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Auditor General’s report kills off FT subsidy myth

DATE 05/07/2011

The Auditor General’s report tabled in Parliament today has destroyed the myth that Forestry Tasmania is funded by taxpayer subsidies. 

The report found, at a base level, Forestry Tasmania contributes $111 million to Gross State Product annually.

 It also found FT has foregone revenue of $30-$40 million in unfunded Community Service, and that funds received from Government have been compensation for loss of productive assets, not operating subsidies.

Managing Director Bob Gordon has welcomed the report, saying it will counter propaganda by anti-forestry activists that FT was subsidised and should be abolished.

“The $111 million contribution should be regarded as a starting point for determining FT’s contribution to the economy.

“This figure was calculated using conservative modelling that did not take into account the downstream processing of wood products from Tasmanian State forests. This includes the contribution of harvesting contractors, sawmills, veneer mills and woodchip mills, which could not continue to operate in the absence of wood from State forest.

“When this wider contribution is taken into account, the value of wood products produced from Tasmanian State forest timber in 2009/10 was $563 million.

“Our critics should realise that, if State forest harvesting was taken out of the equation, downstream processing would stop as the resource could not be made up from elsewhere.

“FT’s importance in maintaining a level of prosperity for the State cannot be underestimated.”

The Auditor General’s report also found that, since 1998, Forestry Tasmania has foregone revenue of $30-$40 million in unfunded Community Service Obligations (CSOs).

“Apart from the first three years of Forestry Tasmania’s operation, our CSOs as defined under the GBE Act have not received any Government funding. During this period, the actual cost of meeting these CSOs has continued to increase.

“CSOs are non-commercial activities including those 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.

“These are all activities for which we do not receive any income, but which are essential to managing forests sustainably.

“The Auditor General also found that, over the audit period, the net effect to FT of Government 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 for productive forest transferred into reserves, not operating subsidy.

“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.

“The report also found that our unfunded superannuation liability, which we were required to assume on corporatisation, has increased due to factors outside of the control of FT management.”

The report by also found FT had:

· made $201 million in operating profits since corporatisation;

· paid $99 million in government taxes and dividends since corporatisation; and

· had invested more than $414 million in assets and plantations, including $189 million from revenue generated from operations.

“This report should provide some comfort to the community, which has been bombarded over many years by a persistent campaign to misrepresent FT’s contribution to the economy.

“It is a report that can be trusted. The Auditor General is an independent statutory office holder, and his work on FT’s financial performance will be useful as the Government undertakes its review of our business structure.”

“FT is struggling financially, but for the first time an independent auditor has explained in clear terms the key reasons why profitability has declined.

Mr Gordon acknowledged that the Auditor General had also found potential areas for improvement and had identified the risk factors.

“FT has already responded to some of the Auditor General’s recommendations, for example, in 2010 we appointed an independent valuer that determined an integrated value of the total forest estate. This valuation will create a clearer picture of our financial performance and return on assets in future years.

“This is a very balanced report, and as you would expect, it identifies the challenges we face.”

To read the report <click here>