Tasmanian forest agreement delivers $1.3bn losses in ‘giant fraud’ on taxpayers | John Lawrence | Environment

The first Tasmanian regional forest agreement, signed between the state and the commonwealth in 1997, was supposed to start an era in which forestry was both ecologically and economically sustainable.

In fact the last 20 years have been a financial disaster for forest management in Tasmania.

According to my calculations, Forestry Tasmania’s total operating cash losses over the 20 years from 1997-2017 are $454m.

The annual reports of Forestry Tasmania from 1997 to 2017 (if you can understand what the accounts don’t say) and the 2008 report of the Tasmanian auditor general, reveal that the regional forest agreement (RFA) has comprehensively failed to deliver on its “economically sustainable” promise.

Yet the state government continues to see things differently. Tasmania’s resources minister, Guy Barnett, says he believed the existing RFA had allowed the industry to operate “responsibly and competitively” and support jobs as well as having “significant environmental outcomes”.

The early RFA years were profitable – underpinned by a massive boom in industrial logging and the export of low-value woodchips – but cash operating surpluses have persistently declined since 2004. The past 10 years reveal substantial and ongoing deficits, with income not covering all operating costs.

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We also need to consider what has happened to the underlying asset value as the forests have been logged or plantations sold off.

In 1998, the forest estate of Tasmania comprising lands, roads and forests was valued at $852m. Fast forward 20 years, the value of that public forest estate is now only $101m.

That’s a write-down of $751m.

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Native forests used for timber production now appear to be worth an estimated $44m, and that value continues to erode. In economic terms, what we are witnessing are the last days of a one-off “mining” operation destroying natural capital.

Adding together those cash operating losses and the asset write-downs, the big picture is that since 1998 – the first full year of the RFA – Forestry Tasmania’s operations have produced cash and non-cash losses of $1,306m.

That’s an average $65m loss every year.

My figures have never been challenged by either the government, the timber industry or Forestry Tasmania.

In 2008 the state auditor general sounded the alert, repeating this annually, including a detailed report into the company’s financial performance in 2011.

Forestry Tasmania insiders must have known about the inherent flaws in their business model when woodchipping started declining after 2004.

For a state-run business enterprise, the corporation’s financial reporting may adhere to prevailing accounting standards, but so often those standards are used to obfuscate rather than explain.

This has allowed the Tasmanian native forest industry to perpetuate a giant fraud on taxpayers.

In early 2016, I was so alarmed by this sorry saga of insolvency – largely hidden because the corporation is publicly owned – that I prepared a detailed 17-page briefing note for two new board members of the restructured corporation, rebranded as Sustainable Timbers Tasmania (STT) in July 2017.

That correspondence has never been acknowledged nor have I been asked to provide the board with a briefing.

Similarly, I made a thorough submission on the economics driving the timber industry to a Tasmanian parliamentary inquiry into the 2011 sale of the Triabunna woodchip mill by Tasmanian timber behemoth, Gunns.

The claim at the time was that the export woodchip model was broken, and Gunns was broke.

I was the only person to give an overview of all the circumstances leading up to the sale of the woodchip mill, but I wasn’t called as a witness, although some of the final report referred to what I had noted. The inquiry was a witch-hunt into why the mill was unexpectedly sold to environmental philanthropists Graeme Wood and Jan Cameron, who promptly shut it down. Vested timber interests in Tasmania were outraged that a consortium of local millers had been blindsided.

The outrage of the industry was confected, as evidence to the inquiry subsequently revealed. Treasury was given only a day to assess the loan and found the need for the mill by the industry was not supported by robust evidence. Forestry Tasmania was about to bear most of the risks, and the applicants were heavily geared with little backup security and a history of making losses.

Unfortunately it’s still business as usual in Tasmania, a terrible lose-lose scenario – taxpayers foot the bill for increasingly uneconomic forestry operations, and diverse forest landscapes worth untold millions of dollars for their water, carbon and tourism values lose value as they are industrialised.

Four years ago, the Hodgman Liberal government was elected on a pledge of ending public subsidies to the forest sector. It hasn’t kept that promise.

The government has assumed responsibility for $113m of unfunded superannuation liabilities that Forestry Tasmania had on its books for past employees. The arrangement may not have been a cash injection, but cash grants have also been made. Taken together with the superannuation costs, it means that more than $161m of financial support has been provided to the corporation since the government came into office.

There’s also ongoing special treatment of forestry in financial arrangements with the commonwealth.

As part of the Commonwealth Grants Commission methodology for calculating states’ GST entitlements, most specific purpose grants – for example national partnership arrangements – are taken into account and deducted from the states’ GST share.

Not so with forestry. All of the Australian government grants to Tasmania relating to the $277m Tasmanian forests intergovernmental agreement (TFA) in 2011 and the $250m Tasmanian community forest agreement (TCFA) in 2005 have been quarantined when calculating Tasmania’s GST share.

So rather than Tasmania’s share of GST being reduced, the forestry grants have been additional, an off-the-books bonus.

This lack of concern for accountability and financial risk when throwing native forestry a lifeline is something governments of all political persuasions have had difficulty dealing with.

When STT prepares its accounts these days, they don’t reflect real values. For example, the government business enterprise doesn’t own the land it logs and the land is valued at nothing.

If a forest is clear-felled, most people would accept that the landscape has indeed suffered a loss of intrinsic worth – a myriad of environmental, aesthetic, water catchment and carbon values. But no one is doing that big-picture accounting, and those other values are not reflected in the financial accounts.

It is poor public policy when this loss of value is never properly taken into account when the state decides whether to log or not. The greatest irony of all is that these other environmental values were meant to be incorporated into “ecologically sustainable forest management” that the first Tasmanian RFA has failed to deliver.

Unfortunately, the extended RFA that was signed last year – effectively a rolling blank cheque forever – almost certainly guarantees that nothing will change. We won’t be getting an internationally competitive, sustainable native forest timber industry.

The only way that will happen is if people are prepared to pay a lot more for their timber, and we log much less of it.

The tragedy for Tasmanians is that long-term industrial timber contracts have locked the state into commercial arrangements that are not profitable.

We can argue all we like about whether there’s enough timber there, or whether the logging is ecologically sustainable. The reality is Tasmania won’t make money at the contracted prices, and the state will continue clear-felling forests for ply, pulp and chip that could be producing sawlogs for decades to come.

Over the next 20 years – no matter what the extended RFA promises – history clearly tells us that we will see a continuing contraction of the native forest industry in Tasmania.

In response to questions from the Guardian, Tasmania’s resources minister Guy Barnett said: “The Tasmanian RFA provides a balanced framework for sustainable management of production forests. Over 20 years of operation so far, the RFA has the runs on the board – enabling forest industries to operate responsibly and competitively in global markets and supporting thousands of jobs in regional communities.

“Over the same period there have been significant environmental outcomes. The State of the Forests report 2017 shows that in 1996 just 55% of Tasmania’s old-growth forests were protected in reserves. Today that figure has grown by more 300,000 hectares to 87%, or more than one million hectares in total.

“The government has been working with Sustainable Timber Tasmania to improve the bottom line and looks forward to significantly better results for the year to June.”

  • As told to Gregg Borschmann