Budget Review 2015–16 Index

Rob Dossor

Severe rainfall deficiencies have existed for some time in Queensland and parts of northern New South Wales (NSW).[1] The 2015–16 Budget adds further measures to support communities and businesses affected by droughts in Australia.[2]

Of the drought package, the only new measure in the Budget is $35 million for infrastructure projects in drought affected areas. This measure will provide funding for shovel ready projects that offer the greatest potential to stimulate the local economy in drought affected areas over four years. Few other details are available as to which projects are eligible, or who determines which project has the greatest potential to stimulate the local economy.

Concessional loans

The major measure in the drought support package is $250 million for the continuation of the drought specific loans schemes in 2015–16, $150 million for the Drought Concessional Loan (DCL) and $100 million for the Drought Recovery Concessional Loan (DRCL). Unlike other support mechanisms, such as the general farmer support mechanism and the DCL, which operate Australia wide, the DRCL is available only in Queensland and NSW. Other differences between the two loans are the extreme drought requirement of the DRCL (characterised as a one-in-fifty year rainfall deficiency) and interest rates (which are 3.84 per cent for the DCL and 3.21 per cent for the DRCL).[3]

A further feature of the DRCL is that in Queensland it is also available to farms which are experiencing a less than extreme drought but were affected by the disruption to the live cattle trade with Indonesia in mid-2011.[4] The DRCL is not available in the Northern Territory, although Northern Territory farms were impacted by the disruption to the live cattle trade.

Also available up to 1 July 2015 is the Farm Finance Concessional Loan Scheme (FFCLS—first introduced in the 2013–14 Budget), providing $420 million in concessional loans over two years (to 2015–16).[5] The FFCLS is available to any farm business which meets the eligibility criteria, not just those in drought affected areas.[6] Currently the FFCLS has a concessional interest rate of 4.34 per cent.[7]

Take-up of concessional loans

The table below outlines the take-up of concessional loans. The Budget provides additional funds to extend the drought specific loans into 2015–16. Whether this will be an effective drought support measure is questionable as take-up has been low since the loans have been available, and the new scheme has more restricted eligibility.

Table 1: Take-up of concessional loans

DCL and FFSCL take-up to 30 September 2014

Source: Compiled by Parliamentary Library from data obtained in responses to questions in writing.[8] 

The low take-up may be due to complex or stringent eligibility criteria, which according to the National Farmers Federation have ‘caused angst for many in the farm sector’.[9] The DCL and DRCL are administered by the Department of Agriculture and common eligibility criteria include:

• that the financial impact is as a result of a drought (which is defined in terms of a rainfall deficiency over a given period when compared with similar periods over the whole historical record)
• that the farm business has taken reasonable steps to prepare for the effects of the drought and
• that the farm business has an ability to repay the loan.[10]

Fiona Simson, president of NSW Farmers, is cited as believing that concessional loans are unlikely to help farmers at breaking point.[11] Similarly Dave Marshall, a farmer in northern NSW, is quoted as stating ‘loans are good, but they’ll probably only give it to you if you’re in a good position.[12] 

Other measures

Other measures in the 2015–16 Budget are additional funds of $20 million to extend access to social and mental health services in drought affected communities, $25.8 million to continue pest and weed management in drought affected areas and $1.8 million for the Rural Financial Counselling Service. 

Fifteen million dollars is allocated for the National Partnership on assistance for water infrastructure and pest management in drought affected areas through the Environment portfolio. Tax measures are also included which will allow primary producers to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores and irrigations. Capital expenditure on fodder storage assets will also be eligible for depreciation over three years. This change will be for income years commencing on or after 1 July 2016.

Treatment of $272 million in the Budget papers

Budget Paper No. 2[13] states that the government will provide $271.8 million over four years to extend current drought concessional loans. The supporting table, however, shows only $31.1 allocated in 2015–16 and $0.3 million in 2016–17. This is because the bulk of the measures included in this $271.8 million are concessional loans to drought affected farm businesses. The granting of a loan does not create an expense itself because the Commonwealth will be repaid the monies in full. The only expense that the Commonwealth needs to incur is the differential between the regular and concessional interest rates and administration costs associated with implementing the loans.  As a result, only $9.3 million in 2015–16 is actually allocated for the concessional loans with a further $0.3 million in 2016–17.

[1].         The Bureau of Meteorology states that ‘long-term deficiencies in Queensland are now a result of three consecutive poor wet seasons’. Bureau of Meteorology (BOM), ‘Rainfall deficiencies’, BOM website.

[2].         The budget figures in this article have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2015–16.

[3].         As of 14 May 2015. Department of Agriculture (DA), ‘Drought Recovery Concessional Loans’, DA website.

[4].         Department of Agriculture, ‘Drought Recovery Concessional Loans’, ibid.

[5].         Australian Government, Budget measures: budget paper no. 2: 2013–14, pp. 76–7.

[6].         Department of Agriculture (DA), ‘Farm Finance Concessional Loans Scheme’, DA website. See here also for FFCLS eligibility criteria.

[7].         Department of Agriculture, ‘Farm Finance Concessional Loans Scheme’, op. cit.

[8].      B Joyce (Minister for Agriculture), ‘Answer to Question in Writing: Farm Finance Concessional Loans Scheme’, [Questioner: J Fitzgibbon], Question 268, House of Representatives, Debates, 28 October 2014 and B Joyce (Minister for Agriculture), ‘Answer to Question in Writing: Drought Concessional Loans Scheme’, [Questioner:  J Fitzgibbon], Question 287, House of Representatives, Debates, 28 October 2014.

[9].      National Farmers Federation, ‘Further support for drought-affected communities’, media release, 9 May 2015.

[10].    Department of Agriculture ‘Drought Concessional Loans’, DA website. B Joyce, ‘Supporting drought affected farmers’, op. cit.

[11].    N Keene, ‘Little relief for dusty paddocks’, Daily Telegraph, 16 May 2015.

[12].    Ibid.

[13].    Budget paper no. 2: 2015–16, op. cit., p. 58.

All online articles accessed May 2015. 

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