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Cunliffe offers tax sweetener to stoke ailing wood processing sector

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)

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Comments and questions
38

Incessant meddling is the best he can offer?

My daily prayer: Please Lord, Keep these clowns, Messrs Cunliffe, Parker and Norman well away from the NZ inc cheque book. We may have sinned slightly here and there, but we don't deserve such extreme punishment.

Amen

This may be first and only proposal put forward by Cunliffe that I can get on board with.

At last. Here we have two truly remarkable men, Cunliffe and Norman, who are able to know more than the entire NZ market. Such a rare gift. No doubt that over the next six months we'll see more examples of where they can apply this wisdom. We are ever so lucky. .

It's not hard to know more than a market. Markets can't know things. Any more than ideas can.

Great news! subsidies for wooden buildings. I'd go a step further and insist they be thatched.

This idea is so far wide of the mark it is not funny. The customers of our wood products don't want processed timber, they want raw logs, so why throw money at a dying industry.

And there you have the problem Mr Cunliffe. Perhaps you should start offering vision and long term strategy, not more contemptuous taxpayer funded vote bribes.

I am sure those in the industry have already studied all options in a bid to produce value added timber.

Our forestry industry, which is now controlled by foreign interests and is heavily reliant on low-value log exports, is an excellent example of what happens when a sector fails to invest in profitable added-value products.

Four decades ago forestry was the country's big hope, just as dairy, Xero and technology are today. The sharemarket was dominated by a number of large forestry companies, particularly NZ Forest Products, Tasman Pulp & Paper, Carter Holt Harvey and Winstone. But the industry failed to take advantage of its opportunities and these companies have effectively disappeared with most of their pulp and paper operations now owned by overseas interests.

Makes you wonder... If all those companies, with all that expertise at the coal face, or ridge line are unable to profit and make a valid case for raw trees into value added products... It's unlikely Cunliffe will be able to, especially using the unemployed to make it happen.

Isn't the forrest sector the most dangerous? It's no place for inexperienced stoners not wanting a job. As the CTU often tell us.

Another unfortunate policy release stumble?

Cont.
Our plantation forests are also predominantly overseas owned, many by investment funds. These investment funds, a number of which are run on behalf of well known North American universities, have no interest in investing in added- value activities in New Zealand. As a result we have become more reliant on low-value log exports which have risen from 29 per cent of total forestry volume in 1992 to 50 per cent in 2012 and 55 per cent in the 12 months ended September 2013.

The export value figures tell a similar story. Log exports have increased 4.4 times since 1992 and now represent 43 per cent of forestry export value compared with just 23 per cent two decades ago. This is extremely beneficial for Port of Tauranga, which accounts for 40 per cent of the country's total log exports, but has limited value as far as the domestic economy is concerned, particularly compared with the predictions made 30 years ago. The forestry sector has had little employment growth and relatively low wages. There have been a number of fatal logging accidents as workers have often been under pressure to fell trees as quickly as possible in order to rush them to Mt Maunganui for shipping to China. China now takes 67 per cent of our logs compared with just 13 per cent in 1992. Korea accounts for 16 per cent of our log ex ports versus 37 per cent in 1992 and Japan takes only 6 per cent compared with 47 per cent two decades ago. We are becoming increasingly reliant on China and its demand for forestry and dairy commodity products. This is great in the short term as China is prepared to pay high prices, but it is not a reliable or sustainable long-term strategy. (Brian Gaynor, NZ Herald, Jan 25, 2014)

cont.
Forty years ago New Zealand was seen as the leader in planted radiata pine, with Chile a long way behind but determined to catch up. At one stage Carter Holt Harvey had a substantial shareholding in Chile's largest forest products company. However, in recent years Chile has shot past us because of a strong strategic focus and the willingness to invest in added-value production. Chile's share of world forestry trade, in value terms, has gone from just 0.32 per cent in 1970 to 1.04 per cent in 1992 and 1.96 per cent in 2012. Over the same period New Zealand's world share has gone from 0.56 per cent to 0.96 per cent to 1.40 per cent. Chile has focused on pulp and paper and has minimal log exports whereas we are becoming increasingly reliant on low-value commodity log exports.
...
Three decades ago all the talk was about the increase in forestry production, popularly known as "the wall of wood" at the time. There was huge optimism in the sector and our forestry companies borrowed heavily to buy more and more production facilities in Chile, Canada, United States, United Kingdom and Australia. When commodity prices declined the forestry sector was devastated because it had too much debt and was far too reliant on commodity products. The growth prospects of NZ Forest Products (which had been acquired by Carter Holt), Tasman Pulp & Paper (which was included in the Fletcher Challenge merger), Carter Holt Harvey and Winstone disappeared as did the bullish outlook for the local forestry sector. (Brian Gaynor, NZH, Jan 25, 2014)

Seems Cunliffe and Co have done no research on stock piling wood,it rots quickly.If they hurry and treat it with chemicals,the Green Party will oppose it,in other words ,the idea is dead in the water ,or in essence "DEAD WOOD."

All I can see in Cunliffe is a guy with a massive ego that says I need to be PM at any cost; doesnt matter what I promise or whether its viable..I just want to be the PM.

Perhaps Cunliffe would be better off spending his time cosying up to Brain Tamaki and creating a new cult for the blissfully ignorant to follow.

The forest industry is our third biggest export industry and could pass tourism for second. The industry has always been a very weak lobbiest and largely forgotten by government when it comes to providing incentives for foreign investment. Investment in wood processing would be a no brainer in the provinces, would keep trucks off roads, provide much needed provincial employment and increase export income. Capital for wood processing would most likely need to come from overseas, incentives such as tax rebates, rate rebates, perhaps rental rebates etc would cost a paltry few million compared with the multiple millions in benefits for our country and rural communities. Have a look at the total government financial injection into tourism compared with forestry, (unless my information is mistaken, tourism receives many tiems more) and yet they both bring in similar amounts of overseas funds.

Forestry has been ignored by National for many years, Cuniliffe is speaking some sense for once.

No such thing as value added in NZ in forestry. We destroy value in most processing. Here are some numbers that I have been told. In NZ we convert around 55% of the log into timber the rest is waste. In China they convert 73%. In china they get twice the price for their waste into pulp mills etc than we get in NZ.

NZ cannot compete the sooner this is accepted the better.

The industry has talked value added for 30+ years and have achieved nothing despite NZ Aussie US and Chinese ownership.

If we subsidies an industry let's at least pick one that can potentially become sustainable.

Government can try all they want but picking winners is fraught with danger. Buildings used to be entirely steel framed until the Unions held the builders of the BNZ building in Wellington to ransom. That was the start of pre-stressed concrete, a market solution to meddling of the left wing unions.

What about the producers of cement and blocks and concrete, the Labour plans simply shift $ from one industry sector to another. Will Labour insist that all Government buildings of 4 stories or less are produced with NZ timber, why not bring cheaper timbre in from Chile? that will save the taxpayer from lining the pockets of particular industry participants. This scheme is so like import quotas, a company gets the license to sell products (in this case 4 story buildings) to the Government. Why not extend to 7 story, the technology exists, and if the technology is so good why legislate, the market will deliver buildings that "Perform" to a standard. Develop building standards, but don't develop prescriptive codes that demand a particular material.

With the state of our forestry industry we would be better off if less trees were logged, fewer people would die from workplace accidents.

Next we will see a policy from Labour and Greens that all cars must have boilers that use clean burn technology to convert timber offcuts (from building sites) into heat to create steam to power our cars. We are now free from oil imports, we can develop a NZ car industry employing the large pool of skilled labour coming on stream in 2016 and 2017 in Australia. It's brilliant, no training, no emissions, Greens on side, renewable source of fuel, no waste. enhances manufacturing, we can be world leaders.

Is what Josef Norman proposing Laminate wood have the same problems as below: (Probably just another not thought Green policy)

Laminate flooring has poor insulation, as well as low durability, with a useful life averaging 15 years. And some varieties of laminate flooring also release considerable amounts of formaldehyde gasses, making them quite toxic.

Does this mean that anybody that invites Cunliffe to talk at an industry conference, open an envelope etc. over the next six months can expect to hear the promise of an election bribe specifically for their industry?

My understanding is that there are a lot of 'soft tariffs' at play in the rest of the world that prevent the adding of value to our raw logs. Its this that has prevented NZ Inc achieving the added value not the lack of capital or lack of desire to invest in this sector.

Lots of capital has been invested most of it has not worked.

When Forestry Corporation of NZ owned most of the Central NI forests it spent millions on studies of how to add value to the "wall of wood" predicted to be coming out of those forests in future years. The only conclusions were that the added costs of processing, beyond cutting logs to better meet export customer needs, exceeded any likely increase in revenues from processing. Disappointing, but the reality of the world we live in. Cunliffe's "solution" is B.S. It won't work economically. I can say this confidently, because I was on the Board of FCNZ when all those studies were made.

In his attempt to "get wood" Mr Cunliffe has once again flopped..

My kids are hoping like crazy that Cunliffe gets asked to open an ice-cream factory.

What has been successful about the approach of the past 30 years? Was having at least two members of every family working long hours and having bugger all to show for it part of the plan? The knockers and cynics of the NRB have no solutions: “more of the same” they say.

Go Cunliffe. We have to break out the doomed strategies of the past.

"Go Cunliffe. We have to break out the doomed strategies of the past".

How about trying to take some personal responsibility for your life rather than hoping for Cunliffe and the looney left to rescue you. How about trying to upskill?

As the great Chinese proverb says "a man will spend a lifetime waiting for a cooked chicken to fly into his mouth"

Good news!

I assuming chica nuvea is correct above when saying most of the forests are owned by overseas investment funds. Given that, then they and (NZ owned foresters) will want to charge the saw mills and added value further processors the same for logs as the get in China or elsewhere ( minus freight etc). That is simple business.
Timber processing is not a new industry --if they could add value to the logs at current prices they would be doing it. So the only short term thing Cunliffe & co could do is subsidise the cost of logs and hope that someone can come up with higher vale added product or more efficient process in the longer term.

Where are the FTA experts? I thought NZ exported timber either as logs, or sawn timber to avoid tarrifs. .Any processing means tarrifs apply and make the timber unattractive to the purchaser. Cunliffe must know this as Labour set up the trade agreement. They also drove a few timber mills out of business by stopping the West Coast tree felling thereby destroying the industry. That knocked a lot of 'Feral' (Helen Clark's words - not mine) West Coasters out of work, and closed down a number of NZ furniture manufacturers. Has this policy been run past .their legal advisers?

Those were Rimu. Hardly the stuff of sustainable forestry, in either economic terms or environmental.

What is up with this idiot? Making "policy" (sic) up on the hoof is just stupid. Does he really think anybody is fooled by this stuff?

Making policy up on the hoof is passing countless pieces legislation under urgency that nobody asked for and which compromise civil rights, without any public submissions from anyone other than your golf partners.

And casually announcing that you've lost interest in the conversation.

Here we go again the Labour giveaway train has left the Station 2 Election giveaway bribes so far the lower end of Society is being encouraged to breed like flies even though they cannot afford, it and we will end up providing $65 per week for every poor child that will end up raring itself, never ending DPB'S, and unemployment benefits, School Breakfasts, soon School Lunches, School Fruit supplies, and after School babysitting free.
Now the next train has left the Station with Tax breaks to some now isn't it just great and no doubt there will be more give away's to be announced just marvelous!!!
And where are we to flog this spare funding from????!!! when we are doing our best to get the Country back on an even Keel, after 9 years previous give away's, and do you all remember one house full of Cullen siblings, that refused to live in NZ while their Father was running the show.
We not only need to change the Flag but the Anthem too, from God save the Queen, to God save NZ'rs from another Labour Govt, seems to fit OK, please don't let it happen people.
Capital Gains Tax huh.....the only thing left to tax will be the Air that we breathe, and no doubt they will find away to do that too??!! as Water is well on it's way to be paid for at every street corner.

The specifications, design and construction of four storey buildings should be up to town planners, architects and engineers. Only in very rare cases would they specify timber. This is poorly thought policy. Who is advising Mr.Cunliffe I wonder!

Reading one recent article probably Marty Verry CEO of Red Stag Timber.

When do we stop falling for this BS. The best thing we could do for shaky ChCh is stipulate steelframed houses with whatever cladding. Timber framed housing proved useless in the quake. Steel holds to a category 9 which would have coped with the best thrown at it.
Go back to the late 80s and early 90s when the timber industry was in a similar position. We confected some 'research' which 'proved' conditions were the same as Aus., put some flyspray on for the prolific termite problem we have here and ran it past the local pizzaria oven and viola we had a $25-bil leaky house problem....not counting the billions of dollars damage to the nation's health.
I wonder what we will be contributing to the Harvard Pension Fund this time around. Labour's ETS spewed $300-mil to Harvard for saving carbon -- apparently for us -- but I'm sure that if carbon ever became worth capturing/ bottling/ whatever, one of that same school's smart lawyers would claim 'our' carbon for the good ole US of A. Lose lose when you prop up deadbeats.

Instead of handing out money like this it would be better to remove the tax disincentives for small forest owners to aggregate their forests into marketable packages so processors would have a sustainable supply in order to feed the mills, that is assuming they can get a resource consent to actually build one.
The new face of forestry is going to be thousands of small blocks of individually owned forests with no capacity to market their logs profitably.