In a number of cases he is correct – and I’m happy to correct any errors. That’s why public debate is important.
However, I don’t resile from the thrust of my original conclusions, and in what follows I will address the most important points.
My basic argument (and Mr Amos, it appears, disputes this) is that past policies have involved subsidies which have, in the end, been ineffective. Ineffective that is, if the objective is to create an industry which provides job security without high levels of ongoing taxpayer support.
The title of my article in the Tasmanian Times was chosen to express the hope that in the last days of the election campaign we don’t get a half-baked proposal for forestry transition which, in the heat of the moment, is adopted without proper public scrutiny.
That doesn’t do the forest industry any favours in the long run.
It would be hard to argue, in view of the current state of the industry, that past forest industry policy has been a success. So it behoves us to take a good look at what that policy was, and how it might be improved in the future.
1. Minister Green.
Mr Amos correctly notes that I have confused measures of tonnage – the 300,000 tonnes is green tonnes, whereas the woodchip export price is based on bone dry tonnes.
However because the 300,000 tonnes of logs goes into a variety of end products other than export woodchips – high quality sawlogs, sliced veneer logs and peeler logs – the value of the end products (i.e. after value adding, not before value adding as Mr Amos implies) on which Mr Green’s $20 million figure is based would be higher than the export price of woodchips.
So there are two adjustments which might be made to my original figures. One is a downward adjustment to take account of the difference between green and bone dry weight, and the other is an upward adjustment to account for the fact that the average mix of end products is of higher value than just export woodchips.
The basic point, however, is that if the logs could have been sold a year later at a higher end-use price than $20 million, say $40 million, the subsidy of $3 million and additional revenue of say $20 million might have been used to support forest workers in better ways than simply maintaining the status quo. Surely that is a debate worth having?
2. Definition of the forestry industry.
Mr Amos defines the ‘industry’ in various ways in his comments.
He argues that the tax treatment of MIS schemes is a subsidy to investors, not the industry. I would have thought that Gunns and FEA are (or were) part of the Tasmanian forest industry. Over the last few years a substantial proportion of their profit was derived from MIS schemes. As I’ve detailed elsewhere, Tasmanian politicians and sections of Tasmanian industry have argued long and hard that, without the tax advantages offered by MIS schemes, they would fail and the forest industry would flounder. Hence my inclusion of this component as a subsidy to the Tasmanian forest industry.
Whether the MIS schemes did any good in the long run is another matter. John Lawrence has argued persuasively to the contrary: MIS: An abject failure with no place in the future of Tasmania’s forest industry, HERE
When it comes to RFA and TCFA payments, Mr Amos argues that only payments to the commercial sector should be counted. I would have thought Forestry Tasmania was an integral part of Tasmania’s forest industry. Mr Amos quotes employment and GSP numbers for forestry where the ‘industry’ includes Forestry Tasmania. That is the usual practice – when we count employment or value added in the forest industry, Forestry Tasmania is included; the fact that it is a state-owned enterprise is not relevant.
3. RFA and TCFA
Mr Amos states that some of the RFA and TCFA money went to purchase private forests for conservation purposes. True. And as I stated in my original report, ‘Heritage payments directed towards conservation values on private land have been excluded’. [original report, p.6].
Mr Amos argues that much of the RFA and TCFA was compensation for loss of access to timber resources.
Compensation is payable when property rights are taken away. When fishers give up contractual fishing rights under a buyback scheme for example, that is compensation.
A more relevant example was discussed in my recent article on the Tasmanian Times, where Gunns appears to have not yet fulfilled one the clauses under its wood supply agreements with Forestry Tasmania. So it would be odd to describe a proposed (as reported in the press) payment to them of up to $200 million as ‘compensation’. The political process may yet deliver that outcome but it would be helpful if such a payment were (more correctly in my view) described as a subsidy to Gunns.
Similarly with payments under the RFA and TCFA. As far as I’m aware the payments were not made as compensation for the loss of contractual property rights, which is why I’ve described them as a subsidy. If Mr Amos can identify ongoing contracts which were ‘bought out’ with RFA and TCFA payments, I’m happy to adjust my estimates.
4. Returns to Forestry Tasmania.
Maybe it is worth repeating the logic outlined in my original report. A baseline for an acceptable rate of return on a state-owned enterprise (SOE) is the rate of return on long-run government bonds. If you allow for risk on the SOE, the baseline return would be a bit higher than that. Over the period 97-98 to 09-10 the average yield on 5 year Commonwealth bonds was 5.5% which, if taken as the base rate of return on an SOE, makes no allowance for risk. The average rate of return on net assets for Forestry Tasmania over the same period was, by my calculations, less than 3%. Making allowance for community service obligations which in recent years have been identified in their annual reports at between $5 million and $6 million, Forestry Tasmania’s rate of return is still about 3 percentage points below the risk-free government bond rate.
I wanted to err on the conservative side, so my estimate of the subsidy arising from sub-par return to Forestry Tasmania was the dollar equivalent of a 1% return on net assets, not the full 3 percentage point difference between the Forestry Tasmania rate of return and the return on government bonds.
Mr Amos seems to object to the fact my figures are based on assumptions. Of course they are. And the assumptions are clearly specified.
5. Arithmetic errors
Mr Amos has pointed out a number of arithmetic errors in my Table. We all make them from time to time and I’m happy to correct mine. The corrected Table is inserted below. My estimate of subsidies is $767 million, not $777 million as I stated in the text of my earlier article. The thrust of my argument remains the same.
Mr Amos concludes his comments by noting that on, my figures, the average rate of subsidy has been $65 million per annum. Surely, given job creation and other community benefits that is money well spent?
We can pose the question the following way.
Suppose, allowing for job losses since the well-known Schirmer report, there are currently about 5000 direct jobs in forestry. Leave to one side the fact that next year the subsidies may be higher than $65 million.
With current employment of 5000 direct jobs, and an annual cost of $65 million, that’s an annual subsidy of $13,000 per job.
My job as an academic is not to drive people out of work, and I’ve no wish to do so.
Indeed, as I said in my earlier ‘Bearing Gifts’ article, “The contractors have a right to feel aggrieved. They have been led up the garden path.”
But it is legitimate to ask
(i) why are jobs in the forestry industry subsidised to the tune of $13,000 per annum?
(ii) what would the forest industry look like if subsidies were removed?
(iii) could we afford to subsidise all Tasmanian private sector employment by $13,000 per annum?
(iv) might there be a better way of doing things?
It’s the job of an academic to ask these sorts of questions. They should be asked in public, not behind closed doors. If you don’t ask, you don’t get answers.