It’s clear from information sources ranging from the agri-taxation review to the CAP reform proposals that farmers are going to face significant external pressures from the EU, from our own government, and perhaps from consumers demanding sustainability, as Ireland struggles in meeting climate change targets.
How this will shape up for the coming decade will significantly affect how farms can operate.
Will the nitrates derogation be removed?
Will farmers be required to spread all slurry using reduced emission spreading equipment?
Will farmers have to devote a percentage of their lands to forestry?
Will basic payment schemes be significantly curtailed or brought to flat payments per hectare, with major uplifts to GLAS/Agri Environmental Scheme budgets?
Will farmers face nitrogen and phosphorous quotas?
Farmers deserve clarity on these questions now in order that they can plan how their businesses are to develop into the future.
As it stands, what clues do we have on the shape of things to come?
The Department of Finance has published a report on tax expenditures incorporating outcomes of certain tax expenditure and tax related reviews completed since October 2017.
Within this report, consideration was given to how effective the 2014 agri-taxation review, and changes in tax policy were, in meeting objectives.
In addition, the report examined how developments such as climate change affect the context in which the recommendations of the 2014 agri-tax review were made.
Various submissions were made for this report by farming bodies and other interested parties.
Ireland has a legally binding target to reduce non-Emission Trading System (ETS) greenhouse gas emissions by 20%, by 2020 (compared to 2005 levels), with this target increasing to 30% by 2030.
Agriculture is the single largest contributor to Ireland’s non-ETS greenhouse gas emissions, and it is projected that agricultural emissions will increase by 4% from current levels, by 2020.
Some helpful ideas in the report on what can be done to incentivise better climate outcomes included allowing farmers to claim 100% write-off against profits for expenditure on equipment of infrastructure designed to reduce overall green house gas (GHG) emissions.
Macra na Feirme suggested in their pre-budget submission that grant scheme could be widened to include infrastructure such as anaerobic digesters and solar panels, and that farmers should be allowed apply for such grants on a collaborative basis, in order to achieve economies of scale.
The IFA recommended funding and tax incentives, including 100% capital allowance for an integrated biomass mobilisation programme.
CAP expert Professor Alan Matthews highlighted the role that taxation can play in influencing behaviour, and called for increased education and awareness of how agricultural practices contribute to greenhouse gas (GHG) emissions, and what can be done to mitigate them.
Professor Matthews is also a member of Ireland’s Climate Advisory Council, which earlier this year suggested that a switch from beef to biomass or forestry could be a win-win of reduction in emissions coupled with increased farm income.
Agriculture Minister Michael Creed earlier this year suggested that forestry “will deliver results, certainly on marginal land, far beyond anything that other enterprises would deliver on those lands”.
In the mix also is the poll of the Irish Citizens assembly which resulted in 89% of its members recommending that there should be a tax on GHG emissions from agriculture, and that there should be rewards to the farmer for land management that sequesters carbon.
An Taisce has highlighted the issue of climate pollution costs attributable to agriculture, and said that if the sector is not made to contribute towards these costs, that in itself is a subsidy to the sector.
Teagasc has suggested a carbon link scheme, whereby the increase in dairy farm livestock unit numbers would be linked to a required balancing increase in additional hectares of forestry, in order to offset the increased emissions from the dairy subsector.
The Irish Tax Institute has highlighted that the EU state aid guidelines for the agricultural sector recognise targeted aid can be given for agri-environmental- climate commitments.
Meanwhile the latest CAP 2020 legislative proposals aim to achieve improved environmental and climate action.
The proposals include mandatory requirements of preserving carbon-rich soils through protection of wetlands and peatlands; an obligatory nutrient management tool to improve water quality, reduce ammonia and nitrous oxide levels; and a change to crop rotation instead of crop diversification.
Farmers would be rewarded in the proposed CAP for going beyond mandatory requirements in relation to agri-environment and/or climate commitments undertaken.
Each member State would be able to develop their own eco-schemes to support and/or incentivise farmers to observe agricultural practices beneficial for the climate and the environment beyond the mandatory requirements.
Chartered tax adviser: Kieran Coughlan, Belgooly, Co Cork.