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Current forestry tax laws stop the formation of properly structured forestry co-operatives

Authors: Hamish Levack
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2009, Issue N.Z.J.For. 54(4) 2010, pp 24-27, Jan 2010
Publisher: New Zealand Institute of Forestry

Abstract: The cost-of-bush (COB) taxation anomaly is a relict of Government's worries about the adverse financial impact that the immediate deductibility of forest purchase costs would have had on its short term budgets during the sale of its forest assets during the 1990s. However, COB means that the value of cutting rights to a notional 'seller' is very different to its value to a notional forest co-operative, as 'buyer', in exchange for shares. This disconnect prevents the formation of properly structured forestry cooperatives. It results in market inefficiencies and it is bad for both forest growers and the Government in terms net income. Such effects are indicatively quantified in this paper. Because the boom plantings of the 1990s are (a) now approaching maturity, (b) are largely in 'small' private forest ownership, and (c) need consolidation to take advantage of the many benefits of scale, including the scheduling of capital equipment and the attraction of investment in further local processing, it is urgent that the cost-of-bush anomaly be abolished or at least that the Taxation laws2 be modified to have the same effect.