Stimulus package comes after months of wrangling about the government’s response to the record dry spell

This article is more than 10 months old

This article is more than 10 months old

Drought relief worth more than $1.5bn that puts “money in the pockets of farmers” will be unveiled by the Coalition on Thursday, as the government moves to stem anger in the bush about its response to the record dry spell.

The announcement of a substantial new stimulus package, which comes after months of internal wrangling about the government’s drought response, will include a centrepiece $1bn concessional loan package for farmers and small businesses affected by the drought.

At least an extra $500m will also be allocated for “direct investment into communities”, with a $128m expansion of the drought communities program that makes more money available for the 122 communities already receiving support, and expands the program to include an additional six councils.

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A new $50m discretionary fund will also be established to support additional councils when needed.

The prime minister said the government would continue to keep providing more support as the drought rolls on.

“Our drought plan is not set and forget. We have been back on the ground listening to farmers and their communities, and this package is a direct response to their feedback,” Scott Morrison said.

“This is money in the pockets of our farmers to help keep their stock fed and watered, their staff and farm hands paid and their crops irrigated.

“We also know the drought has been tough on small businesses that rely on agriculture. Shearing contractors, harvesters and livestock transport providers have seen their turnover hit, and in many cases struggle to survive. They’ve been forced to seek overdrafts or additional cash flow finance.”

The government will also redirect $200m from the Building Better Regions Fund to create a Special Drought Round for drought-affected councils, which will provide up to $10m per project in regional local government areas.

Expanding the drought communities program had been a key demand from the Nationals, with the party’s former leader Barnaby Joyce wanting each council to receive $10m, in what would have been a $650m federal government commitment.

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Also forming part of Thursday’s package is an extra $139m for a Roads to Recovery supplementary payment for 128 local government areas in drought. This money will be used for upgrades and maintenance of roads that are ready to roll out in a move aimed at boosting jobs and improving road safety.

The loan scheme will provide concessional loans of up to $500,000 to small business and up to $2m to farmers that will include a two-year interest-free period.

The interest-free loans, to be delivered under the Regional Investment Corporation, were a key demand of the National Farmers’ Federation’s drought proposal that was considered by government last month.

Morrison said that while the government was already providing concessional loans to farmers, the changes to the scheme would make it cheaper for farmers to buy fodder, transport stock, build water infrastructure, agist cattle, mend fences or refinance existing debt.

“Rural communities can’t function without these small businesses, that’s why we are stepping in to provide this extra support.

“Farmers will not have to pay a cent for the next two years, and even after that, interest only on a discounted rate.”

Following the two-year interest-free period, the loans will require an interest-only payment for years three to five and then the repayment of interest and principal in years six to 10.

The revamp of the Regional Investment Corporation’s drought loan program will be aimed at helping farmers improve their cash flow in reflection of the impact of “prolonged drought conditions”.

The NFF had asked for the interest-free loans as part of a wishlist of six priority areas, including a call to help drought-stricken farmers pay council rates, and money for exit payments for farmers wanting to leave the land. The government is not expected to fund any exit payments.

The federation has also been critical about the lack of a national drought strategy that puts in place a national plan for long-term drought preparation and management.

The government has defended its drought policy, pointing to at least $7bn in funding, which includes a $5bn future drought fund that will begin making payments next year.

The government was forced to defend the operation of its drought communities program after one council in regional Victoria rejected a $1m grant because it was not in drought.

Grants have also been spent on projects with little connection to the drought, including toilet upgrades and music festivals, while concerns have been raised internally about small councils receiving the same funding as larger councils.