Chapter 5
Committee view
5.1
The level and sustainability of rural debt is a complex issue
encompassing the absolute levels of debt that rural businesses are burdened
with, the income and profitability of these businesses, and the lending
practices of Australian financial institutions.
It is clear that some owners of farming businesses and businesses reliant on
farms are under severe stress due to financial hardship. The committee also
acknowledges that the agriculture sector faces special challenges, such as
natural disasters and market fluctuations. Operating conditions and
debt-to-income ratios have, for a sustained period of time, been
demanding for many rural businesses. Despite existing government
assistance programs being based on an understanding of the circumstances rural
Australia is experiencing, the committee is aware that consideration of a long-term
plan addressing more fundamental problems is required. In this regard, the committee
appreciates the overall objective of the bill.
5.2
Based on the evidence received during this inquiry, broad observations have
been made in this report about the nature and state of rural debt in Australia.
The committee wishes to express its gratitude to the individuals and
organisations that took the time to make submissions on these issues. The
committee also acknowledges there is some interest within the community in
establishing an ARDB that would, among other things, be involved in financial
arrangements entered into by enterprises in Australian agriculture or
associated industries.
5.3
As a legislation committee tasked with examining the proposed ARDB, the
committee must focus on the provisions of the bill. This restricts the committee
to considering the merits of a very specific proposal—the establishment of
an ARDB within the RBA. The committee has a number of concerns with the bill as
outlined in the previous chapter. For example, it is not readily apparent why
the RBA should be tasked with the role of facilitating or managing rural
adjustment and financial reconstruction activities. The proposal outlined
in the bill would, if implemented, represent a significant change to the role
of the RBA. The nature of financial assistance provided to businesses by the
Commonwealth would also fundamentally change. There is a clear need to ensure
that capital is allocated efficiently to the most sustainable and productive
businesses. The committee also notes the argument that the proposal has the
potential to distort the market for rural finance and, depending on how it is
implemented, to increase the cost of finance.
5.4
The funding arrangements proposed for the ARDB also raise important
accountability issues. Assistance to industry should be provided transparently either
through specific budgetary outlays or tax concessions. Rather than money for
the ARDB being purposely appropriated, however, the bill seeks to use the RBA's
existing capital. The RBA's reserves provide a capacity for the RBA to absorb
losses when doing so is necessary to help ensure Australia's financial system
remains strong. It is essential that the RBA has the reserves necessary
for it to carry out these key operations.
5.5
The committee is certainly concerned about various challenges that parts
of regional Australia now face. However, the committee is of the view that this
bill is not an appropriate solution. Proposals such as this must be carefully
developed and assessed, and should not be contemplated in isolation. The creation
of a new Commonwealth entity could only be made following a comprehensive
review of the nature and level of rural debt in Australia by a body expressly
charged with such a task. A broader review would be able to receive
evidence on and test various policy proposals for addressing problems and
market failures that may exist. As outlined above, the committee is restricted
to examining this particular bill.
5.6
Several comprehensive policy development processes that are considering
matters relevant to this bill are currently underway. Of most direct relevance
is the white paper on Australia's agricultural competitiveness that the
government is currently developing. Among other things, the white paper
will consider how market returns for farmers can be improved, as well as issues
related to access to investment finance, farm debt levels and debt
sustainability.[1]
As part of the white paper process, on 20 October 2014 the government
released a green paper. The green paper advised that the government has no
plans to progress with a rural reconstruction bank that would provide
concessional loans, such as an ARDB.[2]
Rather, as the green paper explains, the government is seeking to develop an
agriculture policy that will, among other things, increase returns at the farm gate.[3]
The government invited submissions on the paper, including on policy ideas
to improve access to finance.
5.7
Also, the Joint Select Committee into the Australia Fund Establishment was
set up to consider whether a fund should be established to support rural and
manufacturing industries. That committee will also consider issues relating to bankruptcy
and insolvency laws. Clearly, this Select Committee has a much broader remit
than inquiring into one specific mechanism intended to assist farmers gain
access to affordable credit and to manage debt. While the evidence before the
committee suggests that the establishment of the ARDB is not the most
appropriate way to assist farmers, it highlighted the need for effective
government intervention. Importantly, the inquiry opened up fruitful avenues
that clearly warrant further and serious exploration. Indeed, rather than end
the debate, this inquiry has enlivened the conversation about farming in
Australia and how to provide finance more effectively to farmers that would
allow them to manage the feast and famine cycles that characterise the sector.
This conversation needs to continue.
5.8
In addition to the white paper, this Joint Select Committee inquiry may
also provide insights into rural reconstruction and development issues, and potential
policy options that could provide an effective response. Consequently, the
committee recommends that the Joint Select Committee on the Australian Fund
consider the evidence presented during the inquiry into the Reserve Bank
Amendment (Australian Reconstruction and Development Board) Bill 2013 and use
it to inform its inquiry.
5.9
While the committee's position on the bill may disappoint those looking
for immediate action, the committee cannot endorse a proposal such as the ARDB
without being able to examine and assess alternative proposals. As noted in the
previous chapter, the bill lacks detail. Other policy processes already
underway are better placed to consider the issues that led to the bill being
introduced. However, the committee would like the evidence it has gathered
during this inquiry to contribute to policy discussions taking place elsewhere.
Recommendation 2
5.10
The committee requests that, during its deliberations on the
establishment of a fund to support rural and manufacturing industries,
the Joint Select Committee into the Australia Fund Establishment take
into account the issues raised in the submissions received during this inquiry.
Recommendation 3
5.11
The committee recommends that the Senate not pass the bill.
Senator Sean
Edwards
Chair
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