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Subsidy myth destroyed

DATE 06/07/2011

The Auditor General’s report into Forestry Tasmania, tabled in Parliament on Wednesday, has provided a clear picture of our business that refutes the misleading claims that have been made down the years by our critics. 

Quite simply, this report destroys the myth that Forestry Tasmania is funded by taxpayer subsidies. In fact, the Auditor General found that, at a base level, Forestry Tasmania contributes $111 million annually to the economy.

This figure is just a starting point. It does not take into account the broader contribution to the economy of the businesses involved in processing timber from State forest, including harvesting contractors, sawmills, veneer mills and woodchip mills.

None of these businesses would be viable in the absence of State forest timber – the cumulative value of wood products produced from this State forest timber is $563 million per year.

That contribution supports the fabric of our regional communities, including small businesses and schools.

I ask anyone who thinks Tasmania’s country towns and remote areas could retain their remaining services without a native forest sector to consider the real impact of that $563 million.

The report also confirms the detrimental effect on FT’s bottom line of our Community Service Obligations (CSOs).

CSOs as defined under the Forestry Act, which have not been funded since the first three years of our operation, have resulted in foregone revenue of $30-$40 million.

CSOs include the non-commercial activities specified in our accounts – management of forest reserves and the Special Timbers Zone – as well as fire fighting, scientific research, education programs and provision of recreation facilities. The real financial cost of providing these activities has continued to increase, and the community clearly expects that we will undertake them as part of managing forests sustainably.

But our stakeholders should accept that, by continuing to deliver unfunded CSOs, we are in effect subsidising the taxpayer.

The report also sheds new light on the financial impact of successive Government policies to place productive forest land into reserves.

Over the audit period, the net effect to FT of agreements to reserve more land has been a 27 per cent reduction in our productive assets, and a 90 per cent increase in the formal and informal reserves we have had to manage on a non-commercial basis.

Of the $223 million received in State and Commonwealth Government funding during this period, $211 million was compensation – not operating subsidy - for productive forest transferred into reserves.

This compensation was used by Forestry Tasmania to invest in plantation development to offset the losses of productive forest assets. However, as plantations are developed over the long term, we will not see a return on this investment for around 20 years.

Ultimately, the loss of our productive forests reduced our sales and increased our costs. We must question, then, whether this compensation was sufficient.

While it is inevitable that some media outlets have chosen to highlight what they see as the negatives in the report, it is regrettable that these stories have shown a lack of understanding of its real substance.

It is true that the Auditor General identifies that FT will need further Government investment if plantation development is to continue. However, it should be understood that these plantations replace productive forest lost to reserves. It is impossible to make available the same amount of timber from a decreasing area of production forest, if we are to manage that forest sustainably.