ACCOUNTANTS have told a Senate inquiry in Canberra today that agribusiness managed investment schemes triggered major distortions in agricultural markets.
The first day of corporate and financial services hearings into the schemes in the wake of two high-profile collapses - Great Southern and Timbercorp - was told the combined effect of tax benefits, licencing arrangements and remuneration within the schemes played havoc with agricultural land and commodity markets, and had an impact with local employment and triggered an oversupply of produce.
It has also heard that accountants and financial advisors continued advising in favour of the schemes, despite the managers of the schemes reporting in annual statements that they were unviable.
The Australian Taxation Office also told the hearings it was unaware just how viable or unviable the schemes were.
Several farmers were present to hear the evidence, with the inquiry expected to unearth major impacts on family farmers, agricultural markets and regional communities during the course of its investigation.
Head of financial planning and superannuation at the Institute of Chartered Accountants in Australia, Hugh Elvy, told the joint parliamentary committee that while there were some benefits to rural and regional Australia from MIS - and there was nothing illegal about them - their rapid growth had resulted in distortionary impacts on the competition for land and water, and commodity prices.
Cooma-based accountant, Jonathan Forrest, said his firm, Boyce, was advising its clients to steer clear of the investments because of their uncertain long-term viability compared with short-term tax benefits.
In the institute's submission it said managed investment schemes have resulted in the increase in land prices "to the detriment of local farmers who are unable to justify prices offered for land by MIS promoters".
"The agribusiness managed investment schemes introduce a class of investors who have access to tax-deductible capital sources while traditional rural producers competing against them for productive rural land do not," the institute said in its submission.
"As a result the market is distorted by a group of participants whose investment drivers are not risk-based returns relevant to the particular asset class of the investment but the prospect of substantially deferring taxable income."
They said anecdotally traditional operators and farmers were unable to compete with the large inflows of capital by the managed investment schemes.
"Due to what appear to be considerable distortions by these agribusiness managed investment schemes it could be argued that managed investment schemes should only be allowed where there is a national interest element, such as becoming self-sufficient in wood pulp production, or preventing the destruction of rainforest in other countries."
Committee chairman, Bernie Ripoll, questioned why professionals were advising the schemes were a "good investment" when the companies behind them were reporting they were unviable.
"The people we are talking about are licenced in some way to provide that sort of advice…given that we have annual reports from Great Southern and others which stated in black and white that the immediate returns were actually going to be less than the outgoings - in fact they probably could not meet their liabilities.
"If somebody had simply read the annual report they could have read in detail that these schemes would not make money and were in financial difficulty yet professional people still advised that these were a good investment."
CPA Australia general manager of policy and research, Paul Drum, said he could not answer that question, but added that "in hindsight" it was evident those schemes didn't have much of a future.
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