Labour's Cunliffe offers tax sweetener to stoke ailing wood processing sector

Wednesday 19th March 2014

Labour Party leader David Cunliffe has thrown the opposition's support behind an ailing wood processing sector with a cluster of policy sweeteners, including a tax break to encourage investment in mills.

In the party's first major policy announcement ahead of the September election, Cunliffe said a Labour-led government will introduce tax deferrals for capital investments in the wood products sector by doubling depreciation provisions on plant and equipment. The plan aims to boost capital expenditure in the sector by $40 million to $80 million a year, and have been tagged with a long-run annual cost to the government of between $10 million to $25 million.

"To get capital, first you need the right incentives. Part of that is shifting capital from speculative to productive investment, which is why we would implement a capital gains tax, but there also needs to be sector-targeted incentives," Cunliffe told the ForestWood conference in Wellington. "These tax deferrals will give New Zealand businesses the incentives they need to invest in growing our local wood products capacity."

New Zealand wood processors have been struggling in recent years, with a spate of mills shutting down, as Chinese demand for logs has driven up prices and underscored a sharp lift in raw log exports. Government figures show New Zealand boosted log exports 24 percent to $3.92 billion in the year ended Jan. 31, compared to a 9.9 percent lift in foreign sales of wood pulp and waste paper to $637 million, and a 7.4 percent drop in paper, paperboard and articles exports to $478 million.

Cunliffe said the divergence between raw log sales and timber was due to a lack of incentives for foreign owners to invest in adding value to raw logs domestically.

"That may help shave a few percent off those firms' input costs, but it is bad for New Zealand," he said. "The wood products industry here in New Zealand knows this, and has realised there are industry-wide issues that we have to address if we are to harvest the full value of our land and its trees."

The announcement comes after a New Zealand Herald-DigiPoll result put support for the governing National Party at 50.8 percent, with the Labour Party trailing at 29.5 percent.

Cunliffe said he would also introduce a pro-wood government procurement strategy to boost public demand for local timber products, which would support the Labour Party's plan to build 100,000 houses over the next decade if it wins the Treasury benches. A procurement strategy would be funded through existing budgets.

Labour is also dangling suspensory loans to encourage planting by smaller forestry firms, which would be repayable at harvest time, with interest rates about 1 percentage point above the Crown's cost of borrowing. The loan scheme is estimated to have a capital cost of about $16 million to $20 million a year.

Other aspects to the plan include requiring half of all emissions surrendered to be in New Zealand carbon units rather than international units, protecting indigenous forests with $2.5 million in government grants over four years, setting up an employment taskforce at a cost of about $5.2 million, and encouraging iwi interests by extending the Te Tai Tokerau Forestry Cluster project which undertakes economic analysis beyond Northland.

The initiatives will also require local road development to support the industry, with Labour citing about 500 kilometres of road and track on the East Coast that needs upgrading. Road infrastructure upgrades are expected to cost about $40 million over 10 years.

Separately, Green Party co-leader Russel Norman announced a $1 million subsidy towards the cost of the first 10-storey or higher New Zealand building constructed with structural timber. Structural timber uses laminated timber materials instead of concrete and steel for load-bearing elements of high-rise buildings.

BusinessDesk.co.nz

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