KPMG MEDIA RELEASE
Statement by Ian Proudfoot, lead partner KPMG Agribusiness
Beyond the changes to the tax structure in today’s budget, there is little new in the 2010 budget for the agribusiness sector which had not already been well flagged by the government in pre budget announcements.
As expected the budget confirms previously announced spending increases on research and development, growth strategies for the aquaculture sector and the funding for the implementation of the National Animal Identification and Traceability (NAIT) scheme.
We welcome the confirmation of funding on NAIT, a measure we believe to be critical to maintaining our competitiveness in premium international markets for meat products in particular.
The budget also announced $76 million of new capital funding for a joint border management system to bring Customs and MAF Biosecurity processes together under a common framework. The new system is intended to create a ‘trade single window’ giving importers and exporters a single electronic point of access to border agencies.
Given the importance of exports to the agribusiness sector, we support the move to simplify border clearance, reduce compliance costs and increase efficiency of the process for our major export earners.
The budget does not provide any significant funding to support the development of irrigation schemes, although $1.6m has been allocated to the provision of Community Irrigation Fund grants to support schemes developing feasibility schemes and maintaining existing crown irrigation schemes.
The importance of getting irrigation schemes off the drawing board and into construction to drive improvements in productivity is in our view critical to the future of the sector and the budget delivers little to support development of this critical infrastructure. The budget also provides no further funding for the rural broadband initiative, another key piece of infrastructure to drive productivity improvement in the rural sector.
The benefits that farmers and growers derive from the tax changes will depend on the structures that they employ to own and operate their assets. We would not expect the increase in the GST rate to have a major impact on the industry. The removal of depreciation of long life buildings is unlikely to have a significant impact on the industry, given the relatively low percentage of the industry’s asset value tied up in buildings.
However we are concerned that the removal of the 20% loading on depreciation of all assets could impact the amount of investment the processing companies are prepared to make in new capital intensive facilities.
The stimulus to the economy that the tax cuts will bring must increase the likelihood of earlier, more significant increases of the OCR by the Reserve Bank which are likely to flow through to the industry quickly and impact profitability.