Government Doesn't Make Good Farmers

Homepaddock, our resident rural expert, has got a few thought provoking random impertinents going on her blog about the news that Landcorp is bidding for the Crafar farms. Rumours have been swirling about Landcorp's timing for a month now.

The most thought provoking from HP are these:

9. Should the taxpayer have $1668.7m tied up in farms?

10. Are dividends of $10m last year, $13m in 2007/08, $12m in 2006/07 and $3m in 2005/06 good returns on that investment?

The answers are no and no, that is a terrible return on investment (.6%) but indicative of the whole concept that farming in New Zealand is now solely for non-taxable capital gains over taxable revenue returns. As a business model, from a large corporate enterprise, receiving a .6% return on investment does not stack up.

Total revenues of Landcorp are just $174.1 million, with net operating profit of $6.9 million. The net operating profit just a .4% return on assets. Total shareholder returns was a loss of $76 million.

Landcorp has a mission statement "To provide the shareholding Ministers with maximum sustainable financial returns.".

They sure aren't doing that.

Let us not even start on how little tax this SOE pays. Go have a look and see.

Landcorp, by stepping up to bid for the Crafar farms puts a spotlight on itself as to why in an economy where SOE's are looking to be sold, that Landcorp shouldn't be the first off the block. Is Government holding more than $1.5 billion of land, artificially holding land prices above where the market would have them?

And why taxation reforms are still required to ensure farming pays their fair share of taxes. Gareth Morgan's capital gains tax regime and Bernard Hickey pushing land taxes, now just doesn't seem so far fetched if farmers don't want to pay for their fair share of polluting if John Key and the Tree-hugger from Nelson go ahead with the ETS.

I've been researching what percentage of total taxes in New Zealand is actually paid by the leading export earner in agriculture. The IRD and Department of Statistics haven't given an answer as of yet.

Fonterra doesn't seem to widely publish in glorious numbers how much tax the farmer actually ends up paying. You can compare that with their obsession in telling New Zealanders how successful and important their oufit is - talking about high-value products being the future, never actually having delivered this high-end product and into a market such as China that is as tight as a fishes backside that still cares only about one four letter word starting with "c" - cost. Chinese Vice-President Xi's recent visit to New Zealand was almost overshadowed by Russel Norman's ditherings and we missed the most important statement from Xi when he said New Zealand dairy is too expensive, which in Chinese code is that they wish to manipulate the prices downwards themselves.

Of course high leveraging means plenty of income can be tax-deducted resulting in farmers paying far less tax than other taxpayers. Meaning more farmers buy more land and drive prices up as well as reducing income taxes, and increasing eventually their tax free capital gain.

It is a vicious cycle of lending reliance that could be assisted with a carve up of Landcorp.