Farmers’ bank idea has been tried before, and has failed

The Australian Institute for Progress today blasted calls for a “farmers’ bank”, saying the notion of taxpayers propping up failing rural businesses had been tried and had failed in the recent past.

The Queensland-based policy think tank urged the Palaszczuk government to reject calls by Katter’s Australia Party to establish a Rural Reconstruction Board to take over debts of struggling farmers.

AIP Executive Director Graham Young said the state needed to concentrate on shoring up its fiscal position in the face of a deteriorating financial climate and setting economic conditions increasing the viability of all businesses.

“We’ve been here before with the Queensland Industry Development Corporation which had to be euthanised and wrapped up in the privatisation which created Suncorp in 1999.

“While agriculture faces unique challenges, so do all industries, and there is no evidence debt is a bigger problem for it.

“According to recent studies only 6 per cent of Australian farms are at serious risk of financial distress, this has remained reasonably constant, and is centred in certain types of enterprises, like dairying.”

Under the KAP plan some of the least creditworthy farmers would have a portion of their debt forgiven, and then refinanced by the state at 2per cent without any allowance for administration costs, or a margin to cover defaults.

“Essentially this is a subsidy from taxpayers and depositors to a minority of farmers. The need for the state to borrow to finance the scheme would also break the Palaszczuk government’s commitment to reduce state debt.”

Mr Young said that with interest rates currently as low as they are, the difference in repayments was unlikely to make that much of a difference to farm enterprises.

“If they are failing at the moment it is likely to be because of business-specific or systemic factors, not financing costs. This means the loan book will quickly have a high percentage of non-performing loans.

“There will also be a cost to borrowers as many of them will have delayed the inevitable, and even made it worse causing additional financial, social and emotional harm to themselves.”

Mr Young said the scheme would also be bad for the industry as a whole.

“It will tend to inflate property prices, making rural industry less efficient and handicapping efficient well-capitalised farmers trying to expand their businesses.

“I can understand the desperation of a lot of farmers and their families, and it is shared by a lot of metropolitan businesses who have also hit trouble. But that is the nature of business.”