'Turnover does not equal profit' Federated Farmers says of Dominion Post taxation story

Lachlan McKenzie is Federated Farmers Dairy chairperson

Federated Farmers is responding to the front page story in today’s Dominion Post, also carried in The Press, which suggested the average dairy farm in 2009 had income of $500,000, but apparently paid $1506 in tax.

“It’s simple really, the turnover or gross revenue of a business does not equal its taxable profit,” says Federated Farmers Dairy chairperson, Lachlan McKenzie.

“Farmers do pay their fair share of tax but what’s not fair is this story. It is misleading and an example of poor journalism.

“Yes, the average dairy farm may have had $500,000 in revenue in the 2008/9 season, but according to Ministry of Agriculture and Forestry (MAF) figures, they also had $558,500 in expenses. The 2008/9 season was terrible one for farming with the average dairy farm making a $58,500 cash loss.

“Like with any business you don’t pay much tax if you loose money. Right now, there are businesses in other sectors, like tourism and retail, that will have the same problem at this stage of the business cycle.

“As in any business, whether it’s plumbing, taxis, the Dominion Post or even a corner dairy, the cost of business expenses is netted off against gross income. Any surplus is your profit.

“For example, if a corner dairy sells $500,000 worth of goods then that’s their revenue or turnover. However, it isn’t their profit as they have to pay for the stock they sell as well as the cost of running their business. It isn’t usually difficult to understand this concept, but the way this story is written, this reporter would have readers believe the corner dairy example gets to keep $500,000.

“2009 was a very difficult year for all farmers as it followed the 2008 drought, which MAF estimated cost New Zealand $2.8 billion.

“In addition to weather challenges, we had significant commodity price volatility due to the Global Financial Crisis as well as exchange rate and input cost challenges.

“In 2008/9, dairy farmers opened that season with a forecast of $7.66 per kilogram of milksolids, but this dropped to $4.20 before settling at $5.20 for the season. Many farmers had invested in extra fertiliser and paid for extra feed because they thought the payout would be higher. It wasn’t and they lost money.

“Fortunately in this season, commodity prices are currently high and farmers, despite ever rising costs, will have a better year.

“Farmers will continue to pay their fair share of tax, just like every other business in New Zealand. Some years that will be more while in other years it may be less. It all depends on debt levels, input cost rises like rates, the weather and the global markets we sell into.

“Let’s hope we get more factual reporting in the future, because this morning’s effort was pitiful. It misled readers by saying that gross revenue or turnover is the same thing as profit and it’s not,” Mr McKenzie concluded.