Report from audit office finds there was no strong case for expanding Farm Management Deposit Scheme

This article is more than 1 year old

This article is more than 1 year old

The former agriculture minister Barnaby Joyce expanded a taxpayer-funded scheme that gives lucrative concessions to farmers against the advice of Treasury, an audit has found.

A report from the National Audit Office on the Farm Management Deposit Scheme shows that an expansion of the scheme, spearheaded by Joyce as minister in 2016, occurred despite none of the proposals having a “strong case for change”.

The auditor general, Grant Hehir, has also found that the FMD scheme, which held more than $6.6bn in deposits in June 2018, does not have “fully effective” administration processes, risk identification, or compliance measures in place.

This is despite the amount of foregone revenue from the taxpayer-funded scheme more than doubling from $245m in 2016–17 to $500m in 2017–18.

The report examines three changes to the scheme made by Joyce in 2016, which lifted the limit of deposits from $400,000 to $800,000, allowed early access to deposits and permitted using accounts to offset business loan repayments.

The Department of Agriculture’s records indicate the proposal to increase the deposit cap to $800,000 came from the minister for agriculture’s office in April 2015. Prior to this, Treasury was preparing a budget costing for a deposit limit of $500,000.

“While the advice noted that increasing the deposit limit to $800,000 would assist primary producers to ‘better manage’ fluctuations in cash flows, it did not include any specific reasons why it was appropriate to double the size of the cap, or provide other deposit limit options for government to consider,” the audit notes.

“The advice noted that a deposit limit of $800,000 would likely benefit a small number of primary producers. No assessment was made as to how the higher limit would support the policy objective of increasing financial self-reliance.”

Hehir notes that take-up of the three policy measures have been low, particularly for the loan offset measure, and said “sound” advice had been provided to the government that the changes would have a “limited” impact on achieving the scheme’s objectives.

“Treasury’s advice to government was that none of the proposals provided a strong case for change. A common theme in the advice was that the proposals were likely to benefit a relatively small number of primary producers.”

He says the Department of Agriculture proposes to assess the impact of the 2016 policy changes through a broader evaluation of the FMD scheme within the next two years, and suggests the department also works with Treasury to improve its risk assessment and compliance processes.

“The compliance arrangements and risk assessment processes have not fully captured key elements of the Scheme’s design,” Hehir says.

Under the scheme, primary producers are able to defer – and potentially reduce – their income tax liability for money held in FMD accounts.

The program, established by John Howard in 1999, is designed to allow producers to bank pre-tax income in good years, which they can then draw down in tougher times, such as drought.

Surveys suggest that the average amount held in a FMD account is about $274,000 per farm, with an estimated 43% of FMD holdings owned by large farms with a turnover of between $1m and $5m.

There are around 45,000 FMD holders participating in the scheme.