UPDATED 10am Tuesday: The big banks owe it to farmers to allow them to offset the interest earned by their Farm Management Deposits against the interest charges from their loans, according to Federal Agriculture Minister David Littleproud.
As drought continues to bite across the country, Mr Littleproud criticised the major banks for failing to open up around $6 billion held by farmers in FMDs to the offset mechanism his government created two years ago.
"The Coalition Government created laws in 2016 to allow banks to offer an FMD offsetting product, yet none of the big four banks bothered to create one," Mr Littleproud said.
Major banks should back farmers to regain the community standing they have lost through the scandals exposed in the Royal Commission, he said.
“The big banks have been able to provide these FMD offsets since 2016, and time’s up. The big banks need to right their wrongs.”
The major banks have yet to respond publicly to the Minister’s criticisms. They met with him in Canberra today.
Mr Littleproud said he was “really pleased” there was agreement to further discussions on how to improve FMDs.
FMDs allow farmers to put away up to $800,000 of their pre-tax income from a good year into an FMD, which they can withdraw in tougher times - when they pay tax on the withdrawal.
There are 49,549 FMD accounts in Australia and many farmers have multiple holdings
The offset mechanism allows interest earned from an FMD to be offset against interest payable on loans for a farm business, or to offset the balance of an FMD against the balance of loans to a farm production business and be charged less interest.
While major banks offer FMD accounts, only the Rural Bank has an FMD offset product on its books.
The offset mechanism must be linked to a loan account managed by the FMD provider, which means if the big banks came on board, many more farmers would be able to offset loan costs.
Labor’s Agriculture spokesman Joel Fitzgibbon said Mr Littleproud’s demands for banks to offer FMD offsets was misleading.
“I heard today Mr Littleproud would be doing more to help farmers money away for a rainy day. That’s misleading,” Mr Fitzgibbon said.
“FMD’s have been around for a long time with bipartisan support. They’re a good policy.
“Offsets could be described as an enhancement of FMDs, but Mr Littleproud is speaking as if he’s introducing a new policy.
“All he’s doing is finally asking banks to implement the botched policy created by Barnaby Joyce in 2016.”
He reiterated his calls for the Federal Government to focus on guiding the states into a coordinated drought preparedness policy, and singled out former Agriculture Minister Barnaby Joyce for walking away from the interstate drought policy commitments forged under the former Labor government.
“In 2013 the Coalition of Australian Governments agreed to abolish exceptional circumstances funding, with the support of the NFF and other leading farm representative groups,” Mr Fitzgibbon said.
“We established a number of principles to help farmers withstand extended drought, for example Farm Household allowances over a limited period, and a heavy policy emphasis on building resilience and improving farmers’ financial literacy, and so on.
“It’s five years since we agreed to progress those principles and COAG hasn’t been meeting and now the Commonwealth has started making ad hoc announcements on its own and states are starting to creep back to the policies we walked away from like freight subsidies, which was shown to be a failed policy.”
The policy discussion in Canberra today included farm groups. The roundtable agreed to use the National Farmers’ Federation drought policy as a model, and to focus on preparedness measures.
““There are no rivers of gold coming – we’ve already invested $1.3 billion in this term of government and we won’t be returning to interest rate subsidies – but I think it’s always important to listen and hear feedback on what can be done better. I think today was a good example of this,” Mr Littleproud said.
“In the arena of the State Governments, we also heard serious concerns around stamp duty being charged on multi-peril crop insurance, which adds up to 10 per cent to the cost of the insurance. There was also general agreement about the importance of financial literacy and support for it to be made more consistent.”
Like the other major banks, Commonwealth does not offer an FMD offset product. Executive general manager of agribusiness Grant Cairns said his company works with farmers on an individual basis to support their financial wellbeing during changing circumstances like drought.
“Commonwealth Bank is committed to supporting a sustainable agriculture sector and we regularly review our product offerings and support measures to meet our customers’ needs. For example, we recently extended our drought support measures nationally for agribusiness and regional business customers.”
Westpac said in a statement while it didn’t offer offsets, its does provide financial products to help producers to “smooth their cash flow”.
“Our analysis shows that only a very small proportion of our customer base would be eligible for a FMD offset under the current legislation because it only applies to individual and partnership arrangements, whereas the vast majority of our agricultural customers have corporate/company structures.
A NAB spokesman said the bank will consider Minister Littleproud’s request for FMD offsets.
“As an alternative to the proposed FMD offset account, NAB supports allowing the inclusion of FMDs as security for lending which would benefit farmers by providing additional capital and potentially lower pricing for lending,” the spokesman said.
ANZ was contacted for comment.