THE Federal Government has been accused of attempting to make a profit out of its Farm Finance package by offering loans to farmers at 1.5 per cent more than the borrowing rate.
During a recent Senate Estimates hearing a Treasury official said the difference between Federal Government borrowing (3pc) and lending (4.5pc) rates "goes into consolidated revenue".
Victorian Nationals Senator Bridget McKenzie said the government could not explain or justify the difference between the two figures, beyond Finance Minister Penny Wong saying it was "a government decision".
"The bottom line is the Federal Government is making money on the loans, while expecting the States to wear the entire cost of managing them," she said.
A spokesperson for Agriculture Minister Joe Ludwig said the difference was designed to cover the risk of lending money.
"The rate of 4.5pc was set to cover the risk of the loans. It is significantly below market rates," the spokesperson said.
"On a $650,000 loan, it offers farmers a saving of around $100,000 compared to average commercial loans."
Senator McKenzie said with States now expected to stump up administration costs of the loans, there was no justification for charging a higher lending rate.
"The difference certainly appears to be greater than could be justified by a reasonable risk premium, particularly when the Federal Government is not assuming responsibility for administering the loans," she said.
"First Labor announced this money spinner without consulting the States, then it demanded they fund 100pc of the admin costs and now blames them for not signing up to the scheme."
NAB Agribusiness Southern and Western Australia head Neil Findlay said applying a risk margin to commercial loans was common place in the agricultural industry.
"With lending to customers we assess risk based on past performance and some lending is deemed higher risk than others," he said.
Rural Finance Corporation (RFC) chief executive Rob Goudswaard said because the Federal Government would be using their own balance sheet to raise the funds for the package it was "not unusual" to cover risk.
"There is rationale in it, the government has to make sure people are using the money are making good on their repayments," he said.
Wyuna dairy farmer Nigel Hicks said a lot of producers were struggling to know what was going on with concessional loans but likened the developing situation to lump-sum payments during deregulation of the dairy industry.
"Most producers were under the impression the deregulation package was a one-off payment, but we had to pay it back with interest so it wasn't a 'gift'," he said.
He said spiraling income costs and low returns meant a lot of farmers were still doing it tough at the moment and their situations were not helped by the Federal Government's signal of feint hope.
"There's always a big announcement made as though it's a freebie gift to farmers but we've not heard anything," he said.
Mr Hicks also cast doubt on how many farmers would get access to the concessional loans.
"There's $30m available per year and farmers can apply for up to $650,000, I'm not sure how far it will go around," he said.
Victorian Farmers Federation president Peter Tuohey said he did not support the approach of Federal Government making money from the country's farmers.
Four State Governments (Vic, WA, NSW, NT) released a statement recently harbouring concerns that Federal Government could make financial gain from concessional loans.
"It would be clearly unfair for the Commonwealth to make financial gain from these loan arrangements, while at the same time asking the States and Northern Territory to cover administration expenses and incur real costs," the statement said.
