20/03/2007 - 22:00

Comment: MIS spread needs check

20/03/2007 - 22:00

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The current decision to end managed investment scheme involvement in any industry bar forestry has significant repercussions for rural Australia, not to mention the legion of city-based corporate types who have lived well off this system.

Comment: MIS spread needs check

The current decision to end managed investment scheme involvement in any industry bar forestry has significant repercussions for rural Australia, not to mention the legion of city-based corporate types who have lived well off this system.

Spawned from the packaging of far more rudimentary tax breaks for forestry companies operating largely out of Western Australia, the MIS industry has overcome some significant hurdles before spreading out across a vast variety of sectors.

It is in its history that we can see why MIS faces yet another threat to its existence, having emerged from a tax office blitz that almost killed the sector a few years ago.

In the forestry sector, MIS has been embraced by the industry, with the realisation that plantations were needed to supplement native timber supplies.

With government blessing, which obviously continues, those who wished to grow plantations with a 10-year or more growing horizon were given licence to tap the one capital source that always flows well in Australia – tax breaks.

The MIS projects and their predecessors largely operated in the same way – packaging together plantations to allow access to smaller investors who could take a lot, if not all, of the long-term costs as a tax-break in that financial year.

For governments, that was an attractive way to fund plantations as political pressure on native timber logging grew.

But governments weren’t alone in realising the benefits. Investment promoters learned something those in the tax advisory business have known for a long time – there’s a lot of fat in this game.

Like it or not, people view the dollars invested as money they would have lost to tax anyway. In doing so they often fail to check the credentials of those they are funding, pay well over the odds for basic costs and put way too much money in the pockets of people in the marketing machines.

The first significant alternative to the forestry projects was vineyards. It was here that romantic notions of wine blinkered sensible investors’ thinking. It was easy to find projects charging three times as much as a neighbouring vineyard for much the same product.

MIS has since moved on to colonise many other industries, but the cheap capital has fuelled new problems for politicians.

• Forestry has outbid traditional farm users for land and depopulated vast areas.

• Overdevelopment of MIS vineyards has contributed to a glut, which has hurt the industry.

• MIS scheme crops in other sectors have started to overwhelm the markets of traditional farmers and horticulturalists.

It’s a question of whether this is modernisation or tax-funded corporatisation by stealth.

While the MIS industry will argue the tax-breaks they have are available to all, when financially engineered products start to revolutionise industries, governments do have to check whether the incentives they are offering are getting the results they intended.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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