Farms & Farm Machinery #385

WA Farmers
Image courtesy Alamy
slash
depreciation rate
In his first opinion
column for Farms & Farm
Machinery, WAFarmers
CEO Trevor Whittington
looks at how the
government can boost
farm productivity
The tried and proven
farm tax policy to
drive investment is via
accelerated depreciation.
It’s hard to imagine that Australian agriculture would have
been able to compete globally if we had stood still in the early
1980s with machinery that maxed out at 350hp (261kW) tractors,
40ft bars (12.2m) and 30ft (9.1m) header fronts. Over the past
40 years the size of the largest new machinery has effectively
doubled, and in some cases tripled, in size.
One of the hidden forces of productivity growth in the
Australian broadacre agricultural sector is the use of large
modern high tech machinery. The faster the uptake of the
latest, largest and most advanced technology, the more chance
farmers have of keeping up with the productivity curve that
demands one per cent of on-farm improvement every year to
stay internationally competitive.
The industry needs the big and the cashed-up to buy new and
then turn over their machinery at low hours so that there is a
steady stream of modern second hand equipment coming onto
the market every year.
The trickle-down effect to farmers who are in the second hand
market for 1,000, 2,000, 3,000-hour equipment, right through
to those buying 8,000-hour plus first gene ation 1990s selfpropelled
sprayers, quad tracks or precision seeding rigs, all
depends on a steady flow of new machinery hitting the market
If the sales of new equipment takes a dive because of a drop
in the value of the Australian dollar, a collapse in commodity
prices, spike in interest rates or a large drought, then the
ramifications on second hand values will be felt down the line
for years to come.
If the Federal Government is serious about supporting the
agricultural sector to remain internationally competitive and hit
the National Farmers Federation target of $100 billion by 2030
(up from the current $65 billion) then they should be looking at
policies that encourage farmers to continue to invest in more
productive machinery, be it new or second hand.
To do this there are multiple policy options open for the
government, with the simplest and most effective being to
continue to lower personal and business tax rates, leaving more
profit in farmers’ pocket . However, with blooming public sector
debt the government is more likely to be convinced to support
targeted changes to tax depreciation schedules, which lead to a
clear economic benefit
The tried and proven farm tax policy to drive investment is via
accelerated depreciation. The federal government has used this
method on and off in the past, including the current instant tax
write off, which has been raised from $30,000 to $150,000 (up to
June 30) as part of its COVID-19 stimulus package.
The key change needed here is to lock this in as a permanent
fixtu e of the Australian tax system as it is due to fall to $1,000
on July 1. This would incentivise the farmers that are using 1980s
and 90s-era machinery to move up into post-2000 models,
which would rapidly reduce the average age of agricultural
machinery across Australia and provide a generational change
in technology and efficiency for these farmer .
The other key change would be to halve the current
depreciation schedule for key agricultural machinery that is
closely linked to productivity, such as tractors currently set at 12
years, headers at 10 years, self-propelled sprayers at eight years
and seeding rigs at 15 years. These changes would be more in
line with the rapid run down of new gear working long hours
and would acknowledge the speed of technological change.
While we all know new machinery is expensive, ultimately
it’s up to farmers themselves to promote competition in
the market and bring down prices by being prepared to buy
Russian, Chinese, South African or Argentinean brands over EU
or US red, yellow, green or black. But without the government
incentivising farmers to go out and buy more new equipment
from both traditional and new manufacturers or made locally,
the second hand market will tighten up, forcing up prices
for those farmers who cannot afford new, which over time
will impact their ability to keep up with the endless race for
productivity improvements.
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