Weather News

Federal MP calls on banks to develop offsetting options to help farmers save in the good times

Federal MP David Littleproud says the banking sector will benefit in the long term by offering offsetting options for FMD's. - Audience submitted

A Queensland MP is calling on the major banks to develop offsetting options for farm management deposits to help landholders save in the good times.

Last year the Federal Government made changes to the FMD scheme to allow offsetting, but the major banks are yet to offer options to their clients.

Federal Member for Maranoa, David Littleproud, said offsetting would allow the agricultural sector to be more resilient during the tough times.

"Farm management deposits allow farmers to put away some of their profits in good years in a tax effective way to actually build resilience for those drought years," he said.

"Then [farmers will] be able to pull [that money] out to use it to get them through those bad years."

In Australia, there are almost 47,000 FMD accounts, with a total value of deposits of almost $4.3 million.

Mr Littleproud said the government has made changes to allow offsetting and now it is the banks turn to get on board.

"What we did in 2016 was put the framework legislatively wise to actually allow offsetting," he said.

"So that if you have an FMD, which we have now increased the limit to $800,000, to actually offset that interest against your interest on your term loan.

"What that will do is reduce the interest cost to primary producers who have these FMD's, so it will actually continue to build further resilience for primary producers right across Australia.

"But unfortunately the major lending banks and institutions to the agricultural sector have been dragging their feet and they are not interested in doing this."

Mr Littleproud, who was in the banking sector before entering politics, said the banks 'are making all sorts of nonsense excuses as to why they can't do it'.

"They are saying that they don't have the technological base to actually do it, which is absolute nonsense," he said.

"You can walk into any financial institution today and get a home loan and offset your savings against your home loan any day of the week.

"To say that they can't do it for agricultural loans is absolute nonsense and it just points to the banks being greedy.

"They are also pointing to the fact that there are a number of different entity groups that obviously lend within the agricultural sector through trusts or companies.

"But they are actually in the minority compared to 200,000 individuals and partnerships that operate farms right across Australia.

"The reality is the majority of family farms operate through an individual partnership that would be able to take advantage of this FMD process."

Banks: Offsetting for FMD's not that simple

The Australian Bankers Association, in a written statement, said there were many factors why banks might be hesitant to offer an offsetting product for a farm management deposit.

"It is a commercial decision of banks whether to offer farm managed deposit offset arrangements.

"There are some important considerations as to whether offset arrangements are right for the farmer."

A spokesperson for the National Australia Bank (NAB) went on to say in a written statement that 'loans to farmers are typically more complex than residential mortgages, where offset products are common'.

"Under tax law, farm managed deposits must be held in personal names, which makes offsetting options difficult because farmers often have multiple facilities, such as working capital, term debt, overdrafts and equipment leases, across multiple borrowing entities and borrowers.



"NAB supports allowing the inclusion of FMD's as security for lending which would benefit farmers by providing additional capital and potentially lower pricing for lending."

Mr Littleproud said with one bank already offering offsetting options to farmers it proves it can be done.

"We've actually got rural bank, a small agricultural lender, that has actually created a product," he said.

"So again it points to the fact that our major agricultural lenders are having a go at us."

Mr Littleproud said in the long run the banking sector will benefit by offering offsetting options for FMDs.

"ABARES estimates that it could be up to $150 million that primary producers across Australia could save," he said.

"Now that's money that will go back into their enterprises, that will go to employ more people or to actually re-invest or to put into other research and development to actually improve their productivity on their farms.

"That helps the whole nation.

"That is why I say the banks need to have a social responsibility here, come on the journey with the rest of the agricultural sector and the rest of the country in building a strong and resilient agricultural sector."


- ABC

© ABC 2017

More breaking news

Sydney Morning Herald
ABC News
National Nine News
News Limited