National announced more subsidies in farming for capital gains

Written By: - Date published: 2:29 pm, June 13th, 2024 - 19 comments
Categories: climate change, Economy, Environment, ETS, farming, national, Politics, same old national - Tags:

National and their minion parties just announced another massive $400 million R&D subsidy for agricultural greenhouse gases by taxpayers for the low profit industry of pastoral farming. This joins the other large and hidden subsidies levied on tax and rate payers to support rural and state roads capable of sustained heavy agricultural and forestry trucks.

This capital gains welfare will be entirely paid for by the non-farming taxpayers. It was announced at the same time as Simon Watts announced that agricuture would not pay any industry climate change levies for the foreseeable future.

I suspect that most of it is likely to come from diverting funds from levies from other industries paid for the Emissions Trading Scheme. Or from income and profit taxes from other non-farmers and non-agricultural industries. The question has to arise, which is why should the rest of New Zealand pay for the sole benefit of farmers and their agricultural industry?

Farming produces roughly half of the climate change gases for New Zealand, and currently doesn’t pay directly for any emissions of greenhouse gases apart from ETS levies on transport fuels. Farming also don’t pay much tax at all.

Just to give an idea of just how profoundly unprofitable farming is to New Zealand taxpayers, it pays to look at the returns to the taxpayers from farming enterprises.

One of the most interesting sources comes from a OIA response from the Inland Revenue in 2022 about profits and taxes on farming (PDF here). This aggregates GST, PAYE, and tax on Net profits for the farming industry for the year ended 31 Match 2021 and compares to all other sources of the same revenue.

In that year of Covid-19 and lock downs, which had some severe reductions in economic turnover in other parts of the economy, ‘farming’ roughly directly produced a total of 5.69% of GST, 1.95% of PAYE, and 6.01% of income tax on net profits. The total direct income revenue to the state in 2020/1 from farming producers was about $3.5 billion. Most of the production from farming is exported, mainly as food and food products, mostly as unprocessed or minimally processed commodities.

Tax from the farming processing industries would be interesting to look at. However it isn’t likely to be very large compared to the rest of the domestic economy.

It just isn’t a very profitable industry for the country as a whole when you look at tax returns. The total revenue from exports of food in 2020/1 was worth roughly $63 billion based on this stats department press release. Generally a very low rate of operational return for the country as expressed in tax takes.

Have a read of that OIA. Why exactly are we as a nation investing in a subsidy for a industry with such a piss-poor return on investment.. Somehow neither Simon Watts nor any of the current government have addressed that. It is the role of those who are incompetent in business and economics to always talk about revenues rather than real operational profits – but that does appear to be what this government specialises in. Looking hopelessly incompetent in business.

2022-07-27-Farming-sector-contribution-in-GST-income-and-profit-taxes

When you consider the level of capital invested in agricultural land the picture looks far worse.

For an review of rate of return on capital invested in agricultural land, have a look at this one from 2010 entitled “Is New Zealand farm land worth what it will produce?“. Then consider that the effective ROI has reduced in the past 14 years as the cost of agricultural hasn’t been matched with productive increases in profit. I’d be interested in more recent papers if anyone can provide links.

New Zealand is a weird country as most of the capital in the local economy is largely unprofitably farmed for capital gains. This in turn starves the rest of the economy of the capital that is required to make it generate productivity gains and produce high profit innovative industries. Effectively much of the productive and profitable export economy goes to supporting the our most unprofitable and unproductive industries in being owners of property.

The main political party in the current government should really be named the “Capital Gains” party instead of “National”. That appears to be the only part of the ‘nation’ that they actually support. They support capital gains tax free income in both housing, being a landlord, and in farming.

This has resulted in multiple unproductive pyramid schemes in the country that effectively farm untaxed capital gains that benefit few kiwis. Since it is capital largely sourced from overseas owned banks, it mainly enriches investors in those banks.

Presumably their poor business and economic views are also of benefit to the supporters of the government’s political parties and their MPs.

For continued reading of the government’s ‘reasoning’ see Richard Harmon in “The methane waka sinks“. It looks like the reasoning was written in the 1970s. You know – when Muldoon made a subsidy for wool, and we wound up with 63 million sheep (we now have about 25 million sheep).

For alternative productive investments see NZTech covering our second largest export sector, one that is highly profitable and one that mostly pays for its own R&D.

19 comments on “National announced more subsidies in farming for capital gains ”

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  1. lprent 1
    13 June 2024 at 3:16 pm

    I'd point out also that as far as I am aware there are NO methane or nitrous oxide reduction pastoral technologies that have a shit show of working…

    If you want to exercise observation of a complete scientific fuckwit – read McClay who Harmon says, said…

    However, farmers are excited by the promise of a host of technologies, including some that require genetic modification (GMO).

    McClay told POLITIK that he is working with Science Minister Judith Collins on proposals to relax some of the regulatory requirements on GMOs in New Zealand.

    and in a more rational statement

    DairyNZ chair, Sir Jim van der Poel, was pleased with yesterday’s announcement but was cautious about becoming overly optimistic about technology.

    …

    “While there are currently no significant technologies to reduce methane emissions from New Zealand pastoral farms, our farmers continue to make strong progress towards measuring on-farm emissions, and we look forward to contributing to the Government’s methane-reduction work. “

    As far as I am aware, there are absolutely no technologies that have shown any significiant usable success over the last 3 decades.

    This includes possible results from genetic engineering. Reducing emissions of fast reactive greenhouse gases of methane or nitrous oxides in New Zealand's pastoral farming industry is hard.

    At present the best immediate prospect is by replacing grass with rape foliage, which isn't going to work on most hill country.

    There may be reductions from breeding animals with low emissions. But that will involve a decades long effort to find suitable breeds and then to replace the entire countries flocks and herds over more decades – for a marginal effect.

    Have a look at https://www.nzagrc.org.nz/domestic/methane-research-programme/

    What has worked is (Harmon again)

    One unexpected consequence of the Zero Carbon Act at the ETS has been the substantial conversion of farmland into forestry.

    Because of that, dairy cow numbers have been declining by around one per cent a year since their 2014 peak of 6.5 million, and sheep and cattle farming, which uses land more suitable for trees, is estimated by the Climate Change Commission to have been reduced by 17 per cent by 2050.

    Thus, agriculture is expected to reach the 2030 target through land use change and will get near the 2050 target the same way.

    This does suggest that continuing to pull unproductive and low return land out of pastoral farming and into trees is the best working approach. This will mean that there is also fewer hectares and herd and flock sizes to upgrade if we ever find decent technologies.

    But really the pastoral farming industry should just pay for their own R&D, because I can't see why I waste any taxes for farmer's R&D to retain their capital investments.

    If the farmers can't pay for their own R&D, then they should go out of business.

    • mickysavage 1.1
      13 June 2024 at 8:03 pm

      Genetically modified cows who fart less. What could possibly go wrong?

      • lprent 1.1.1
        13 June 2024 at 8:28 pm

        More likely to get GMO gut bacteria – but again – what could possibly go wrong? Or grasses – wcpgw? Or plant crops for feed lots – wcpgw? /sarc

        The point of NZ agriculture, and why it is relatively efficient compared to meat production elsewhere is that it hasn't required extra technological fixes like GMO, feedlots, winter housed, and hasn't had a high rate of disease because it is a isolated island with limited transfers of continental diseases.

        All of these will raise the cost of production because they will all require capital and increased operating costs. And the operational profits of pastoral farming at slim in the first place – which is why there is such a small tax take from farming.

        The most likely scenario is that they could simply breed sheep and cattle that have low levels of emissions or that will grow on feed that doesn't require high levels of nitrate fertilisers that produce nitrous oxide and produces less methane.

        This is a very traditional and well-tested approach that doesn't require or need GMO. Something that McClay is clearly too thick to understand.

        Problem is that they have been talking about that for 30 odd years, and only getting serious about it within the last 5 years. That means that they have probably 20+ years of searching and breeding to do. Which now that National has once again given farmers a free lunch paid for by taxpayers – they simply won't do it without a economic incentive to prioritise it.

        Labour should make a policy that says that within the first 100 days of their next win, they will put farming into the ETS, and that the rate will be retrospective at double – to pay back taxpayers for 20-30 years of unpaid levies and the paid research costs. Or that agricultural products will be levied at the farm gate sale – payable by buyers.

    • Ian 1.2
      15 June 2024 at 5:31 pm

      can you tell me again how much filthy ,real money pastoral farming earns for New Zealand.

  2. bwaghorn 2
    13 June 2024 at 6:02 pm

    Do producers of products typically pay for their emmisions, or do consumers generally pay them.

    • lprent 2.1
      13 June 2024 at 7:45 pm

      Producers. Think about it…

      It would be absolutely pointless to get consumers to pay, they have absolutely no way to reduce the production of emissions.

      The producers then add the cost to their products. If the price reduces profit too much in the market then the producers will shut down production or figure out a way to reduce emissions. It provides a strong incentive for producers and implicitly consumers to reduce emissions.

      The reason that this government is wanting to give a handout of $400 million to farmers is because farmers and their processors have not been paying for research to reduce emissions.

      So over the last 32 years the efficiency of cars in NZ (since the "fart tax" was fought off by farmers) has probably more than effectively doubled in emission terms per km travelled. Whereas the efficiency of farmers per kilo of production hasn't diminished by more than a few percent in terms of emissions. The only reason that their emissions has reduced almost entirely due to a reduction in total area of production. That is almost entirely due to sheep and beef prices.

      The lack of innovation is the real cost of farmer freeloading off taxpayers. What it means is that at some point the farming community will wind up with another crash as happened when the subsidies got removed in 1985 onwards. That will entirely be their own fault because like SMPs, the damn fool farmers got the National party to bankrupt them with freebie subsidies.

      • Michael P 2.1.1
        14 June 2024 at 2:11 am

        "…The lack of innovation is the real cost of farmer freeloading off taxpayers…."

        It's pretty hard to innovate for example in an area such as biotech, Gene editing, etc with such a such a restrictive regulatory environment around GE and GMO like we have had in NZ for the last 3 decades.

        As for you describing NZ farmers as "freeloaders" off taxpayers, our farmers receive virtually nothing from taxpayers, especially compared to other developed nations. NZ has nearly the lowest levels of subsidies for food production in the OECD. It's hard to make good profits when competing countries average around 20% (Norway 60%, Japan and Korea over 40%, GB 26%) of producers income being made up of subsidies compared to our tiny 0.8%…

        Also our agriculture sector is one of the most productive (less burdensome on taxpayers) in the world. NZ's support to producers is around 0.2% of GDP

        400 million for R&D mostly into Green tech or into technology to reduce emissions, etc is virtually nothing. (and none of it goes directly into farmer's pockets).

        https://www.oecd-ilibrary.org/sites/7f4542bf-en/1/3/2/index.html?itemId=/content/publication/7f4542bf-en&_csp_=47105d800c61fa618752b9ec6431b53a&itemIGO=oecd&itemContentType=book#figure-d1e8465

        • lprent 2.1.1.1
          14 June 2024 at 1:08 pm

          You're an idiot.

          It's pretty hard to innovate for example in an area such as biotech, Gene editing, etc with such a such a restrictive regulatory environment around GE and GMO like we have had in NZ for the last 3 decades.

          We have a restriction about usage on GMO. Not a restriction of innovation in GMO. Sure, companies are regulated in how they can test here or they can do testing offshore.

          However I'd point out that there are absolutely no operational GMO solutions from anywhere in the world and the entire pastoral economies world wide have the same methane problem to one degree of another. No newly engineered foliage for pasture, no engineered bacteria, and no engineered animals.

          Basicially the GM issue with regards to methane and NO2 is just:-

          1. another excuse for farmers to excuse their lack of effort
          2. another excuse for farmers to say that the research is constrained by GMO so they shouldn't pay levies to search for solutions
          3. an excuse by brainless MPs to use as a red-herring
          4. an way for GM companies to try to overturn our GM legislation that is in place in our NZ islands to prevent them using us a a confined test platform for some of their riskier testing.

          Also our agriculture sector is one of the most productive (less burdensome on taxpayers) in the world. NZ's support to producers is around 0.2% of GDP

          Bullshit. Now you're just lying like a good little lobbyist. Presumably you're just looking at the obvious subsidies.

          Lets get the farming community to pay for the building, maintenance and steady upgrades on their extensive roading network. That is almost entirely paid for by urban ratepayers in the towns and cities or from Waka Kotahi rates and land transport recovery from farming (and forestry) is minimal compared to the costs.

          Most of the roading cost is there to handle heavy trucks that daily go on those roads to service farming and forestry (depending on location). If there were no farms or forests, then the actual costs for a code for cars and light trucks would be less than 5% of what they are now. That is a massive subsidy.

          Plus of course taxpayers and other businesses are in fact paying almost the whole of the past, current and increasingly the future levies required by ETS. That is a massive subsidy.

          Now National and their compliant minions are getting the rest of NZ to pay for increased farmers R&D research…

          400 million for R&D mostly into Green tech or into technology to reduce emissions, etc is virtually nothing. (and none of it goes directly into farmer's pockets).

          Of course it does go into farmers pockets. They don't have to pay those costs in the first place like every other business does. Every other industry pretty pays up front for R&D, and then gets tax relief. Farmers pay little towards R&D , including their minimal levels of paid GST, income tax and tax on profits.

          Also our agriculture sector is one of the most productive (less burdensome on taxpayers) in the world. NZ's support to producers is around 0.2% of GDP

          Yeah, you argue like the usual unethical Act supporter. Get everyone poorer to pay for their societal costs while pocketing larger profits and avoiding tax.

          It only works if you are very selective about not mentioning the hidden subsidies that everyone else pays. I also note that you haven’t provided any source for that false assertion. Are you worried about me reading and analysing the sources of your lying.

          • lprent 2.1.1.1.1
            14 June 2024 at 1:32 pm

            Oh I forgot the massive hidden subsidy paid for by ratepayers and taxpayers for cleaning up and treating farming contaminated waterways and aquifers.

            All of which has been getting far worse than when I was sampling Waikato bores and getting astonished by the farming pollutants revealed by XRF back in the early 1980s. Then they weren't slathering the paddocks in massive amounts of nitrate fertilisers the way that they do today.

            I try to avoid Waikato water when I am down there. I’m pretty sure that there is hidden medical subsidy to farmers in treating their downstream victims as well.

          • Michael P 2.1.1.1.2
            15 June 2024 at 10:55 pm

            Hahahaha… I love it when my expectations are met.. Thanks Princess!

            Even if I was completely incorrect in everything I had stated, sadly I wouldn't have learnt anything and certainly wouldn't have changed my viewpoints because I didn't read anything after the first 3 words of your reply….. Idiot…

  3. adam 3
    13 June 2024 at 9:19 pm

    Tech is a joke at the moment, just look at the tech bro's and the stupid shit they spin.

    As for green tech, new mass and practical for agriculture – not seeing it.

    • lprent 3.1
      14 June 2024 at 1:23 pm

      Animal feed and biofuel in the US is the only one that I am aware of. Problem is that neither result is actually 'green'.

      The other agricultural improvements have been from selective breeding (eg like the productivity improvement on rice crops), operational changes in farming practices, and most importantly operational changes in distribution and storage.

      The latter is where most of the productivity improvements in farming have come from in the last 30 years. The latter two are heavily computer and comms network driven.

      If anyone disagrees, then please provide links to widespread deployments.

      John Oliver on corn in the US.
      https://www.tiktok.com/@lastweektonighthbo/video/7373338926221741354

  4. PsyclingLeft.Always 4
    14 June 2024 at 8:19 am

    Subsidies? What subsidies….

    Special concessions

    In terms of support, there are several unique tax concessions offered to parts of the agricultural sector not extended to other industries. These include special rules for deductibility of housing and capital expenses that aren’t available for other businesses.

    While the sector pays tax on income like everyone else, the amount paid by the dairy sector ($531.7 million in 2019/20—or 0.7 percent of total tax revenue) looks to be substantially less than the costs associated with transfers from the government back to the sector and remediation of environmental damage caused by the sector.

    A briefing paper to the Tax Working Group in 2019 observed that the tax deduction rules for agriculture had not been reviewed in 30 years, revealing a lack of appetite to challenge the industry’s privileged position.

    https://www.wgtn.ac.nz/news/2022/03/whos-paying-for-the-environmental-costs-of-farming

    And I remember a couple of articles from years back that Farmers paid less tax than a couple on a pension. Creative accounting ?Anyone know if that ever changed ?

    • lprent 4.1
      14 June 2024 at 1:14 pm

      Mostly it is because they have a massive interest bill for mortgages on land. That is a direct result of not having a capital gains tax.

      The ROI on pastoral land was about 40x in the early 2000s. Most similar farmland offshore at that time was only 10x-15x then. God only knows what the NZ pastoral land ROI is now.

      Most of the profits from interest go directly offshore. Farmers get the residual capital gains when they sell the land – as part of the massive pyramid scheme that all NZ property operates on.

    • Michael P 4.2
      15 June 2024 at 11:41 pm

      "And I remember a couple of articles from years back that Farmers paid less tax than a couple on a pension…"

      What do you mean by that? Are you talking about what percentage of their taxable income they are required to pay in income tax?

      Because obviously if a farmer is on wages or a salary then they pay exactly the same rate of income tax as all other PAYE salary and wage earners. I'm not sure if the pension rates are different but would have to assume that if they were then they would differ on the side of the pension attracting a lower rate.

      If they are owning and operating a business then they pay exactly the same rate as every other business, whatever that is these days.

      Or are you talking about the total amount (in dollars) of income tax they pay?

      In which case they pay whatever the figures (assuming everything is legal) end up telling them they have to pay. This amount is determined by the government.

      Farmers, just like everybody else not employed as an MP don't make rules, regulations or laws regarding income tax. So if you think some group is getting an unfair tax advantage over some other group then blame and target the lawmakers, not those who structure their affairs to ensure they are obeying the law. (or their accountants do…)

      If farming is a), such a burden to taxpayers due to receiving so much free money from taxpayers (subsidies) and / or b), is such an easy job to perform, with large profits, then there would be a lot more people taking it up..

      • SPC 4.2.1
        16 June 2024 at 8:33 am

        It requires more equity capital to buy a farm than a house.

        Farmers only pay tax when they make an operating profit, not every year. ‘

        Most of the reward is untaxed CG on sale.

        The downside is years talking to bank managers when there is no operating profit and debt at a higher cost than a house mortgage (but lower than other business without a land asset equity capital).

  5. SPC 5
    14 June 2024 at 2:06 pm

    1.pasture

    https://germinal.co.nz/climate-change/

    2.effluent pond management

    3.more production from smaller herds

    This from genetics or information from the each cow via automated milking (linked to computer).

    4.herds that produce less methane – genetic type

    5.the vaccine

    https://www.rnz.co.nz/news/country/513979/efforts-to-create-methane-vaccine-bolstered

  6. Bruce 6
    15 June 2024 at 1:11 pm

    Its a very simple solution; mandate hemp cultivation.

    Heal the earth, https://rodaleinstitute.org/science/industrial-hemp-trial/

    Prevent erosion, https://www.mda.state.mn.us/sites/default/files/inline-files/MDA%20Annual%20Hemp%20Presentation-AURI.pdf

    I could go on employment, carbon capture, fuel,cloth ……

    And its effect on arthritis is truly amazing.

    • Michael P 6.1
      15 June 2024 at 11:17 pm

      Yea.. which makes you wonder why it isn't a more widely grown and used crop, especially seeing as though it is easy to grow in our climate and has huge benefits just from growing it, before you even get around to harvesting, etc.

      Is it because the regulations make it too difficult and / or expensive to grow?

      Or is it because there simply isn't enough demand for the product from industries / sectors which would utilize the harvested crop?

      If it is because of the second question then how much of that limited demand is due to regulations around growing it? In other words, because of the legal shit there are hardly any buyers ready to process the crop into products for sale and there is limited research and development into potential uses