INDUSTRY is awash with speculation a tax incentive mechanism for farm income protection will be released at the Prime Minister’s drought summit in Canberra tomorrow (Friday, October 26)
Several sources told Fairfax Agricultural Media government is considering a 150 per cent refundable tax offset for income protection / multi peril crop insurance (MPCI) products.
Tax expert John Thomson, director of WA-based JBC, said using a refundable tax credit, the cost of the insurance policy could be brought back to effectively 2.2 per cent of gross revenue.
“Globally, that seems to be the point that farmers are happy to pay for insurance,” Mr Thomson.
“Having that tax credit fully refundable is the critical element for it to work,” he said.
Around 100 representatives will attend the summit, which concludes with a two hour roundtable discussion between federal ministers, state premiers and agriculture ministers, community and farmer representatives, charities, bankers and bureaucrats.
MPs and farm groups have promoted MPCI with statements backing the scheme.
NSW Primary Industries Minister Niall Blair called for MPCI and increased depreciation of on-farm assets.
The National Farmers’ Federation called for MPCI, extending Farm Managed Deposits to tax-free thresholds for off-farm income and to businesses, and research and development tax incentives for climate risk management.
However, Andrew Weidemann, Grain Producers Australia chairman, was cautious about the political will to get a working MPCI product up.
“We’ve been here before and things haven’t progressed, so while it’s really heartening to see people talking about MPCI and farm income protection, I’d like to see something formal before getting too excited.”
Mr Weidemann also said he felt the private sector would also need to play a critical role in protecting against climate variability.
“Obviously there are the insurers themselves but I also think the banks will be important.”
Mr Weidemann also questioned the timing of the work.
“There’s an old saying that drought is not the best time to do work on drought policy, and I’d question the merit in rushing through any policies that come up while people are in the grips of drought and very emotional about the topic.”
Funding for the Bureau of Meteorology to access individual on-farm data to inform insurance decisions and the implementation of a major regenerative agriculture program that recognises the role and importance of land stewardship.
The tax offset is a mechanism to drive farmer uptake of multi peril insurance products that pay out when crops fail to deliver a return to poor seasons and drought and reduce the need for publicly-funded drought assistance.
“We’re calling on the Government to consider introducing a 150pc tax incentive for agricultural insurance premiums for five years,” NFF president Fiona Simson said.
It remains to be seen if the government commits to funding a catastrophic bond to underwrite the MPCI market.
A catastrophic bond would support a funding pool that accredited providers could draw on in worst-loss scenarios, like Compulsory Third Party insurance for road vehicles.