Deficit cutting could have tax implications for ag

If you wade through published statistics on farm income levels, it’s clear that farm families no longer take a backseat to the general population.

Not long ago, even with adding off-farm income to farming income, the total lagged the family income levels of the general population. Not so any more. On average, farm families are doing much better financially.

Note this is an average measurement. Farming is a business and those starting out or those with a heavy debt load or those that treat it only as a way of life may not be doing well financially. But many others are doing very well.

Statistics show dairy operations with the highest annual family income. Grain farms have increased their profitability remarkably in recent years and aren’t far behind. Beef operations lag considerably.

The traditional view of farming was that you lived poor, but died rich. Although you only scraped by from one year to the next, the value of accumulated assets provided a nice nest egg when it was time to retire or expire.

In modern agriculture, many are living quite wealthy while also amassing a considerable net worth. This is particularly true of grain farms bolstered by rapidly rising land values.

In recent years, more farms have joined the million dollar a year gross income club. That is no longer a large farm. Neither is $2 million in gross sales.

As farmers, we lament how costs have increased. No matter how much you earn, you can easily spend it all on new, shiny equipment. However, most farmers prudently keep their equipment costs in line, operating equipment they can afford.

As for farm input costs, particularly fertilizer, that’s certainly a worry, but when fertilizer prices are up, it usually corresponds to strong grain prices. Many grain prices have softened in recent months. Nitrogen fertilizer prices have dropped substantially.

The value of government-subsidized crop insurance is often underestimated. More than any other program, crop insurance has been able to de-risk grain production.

The program doesn’t work very well when commodity prices are below the cost of production. It isn’t price insurance. However, when commodity prices are profitable, crop insurance greatly reduces the risk of a significant loss due to crop failure. In some cases, it guarantees a profit or at least a break-even.

If the federal government ever gets serious about its obscene annual deficits and accumulated debt of over a trillion dollars, what’s at risk for farmers?

There’s no evidence to suggest crop insurance is a target for cuts. The free money we get annually through AgriInvest might be a logical target, but cuts do not seem to be part of the Sustainable Canadian Agriculture Partnership agreement being finalized between the feds and the provinces.

The interest free cash advance increase from $100,000 to $250,000 is already set to go back down to the previous level in another year.

Where agriculture faces the biggest risk may be tax policy. A cash-strapped federal government looking to fulfill a bunch of promises on expensive social initiatives could raise a lot of money by changing the taxation of capital gains. Take from the rich and give to the poor with many farms now in the first category.

Currently, only 50 per cent of a capital gain becomes income and there’s also a million dollar Lifetime Capital Gains Exemption. Any tinkering with this could have a big impact on a farm sector enjoying higher profits and much higher asset values.