other advice
and retraining grants and relocation grants.
2.7
Other support available to eligible farmers and small businesses in EC‑declared
areas includes:
-
income support through the Exceptional Circumstances Relief
Payment (paid at a rate equivalent to the Newstart Allowance);
-
interest rate subsidies for farms;[6]
and
-
assistance for small businesses that rely on business from
farmers (including income support through the Exceptional Circumstances Relief
Payment and interest rate subsides).[7]
2.8
Although not strictly part of the EC measures, other assistance may also
be available such as the Australian Taxation Office allowing more time to pay
tax debts without incurring interest charges.
2.9
As shown by Figures 2.1 and 2.2, the area of Australia subject to an
EC declaration has reduced significantly in recent years. In June 2011
such measures were restricted to parts of South Australia and New South Wales.
Figure 2.1: Exceptional Circumstances declared areas
in 2008–09
![Figure 2.1: Exceptional Circumstances declared areas in 2008–09](c02_1.jpg)
Figure 2.2: Exceptional Circumstances declared areas
(as at 16 June 2011)
![Figure 2.2: Exceptional Circumstances declared areas (as at 16 June 2011)](c02_2.jpg)
Sources:
Figure
1: Australian Bureau of Agricultural and Resources Economics and Sciences, www.daff.gov.au/agriculture-food/drought/ec
(accessed 15 July 2011).
Figure
2: Bureau of Rural Sciences, 'Operation of the Rural Adjustment Scheme' www.daff.gov.au/agriculture-food/drought/ec/nrac/nrac_2008-09_annual_report/operation_of_the_rural_adjustment_scheme
(accessed 15 July 2011).
The Exceptional Circumstances Exit Package
2.10
On 25 September 2007, the Howard Government announced additional drought
assistance measures worth $714 million to 'support farmers through the worst
drought in living memory and in the interests of Australia's long-term food
security'.[8]
Part of the package of measures was the Exceptional Circumstances Exit Package
(EC Exit Package). The main component of the package is the Exceptional
Circumstances Exit Grant (EC Exit Grant)—a grant of $150,000 for eligible
farmers (targeted at low-income and low-asset farm owners) who have decided to
leave the land.[9]
2.11
If eligible for the EC Exit Grant, farmers may also be eligible for the:
-
EC Advice and Retraining Grant (a payment of up to $10,000
for professional advice and retraining to help them plan for life after farming);
and
-
EC Relocation Grant (up to $10,000 to help with relocation
expenses and to access job seeking services after they have sold the farm).[10]
2.12
Under the Rudd and Gillard Governments, additional funding was provided
in various federal budgets to extend the duration of the EC Exit Package.
Between 25 September 2007 and 30 June 2011, 456 EC Exit Grants were paid.[11]
2.13
The Department of Agriculture, Fisheries and Forestry (DAFF) has advised
the committee that the program was closed to new applications on 10 August
2011.[12]
Eligibility criteria
2.14
The policy guidelines for the EC Exit Package have been revised at
various times. The most recent version was issued in July 2011, and covers the
period 1 July 2011 to 30 June 2012. Claims lodged prior to that period
continue to be assessed under previous versions of the guidelines.
2.15
Farmers who were eligible for the EC Exit Grant must have satisfied
various criteria including:
-
being an Australian resident;
-
being a farmer, whose farm enterprise is or was located in an EC
declared area (includes prima facie and interim declared areas);
-
having contributed a significant part of his or her labour and
capital to the farm enterprise, and deriving a significant part of his or her
income from the farm enterprise;
-
having met the requirements of the asset test;[13]
and
-
having sold their farm.[14]
'Effectively in control'
requirement
2.16
The eligibility criteria for the EC Exit Grant also requires that the
owner of the farm be 'effectively in control' of the farm enterprise
immediately before the sale.[15]
DAFF explained that effectively in control means:
... the person has a legal title or interest in the farm
enterprise and an ability to transfer it to another. This means an applicant
cannot:
-
be involved in bankruptcy
proceedings
-
have been issued an eviction order
-
have been threatened with
foreclosure or
-
have in any other way lost
management control of the farm.[16]
2.17
Past government rural assistance schemes have also taken this
approach—the Dairy Exit Program Scheme 2000 included a provision that a person
would not be qualified, or would cease to be qualified, for farm help income
support under that scheme if it was determined they were not effectively in
control of the farm enterprise. A non‑exhaustive list of examples where
it may be determined that a person was not effectively in control of the farm
included 'when a mortgagee has taken possession of a farm, when a person is a
bankrupt or when an eviction notice has been served on a person in respect of a
farm'.[17]
2.18
Payments made under both of the remaining two grants comprising the
EC Exit Package (i.e. the EC Advice and Retraining Grant and the EC
Relocation Grant) are only available to farmers who have already sold their
farm in accordance with the eligibility criteria for the EC Exit Grant. The
requirement that the farmers be effectively in control of the farm enterprise
immediately before the sale therefore also applies to those payments.
Other current rural support schemes
2.19
The NDP has been subject to a number of reviews since it was agreed to,
as shown by Table 2.1.
Table 2.1: Reviews of the National Drought Policy
Year |
Review |
1997 |
Drought Policy Task Force, Review
of the National Drought Policy |
1997 |
Department of Primary
Industries and Energy, Rural Adjustment—Managing Change |
2004 |
Drought Review Panel, Consultations
on National Drought Policy |
2006 |
Agriculture and Food Policy
Reference Group, Creating our Future: Agriculture and Food Policy for the
Next Generation |
2008–09 |
National
Review of Drought Policy,
including:
-
an economic assessment of
drought support measures: Productivity Commission, Government Drought
Support, Report no. 46, February 2009;
-
an assessment of the social
impacts of drought: Drought Policy Review Expert Social Panel, It’s About
People: Changing Perspectives on Dryness, A Report to Government by an Expert
Social Panel, September 2008; and
-
a climatic assessment: CSIRO and
Bureau of Meteorology, An assessment of the impact of climate change on the
nature and frequency of exceptional climatic events, July 2008.
|
2.20
Arising from the National Review of Drought Policy is a pilot of
drought reform measures being undertaken in part of Western Australia as a
partnership between the Australian Government and the Western Australian
Government. The measures under the program are:
... designed to move from a crisis management approach to
risk management. The aim is to better support farmers, their families and rural
communities in preparing for future challenges, rather than waiting until they
are in crisis to offer assistance.[18]
Figure 2.3: Region covered by the pilot of drought
reform measures in part of Western Australia for 1 July 2011 to 30 June 2012
![Figure 2.3: Region covered by the pilot of drought reform measures in part of Western Australia for 1 July 2011 to 30 June 2012](c02_3.jpg)
Source: Department of
Agriculture, Fisheries and Forestry, 'pilot of drought reform measures in part
of Western Australia', www.daff.gov.au/agriculture-food/drought-pilot (accessed
31 August 2011).
2.21
One of the programs under the pilot scheme is Farm Exit Support, which
includes:
-
Farm Exit Support Grants;
-
Farm Exit Support Advice and Re-training Grants; and
-
Farm Exit Support Relocation Grants.
2.22
DAFF advised the committee:
Farm Exit Support is similar to EC Exit Grant in all
respects, except that it is available to eligible farmers in financial
difficulty, regardless of the cause of difficulty, and is not linked to EC
declarations. It is available to farmers in the pilot of drought reform
measures in Western Australia. The Australian Government has allocated $1.44
million for Farm Exit Support for 2011-12. The program will close on 30 June
2012 or earlier if all funds are expended before that date.[19]
Treatment of government rural support schemes under bankruptcy law
Overview of bankruptcy law
2.23
The primary legislation governing bankruptcy matters in Australia is the
Bankruptcy Act 1966. The Act outlines the processes associated with
formal bankruptcy (either voluntary or involuntary) and voluntary
legally-binding agreements which can allow debtors to avoid formal bankruptcy.
These are under Part X of the Act (Personal Insolvency Agreements) and
Part IX (Debt Agreements).[20]
2.24
Of most relevance to this Bill are the provisions in the Bankruptcy Act regarding
the division of a bankrupt's property among creditors.
2.25
The Attorney-General's Department described how property is treated
under the Bankruptcy Act:
When a person becomes bankrupt the property of the bankrupt
vests in the trustee who is administering the debtor's bankruptcy on the date
of the bankruptcy (paragraph 58(1)(b) of the Bankruptcy Act 1966 (the
Act)). The property of the bankrupt which is divisible among the bankrupt's
creditors is specified in s 116(1) of the Act.
Property acquired by the bankrupt after the date of
bankruptcy but before the date of discharge is also available to the trustee (s
116(1)). This type of property is referred to as "after-acquired
property".[21]
2.26
Subsection 116(2) of the Bankruptcy Act provides that certain property
cannot be divisible amongst the creditors of a bankrupt.[22]
2.27
Additionally, section 139L of the Bankruptcy Act limits certain forms of
income from being subject to compulsory income contributions. Section 139L of
the Bankruptcy Act provides that in relation to compulsory income contributions
by a bankrupt post-bankruptcy, income has 'its ordinary meaning', subject to
certain qualifications. Paragraph 139L(1)(b)(v) allows the regulations to provide
that certain payments or amounts are not the income of the bankrupt. A number
of types of income are currently prescribed by the regulations and thus
excluded from compulsory income contributions.
Excluded government rural support
schemes
2.28
Paragraphs 116(2)(k), (l), (m) and (ma) of the Bankruptcy Act allow the
regulations to exclude payments paid to a bankrupt under rural support schemes
from counting as property divisible among a bankrupt's creditors.
2.29
Although the specific rural support schemes are prescribed by the
regulations, a general definition of a rural support scheme is provided in the
Bankruptcy Act as being a program or scheme that:
(b)
is administered by or on behalf of the Commonwealth, a State or a
Territory; and
(c)
relates to:
(i)
agriculture or the cultivation of land; or
(ii)
the maintenance of animals for commercial purposes; or
(iii)
horticulture; or
(iv)
any other primary industry activity.[23]
2.30
The following rural support schemes are currently prescribed and are
accordingly excluded from the definition of property:
-
Dairy Exit Program Scheme 2000 (see paragraph 2.33);
-
Farm Help Re-establishment Grant Scheme (see paragraph 2.35);
-
1985 Rural Adjustment Grant Scheme*;
-
1988 Rural Adjustment Grant Scheme*;
-
Rural Adjustment Grant Scheme*;
-
Rural Adjustment Scheme*;
-
Rural Reconstruction Grant Scheme*;
-
Sugar Industry Reform Program*; and
-
Tobacco Grower Adjustment Assistance Package* (see paragraph 2.34).[24]
2.31
All of these above programs are now closed. DAFF notes:
The Farm Help Re-establishment Grant was the last exit grant
exempt from bankruptcy proceedings. Farm Help closed on 30 June 2008, with no
further payments made after 30 June 2009.[25]
2.32
Accordingly, only the EC Exit Program and the pilot of drought reform in
Western Australia are current rural support schemes that include an exit grant
component. No grants made under either program are exempt from bankruptcy
proceedings.[26]
Past treatment of various exit
grants
2.33 The Dairy Exit Program Scheme 2000 (DEP Scheme) was introduced at the
time of dairy deregulation with the passage of the Dairy Industry Adjustment
Act 2000. The program provided a grant of up to $45,000 (tax free) to
people on the sale of dairy farm enterprises, or rights or interests in dairy
farm enterprises, where a dairy farmer decided to leave the industry.
2.34
The Tobacco Grower Adjustment Assistance Package (TGAAP) was announced
in 2006 as a grant to enable a person engaged, or previously engaged, in the
tobacco industry as a grower to exit all agricultural industries. The grants were
capped at $150,000 per grower and were available to former tobacco growers in
northern Queensland following the cancellation of their growing licences in
2004 by the Australian Taxation Office (ATO) after the withdrawal of
manufacturers in Queensland, as well as Victorian growers after they exited the
industry.[27]
2.35 DAFF described the treatment of the Farm Help Re-establishment Grant,
the last rural support grant introduced with an exemption from bankruptcy
proceedings:
The Farm Help Re-establishment Grant was intended to provide
a head start to help farmers in financial difficulty successfully establish a
life after farming. The grant was exempt from bankruptcy proceedings under the
bankruptcy legislation. This recognised the intent of the re-establishment grant
to assist farmers to re-establish outside of farming and the decision to exempt
the grant from bankruptcy was to guarantee some financial security for the farm
family after exiting.[28]
2.36
In April 2007, amendments to the Bankruptcy Regulations were made to 'align
the treatment of a number of rural support grants'.[29]
One of the effects of the amendments was to reinstate the status of the Sugar
Industry Reform Program, TGAAP and the DEP program as being non-divisible
property (a status they held prior to the passage of the Bankruptcy
Legislation Amendment (Superannuation Contributions) Act 2007).[30]
These amendments ensured these grants received 'similar treatment in bankruptcy
to grants pursuant to the Farm Help scheme'.[31]
Why is the EC Exit Package not
excluded?
2.37
As noted, since the closure of the Farm Help Re-establishment Grant, no
exit grant made under a rural support scheme has been exempted from counting as
property divisible among a bankrupt's creditors.
2.38
DAFF summed up the rationale for the EC Exit Grant being subject to
normal bankruptcy proceedings as follows:
The EC Exit Package guidelines were designed to assist
farmers in significant financial difficulty. The grant assists farmers to make
the hard decisions about their future in farming before they reach a point,
financially, from which it would be very hard to recover. Some farmers remain,
hoping for a good season to repay their debts, but this is very risky if they
are already burdened by debt. The guidelines encourage farmers to consider
their position before it is too late by requiring that, to receive a grant, an
applicant must be effectively in control of the farm enterprise immediately
before the sale of the farm. The EC Exit Grant was not made exempt from any
future bankruptcy action so as to avoid deterring farmers from taking early
action.[32]
2.39
Some applicants for the EC Exit Package, however, may have found a way
around some of the implications of the grants counting as divisible property. A
Rural Financial Counsellor advised DAFF:
One strategy known to be used by farmers is to sell the farm,
then file for bankruptcy and then once bankrupt apply for the exit grant. This
is possible under the guidelines because the farmer was still in control of the
farm at time of settlement of sale of the farm. The bankruptcy trustee then
treats the exit grant as income and accordingly distributes only part of the
exit grant to the creditors. This could leave the farmer with around $100,000
out of the $150,000 (income tax also needs to be taken into account).[33]
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