Tough tax talk fail – updated

May 18, 2011

Are farmers paying enough tax? the headline asks.

The answer Labour’s revenue spokesman Stuart Nash wants is no but his tough tax talk just shows how little he understands business and tax.

The average dairy farmer pays less tax than a couple on the pension – raising questions about whether the sector touted as the backbone of the economy is paying its fair share.

A couple on a pension doesn’t usually employ several people, produce anything incurring the costs associated with that and earn export income as farmers do, all of which make a positive contribution to the economy in addition to any tax paid.

As the Government prepares one of the tightest Budgets in recent years, cutting into middle-class family benefits and KiwiSaver subsidies, new figures suggest the cuts will hit those also shouldering the greatest tax burden – wage and salary earners.

Inland Revenue Department figures provided to Labour revenue spokesman Stuart Nash show that, in the latest full year for which figures were available, the average tax paid by dairy farms was $1506 a year, despite an average Fonterra payout understood to be well over $500,000.

 The payout is a gross figure, tax is paid on income after expenses which include wages, repairs, maintenance, power, fuel and interest. If you’re heavily indebted as many dairy farmers are there’s little if anything left after all that on which tax is due.

The figures also show that more than half – 9014 – reported a loss for the 2009 year and 2635 reported trading income of between $1 and $20,000.

Federated Farmers chief executive Conor English said he was not surprised by the figures.

“The reason why there’s not much tax being paid is because there hasn’t been much money made. The average dairy farmer … made a cash loss of $50,000.”

This is why most farmers are using this year’s good returns to pay down debt. Too many took advantage of relatively easy credit, found costs rose faster than income and made little if any profit.

The sensible ones have learned from this and are taking a more Presbyterian approach to their businesses. 

Of the nearly 72,000 companies in the primary sector, nearly 40,000 were unprofitable.

This  includes sheep and beef farmers who’ve have had a series of very bad years. But making a loss in one, or even a few years, doesn’t make a business unprofitable. Most businesses in the establishment and development stages make losses. That’s even more likely in primary industries which are subject to so much variation in climate and markets.

“Either we have a sector in dire financial trouble or the sector is simply writing off a lot of income against expense and not paying tax,” Mr Nash said. “I hope it’s the latter. If they are facing dire financial trouble then we as a nation are in the poo.”

When you’re in business you  are legally allowed to write income off against expenses – providing they’re business related ones and anyone who tries to get away with non-business related claims won’t get far.

Mr English said the primary sector was responsible for 66 per cent of exports but, for each dollar earned overseas, only 6c went to the farmer. “So the other 94c goes in rates to the local councils, road user charges … all the cost structures around getting that kilo of meat from the farmgate to the shore …”

Revenue Minister Peter Dunne said the figures released by Mr Nash did not raise any policy issues. The $26m tax mentioned came from those who identified themselves as in dairying, he said.

Those not classified by industry paid another $1.5b in tax and a significant number would be dairy farmers.

“We don’t think the [tax] figure is as low as $26m by any stretch of the imagination.”

There has been a problem of low profitability in the last few years. But most farmers have got the message the government is sending – consumption fuelled by borrowing isn’t sustainable. They’re containing costs, paying off debt and most will be paying a lot more tax on this season’s income.

Busienss NZ says the claims are misleading:

Operating costs and business debt shouldered not only by farms but all businesses are reflected in their level of taxes paid, says BusinessNZ.

Commenting on claims by Labour revenue spokesman Stuart Nash that dairy farmers pay less tax than a salary earner earning $50,000 a year, BusinessNZ said the comparison was misleading.

“Businesses have income structures that take into account the cost of doing business. This is a cost not borne by a salary earner.

“Farm businesses face capital investment and depreciation servicing costs, debt costs, feed costs and labour costs, in the context of fluctuating cash flows often affected by weather, necessitating further debt for operating costs before receiving end of year payouts.

“This means that many businesses would not have the $50,000 income that is being used as a comparison.

“Comparing this situation to an employed person’s $50,000 income – that does not have to account for operating and business debt costs – is not a valid comparison.”

Peter Dunne says dairy farmer tax headlines simply wrong:

Media headlines today comparing dairy farmers’ tax bills with those of the average wage earner were based on “an inexcusable fudging of turnover and income”, Revenue Minister Peter Dunne said today.

“This is a classic case of comparing apples and oranges – the media and the Opposition have conveniently ignored the fact that businesses, including farmers, are not taxed on turnover, they are taxed on the income they have as profit,” Mr Dunne said.

“The particular instance cited was for 2008-2009, when dairy farmers received significantly lowered Fonterra pay-outs, and were servicing very high debt levels across the sector at high interest rates.

“Federated Farmers has stated that the average dairy farmer made a $50,000 cash loss in that year. In that case, pointing to $500,000 incomes is patently ridiculous. Again it is the difference between turnover and profit,” Mr Dunne said.

He said that suggestions of the Government going soft on any businesssector did not fit with the $119.3 million allocated over four years in Budget 2010 to clamp down on tax evasion.

Turnover, income- what’s the difference when you’re chasing headlines?


Phew – milk auction price up 25.8%

August 5, 2009

Last night’s globalDairyTrade auction resulted in a lift in the whole milk price to $US2301 per tonne – an increase of 25.8%

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That’s a very welcome change to the downward trend since March but Fonterra chair Henry Van der Hayden isn’t breaking out the champagne yet.

In an email to farmers he says while it’s great to see the lift,  it’s difficult to know where the market’s going.

The dollar which is trading above 65 cents continues to cause concern and the US has increased its support price for skim milk by 15%.

The next globalDairyTrade auction is scheduled for September 1.

UPDATE: Bernard Hickey notes the improved price has taken the dollar over 67 US cents.

Sigh.

I know a weak currency isn’t necessarily a good thing but Hickey points out the rise in the value of the dollar will cancel out some of the gains from the better auction price.


Exchange rate woes

July 30, 2009

Travelling in Europe we might have welcomed a strong New Zealand dollar, but it’s difficult to consider the dollar is high when it takes more than two to buy a euro and if it costs a dollar at home it usually costs a euro here so everything is twice as expensive.

Besides anything we gained while here will be more than cancelled out by the impact of the exchange rate on sales of meat,wool and milk.

The $NZ was at 59 US cents when Fonterra announced its forecast payout for the season. It hit a 10 month high of 66.9 cents this week.

The forecast payout for this season hasn’t changed but MAF economists are prediciting next season’s payout will be lower before recovering a bit in the 2011/12 season.


EU resumes ag subsidies

January 18, 2009

The European Union decision to resume export subsidies on butter, cheese and milk powder which were suspended a couple of years ago is a blow to free trade hopes and our dairy industry.

The world milk price has fallen steeply in recent months, the EU is already subsidising butter storeage and the new subsidies will encourage further supply which is unrelated to demand.

Trade Minister Tim Groser and Agriculture Minister David Carter say it’s a negative signal when so much effort is going in to reducing protection.

Groser said this makes completion of DOHA negotiations even more urgent and Dear John says the prohibition of these subsidies should be the number one goal of current WTO negotiations.

New Zealand farmers were brought kicking and screaming into producing without subsidies in the 1980s. The pain at the time was intense but farmers are more efficient and more secure now than we ever could be with subsidies.

This message has still to get through to producers, manufacturers and politicians in other parts of the world and  everyone is paying the price of unsustainable production because of that.


China vows to clean up milk industry

October 7, 2008

The Chinese government is giving a very strong message to the world:

China’s Cabinet has vowed a complete overhaul of the scandal-ridden dairy industry, pledging to inspect every link from the farm to the dinner table to try to restore public trust in Chinese-made food products.

In its strongest action yet, China’s highest level of government called the industry “chaotic” and acknowledged there was a lack of oversight.

At Monday’s meeting of the State Council, or Cabinet, the government said it would punish companies and officials involved in the contamination of milk products that has been blamed in the deaths of four babies and for sickening more than 54,000 children.

The scandal revealed “that China’s dairy production and circulation has been chaotic and supervision has been gravely absent”, said a notice about the meeting on the government’s Web site. Unscrupulous “elements” and companies had also put profit above people’s lives, it said.

Their concern is not just about health:

The head of China’s quality watchdog said the country was stepping up checks on its exports to ensure they conformed to the food safety standards of recipient countries, the official Xinhua News Agency reported.

“Food safety concerns not only the health of the public, but also the life of business,” Xinhua quoted Wang Yong, the director of the General Administration of Quality Supervision, Inspection and Quarantine, the agency responsible for ensuring that China’s food supply chain is safe.

Health should be the first concern but the damage to Chinese businesses, and China, from the melamine posioning scandal is immense. Domestic and international consumers will take a lot of convincing that it is safe to eat Chinese produce.


PETA boobs with breast milk campaign

September 28, 2008

PETA – People for the Ethical Treatment of Animals – has written to ice cream makers Ben & Jerry’s suggesting they replace cows milk with breast milk.

While the idea is enough to provoke shudders of revulsion from your average ice cream lover, dairy farmers reacted angrily to the stunt yesterday, claiming that the group is undermining the dairy industry.

But the animal rights group Peta claims that breast milk would be “better for both consumers and cows”, pointing out the nutritional benefits of breast milk and highlighting the animal welfare concerns over dairy farming.

Bizarre as this sounds there is a precedent:

In a letter to Ben & Jerry’s co-founders Ben Cohen and Jerry Greenfield, it cites the example of chef Hans Locher, who recently announced that he will be serving soups and sauces made from 75 per cent breast milk in his Swiss restaurant. Mr Locher posted adverts in local villages appealing for donors, offering a rate of £3 per 14 ounces (398ml) for their milk.

 Even if the women had the same checks on their health as our cows do, fresh from the breast  cuisine wouldn’t tempt me.


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