CHRIS UHLMANN, PRESENTER: It seemed like a good idea at the time: two and a half million acres of taxpayer-funded forests to make Australia self-sufficient in plantation timber. But more than a decade after most of the schemes collapsed, tens of thousands of investors are still out of pocket and looking for compensation for fraud and mismanagement through the courts.

Today what's left of this multibillion-dollar agricultural disaster is literally a burning wreck.

Greg Hoy reports.

GREG HOY, REPORTER: They are the ghost gums, and now, by night, they're setting them ablaze. The aim is to destroy vast swathes of blue gum plantation timber cultivated across Central Victoria and other states under so-called managed investment schemes.

CHARLES PITHIE, TREE REMOVAL CONTRACTOR: It's not viable to even harvest the trees. In this particular area there's hundreds of thousands of acres that will just be cleared and stumps removed and turned back into farmland. ... Queensland, Victoria, South Australia, Western Australia - it's all the same.

GREG HOY: It's a travesty and a tragedy afflicting rural centres like Casterton near the Victorian-South Australian border. Giant managed investment schemes Timbercorp and Great Southern arrived like a gale force in this region 1.5 decades ago with truckloads of tax deductible investment dollars and a huge hunger for land.

SHANE FOSTER, FARMER: The avalanche started where you heard of one or two farms in the area being sold, but then all of a sudden whole districts were going to the plantations and it was just devastating for people that were wanting to stay in farming.

DAVID LEWIS, LAND OWNER: We had Timbercorp and Great Southern make us offers to lease the land and at that stage they were pretty keen to get it because they had money to spend and not enough land to spend it on, I think.

GREG HOY: The boom was triggered by big tax deductions granted by the Howard Government and maintained by Labor for investments in managed timber plantations. The dream was to establish more than 2.5 million hectares of forest for Australian industry.

Casterton's Karen Stephens is mayor of Glenelg Shire.

KAREN STEPHENS, MAYOR, GLENELG SHIRE: It was fantastic when it was there. We could see that, you know, OK, if this industry was going to happen, we couldn't control that. That was being controlled by the Federal Government.

GREG HOY: With promoters spruiking sky-high returns helped by financial advisors paid secret commissions, 61,000 investors who were called growers were lured into such schemes. The promoters got rich and the trees spread like a virus across the country.

SHANE FOSTER: Trees would be getting planted towards the end of the financial year and knew full well that those seedlings wouldn't survive, but if they didn't put them in the ground before the end of the financial year, they wouldn't be able to obtain the tax breaks.

DAVID MARSHALL, AGRIBUSINESS ANALYST: It was greed and it was naivety driven by totally unscrupulous people.

GREG HOY: Sure enough, disaster struck. The bottom fell out of the timber market. Scheme after scheme has imploded. Only in plum plantations near seaports is timber harvested. Governments still won't confirm the total tax revenue squandered on this grand scheme.

DAVID MARSHALL: I would estimate a minimum loss to government of $5 billion.

GREG HOY: The collateral damage to communities has been colossal once the boom bust.

KAREN STEPHENS: Now, you can imagine how you just take 70, 80 jobs out of a community overnight. Nobody came running to us to say, "Can we help Casterton?"

GREG HOY: Landowners like John Diprose and David Lewis were left in limbo by collapsed schemes. Though rental payments for trees on their land had ceased, they could neither harvest nor get rid of them. Investors or growers haggled endlessly in court with liquidators and banks.

JOHN DIPROSE, LAND OWNER: The court is ruling in favour of the growers who say that they have rights to the trees, albeit they're not paying the rent and if I go in and damage the trees, I'm accountable.

GREG HOY: The scale of this disaster, not only for rural Australia and every Australian taxpayer, is simply mind-boggling. For 47,000 investors in one company alone, Great Southern, it all ended in heartbreak, tears or flames. And it wasn't as though there was no warning. In fact, quite the opposite.

DAVID MARSHALL: I was at conferences with people from the tax office and ASIC. I explained in graphic detail that some of these things were gonna end in tears and nothing happens. You just - it makes you very cynical.

SHANE FOSTER: You couldn't say anything against. If you'd go to a meeting, you'd hop up and try and mention some of these practices that were occurring that were wrong. You'd just get hounded down and quietened down and they'd made sure you didn't have any comment.

GREG HOY: 7.30 has obtained documents from the former Great Southern Group revealing internal data on past and forecast timber yields. Prepared by key executives including company director and general manager of forestry Gavin Ellis, these figures are very different from numbers used in Great Southern's prospectuses. We've shown them to agribusiness analyst David Marshall, who feels strongly investors were misled.

DAVID MARSHALL: A lot of this information has been hidden and buried, etc., but it's slowly coming out. Internally their general manager forestry, the director of forestry on the board, they were submitting papers to the board showing that the average growth rate and the stumpage price - they're the two key drivers of the return on a timber investment - both of them were between 40 and 60 per cent below what the prospectuses were saying.

SAM PATTON, AGRIBUSINESS VALUATIONS AUSTRALIA: They could make these statements and yet no-one was independently auditing on behalf of taxpayers so there was just this unilateral lack of accountability by government in not supervising them.

GREG HOY: In the Victorian Supreme Court, Australia's largest class action involving 20,000 investors against Great Southern grinds on. At the 11th hour, former forest manager Gavin Ellis now says he will give evidence he personally discussed concerns that the company had misled investors with Great Southern's founding director John Young.

Young, seen here in the garden of his plush Perth mansion, heavily sold shares in Great Southern before the company collapsed. In court he's already spent almost $2 million mounting a vigorous defence.

DAVID MARSHALL: It's an absolute smoking ruin, yet the executives of these big companies are extremely rich, and that's what really upsets me, because the small people have absolutely got nailed.

GREG HOY: Others say someone else should bear responsibility for this unmitigated disaster.

Who do you think the culprits in all of this are?

SAM PATTON: The Federal Government, or federal governments, plural.

KAREN STEPHENS: Unless the Federal Government actually learns something from it, nothing's been gained.

CHRIS UHLMANN: Greg Hoy reporting.