EDITORIAL: by Peter WestmoreNews Weekly
Australia's biggest financial scam?
, May 30, 2009
The collapse of two of the country's largest managed investment schemes will cause financial hardship to tens of thousands of Australian investors and damage rural communities.The savings of many thousands of people will be savaged as a result of the collapse of the Great Southern Group, the largest agricultural managed investment scheme (MIS) in Australia. There are said to be some 43,000 investors who contributed $1.8 billion to the group over the past five years.
Great Southern followed another large managed investment scheme, Timbercorp, which went into administration in April.
The Great Southern Group, based in Perth, was set up as an investment manager specialising in the agribusiness sector, providing Australians with an opportunity to invest in new agricultural industries. Investors could invest in the listed public company or in particular projects.
The share price of the listed company collapsed from $5.00 in March 2005 to just 12 cents before administrators were appointed in May this year.
Great Western's business plan was based on investments which benefit from the tax deductibility of certain business investments, and it was targeted at people who needed an investment to offset their incomes.
Managed investment schemes were established from the late 1990s to capitalise on very generous tax concessions announced in October 1997 by the then Primary Industry Minister, John Anderson.Trebling tree crops
Mr Anderson said that he wanted to "enhance regional wealth creation and international competitiveness through a sustainable increase in Australia's plantation resources, based on a notional target of trebling the area of commercial tree crops by 2020". The key tool for accomplishing this goal was the MIS.
The average investment was over $40,000. The schemes which were given the tax concessions rapidly extended to a range of agricultural activities, until the federal government clamped down on them in 2007, because of the cost to taxation revenue.
Many of those who invested in Great Southern did so after reading its attractive self-promotion on the internet or on advice from financial planners who received commissions for people who bought into it.
Great Southern's web site said, "Over 40,000 Australians have discovered the benefits of investing with Great Southern. Now you have the opportunity to join them." Its list of directors included people prominent in the Australian banking industry.
A typical investment was described on Great Southern's web site even after the group had been put into administration.
It required investors to put a minimum of $14,000 into the Great Southern 2009 High Value Timber Project, to grow teak and mahogany timber in North Queensland. It offered 100 per cent tax deductibility in the year of investment, but returns would not come in for almost 20 years. It also offered 12 months interest-free finance to investors.
Great Southern claimed that its activities assisted rural communities. But the conversion of productive farmland, including high-value dairy country, to grow blue gum trees for woodchips outraged many farmers. Further, the investment by a highly capitalised city-based corporation in rural land, which was needed to keep its large orchard and forestry operations afloat, pushed up land prices and the price of water.
After the collapse of Timbercorp and Great Southern, it emerged that the companies had been making generous payments to managers and business advisers who were encouraging people to invest.
One of Australia's leading financial journalists, Michael Pascoe, was scathing in his description of the industry. He described it as "the biggest single scam in Australian financial history, probably losing more money than HIH and Bond combined" (Business Day
, May 12, 2009).
A spokesman for the Australian Shareholders Association, Stuart Wilson, said, "It's a very serious situation for those who have invested; anyone who has invested in [Great Southern] is likely to lose all of their investment, and there's a good chance that investors in the funds are not going to see much return either."
Small investors are not the only ones to face substantial losses. The ANZ Bank is reported to be owed $500 million by Timbercorp, and Great Southern made it clear that its banks had forced it into administration.
The collapse of two of the country's largest managed investment schemes will cause financial hardship for over 60,000 ordinary Australians who were persuaded to invest in a business about which they knew little or nothing, as a result of generous tax concessions given by governments which changed the rules some years after they had been introduced.
It is easy to blame those who invested in the schemes; but they were often badly advised by fund managers and investment advisers who should have known better, but were tempted by the very high commissions offered to get people to invest in the business.
Just as they damaged rural communities when in operation, Great Southern and Timbercorp will damage rural communities as they collapse, through increasing rural unemployment and depressing the price of rural land.
What a tragic commentary on what has happened to society ...- Peter Westmore is national president of the National Civic Council.