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Many managers think their power comes from the conscious mind, so they put lots of effort into building their thinking skills, especially analysis.

Most of their power comes from their subconscious mind and this can be a powerful friend or a powerful enemy. Without realising it many managers sabotage themselves.

About 90% of what managers do is done at the subconscious level. It’s all about the pictures they hold about themselves, the words they use, and the habits they adopt. It’s about trusting their gut feelings, intuitions and listening to their bodies.

Here is what the best managers do:

1. They deliberately develop positive rituals because they know about 90% of what they do is done at a subconscious level based on habits; therefore 90% of their success depends on having positive habits. 
2. They take control of their subconscious mind. They know they will be as big as their self-image, or as small.
3. They know they are creatures of habit and work to establish highly specific, positive behaviours that become automatic rituals in their subconscious minds.
4. They understand and trust their subconscious mind, in the knowledge that it is the source of much of their success.
5. They understand the power of words. They actively feed their minds with powerful words and thoughts. They deliberately reject words and thoughts that make them weak.
6. They know that the people they lead will be as powerful as the thoughts they hold about themselves. They deliberately help people overcome their doubts and find their core of greatness.
7. They understand that the seven points listed above also apply at the organisational level. They are happy to talk about the health of the organisation’s subconscious. They work to build it.

Bruce Holland was the Group Strategic Manager at the Bank of New Zealand before becoming a consultant. In 1992 he formed Virtual Group and works with many organisations helping their strategic processes.

Bruce is the author of the book: Cracking Great Leaders Liberate Human Energy at Work and the supporting Program designed to liberate human energy throughout the organisation.

Bruce is also a mentor at GoConsult.nz. The early years of consulting can be a jungle with many risks before the rewards. GoConsult.nz mentors help maximise the rewards of consulting and minimise the risks of transition. He has made available Intellectual Property for other consultants who don’t have the skills or time to develop their own IP to help their clients develop organisational genius and strengthen their human energy fields.

When I mention to people that I am a consultant they sometimes think it is somewhat distasteful. Even my wife has joked that I am a “conslutant.”

I’m sure you have heard the joke, “A consultant is someone who borrows your watch to tell you the time, and then keeps the watch.” Well, I’m sure that some consultants deserve a bad press; but so do some policemen and some priests. Others provide real benefit. They work for a cause, know who they are and how they add value.

Who you are is who you decide to be, what you decide to do, and who you decide to work with. My work has always been about ‘Liberating human energy at work.” It’s how I assess each assignment before accepting it. The people I chose to work with believe in their people, usually more than the people believe in themselves.

I have always chosen my assignments by answering positively to three questions:

Will this be positive for me?
Will this be positive for others?
Will this be positive for the planet?

Bruce Holland

In Mark Albion’s book, Making a Life, Making a Living, he describes a study of 1500 business school graduates that took place over twenty years.

Based on their responses to a survey, the students were grouped into two categories.

Group A (83% of the respondents) wanted to make money first, then pursue what they really wanted to do later when they had more resources.

Group B (17%), intended to pursue their true interests first, sure that money would eventually follow.

Twenty years later, there were a total of 101 millionaires in the two groups.

Only one came from Group A. There were 100 millionaires out of the 255 people in Group B.

It appears that choosing happiness over money can be a valid business decision.

There are some caveats, of course.

You need to make sure that the course of action you are considering is a viable alternative, not an altruistic fantasy.

THE TRIGGER

Five years ago, after 25 years of senior management career including ten years as a chief executive, my initial plan was to take a break and take time to assess what I want to do with my next stage of life.  I had all these wonderful ideas – learn Chinese (I am Chinese but can’t write nor speak fluently!), read books (which I had always felt guilty as I believed I should be working), and time to do exercise and get fit (yes, always excuses because I am too busy).  But I didn’t do any of this!

I made a list of all my contacts – my ex- colleagues, friends and acquaintances and began a string of coffee meetings to explore work opportunities.  I wasn’t thinking about consultancy then until I met Allan and Bruce.  Both were members of the Virtual Consulting Group.  Allan was involved in Rotary who I had dealings through work and Bruce used to be my boss back in my youth days.   And the idea of being a consultant entered my mind.      

They invited me to join their meeting once a month to observe and be observed.  Let me explain.  Virtual Group is a team of diverse consultants who work individually and collaboratively when appropriate – we are individually master of our own destiny. The Group meets face to face monthly and via various technology conferencing tools once a week.  We all work separately but the fundamental value of the Group is that we support, challenge and assist one another, and we exchange ideas and maintain our relevancy by debating topical issues in the wider business world.  So after a period of observing, I went through the process and was accepted as a member of the Virtual Consulting Group.          

LESSONS LEARNT

So what have I learnt from my experience of going consulting.

Networking -contacts, contacts and new contacts

Thinking back how I used to hire consultants when I was a senior manager.  When you want a consultant, you want them to be available at the right time and place and with the right skills, and be able to trust them through having used them before.  So be there – maintaining and developing new contacts are crucial.  Ongoing contacts will be important to understand what’s going on with their businesses – it will give you an edge.

My experience is that it is essential to create new contacts on an ongoing basis.   The old contacts may retire and move on.  People avoid or cannot hire friends.  Build a record of completed projects that will lead to more work.

A wise consultant once told me that you would require to do networking at least half a day a week consistently.         

Your saleable skills

If you had been a senior manager/chief executive, your role is primarily leading and managing people.   As an individual consultant, inevitably you would need to “do” the work, there is nobody to delegate to.

So think carefully what are your saleable skills – what do people want and how you can add value.  Put yourself onto their position.  Why would you want a consultant? 

It can be tough, not everything is rosy all the time

Work doesn’t come in at the right time and right place.  You could have a number of jobs come in at once or none at all.  I was lucky that work opportunities came pretty fast.  However, things are not rosy all the time and you need to be able to ride out the rough times and the “rejections”.  So it is not for everybody.  Be clear about what you want to do with your life/career at your stage of life. My needs/priorities change over the years.  For me, having time with my family including travelling to see my parent and experience the world became more important, and being a consultant provides the flexibility I require. 

Short term contracting and subcontracting

Being a consultant does not preclude you from picking up a short-term contract to fill in the gaps and can lead to other work.  Sub-constracting to others is also another way.  But beware, you need to continue your networking.  When short-term work comes to an end, it puts you back where you were!   

Support

Belonging to some structure like the Virtual Consulting Group provides you with various support during your journey as a consultant.  It could be lonely working on your own.  Ensure you stay involved in professional organisations and it is also an opportune time to be involved with volunteer work.

This is about inefficiencies I encountered when contracting.

I’ve worked as a contractor in the I.T. industry, automating tasks in the printing and prepress industry for the last 20 years.

Some projects were long-running engagements spanning multiple years.

Other times the task at hand could be completed in a few hours.

What struck me recently is how inefficient the ‘on-boarding’ process often was, and a how a lot of time and resources were being wasted.

In the worst cases, there was no on-boarding process at all.

In many cases there was some half-hearted, half-formal process with crucial bits left out.

In the end, it all boils down to communication, and making it easy to communicate.

Preparation is Half the Effort

The issues I encountered as a contractor could often have been avoided by some preliminary preparation.

For example, having a checklist of ‘things to provide’, without the contractor having to ask for them.

Hopefully the list of issues below can help making such a checklist…

What is the Goal?

Often the big-picture goal to achieve is quite fuzzy.

The information available might vague, using nondescript terminology, management-speak and interesting-looking acronyms

I’d find it helpful to see a value proposition for the project and my part in it. How will I contribute and help the project closer to its goal?

Some ‘Key Performance Indicators’ could provide a measurable benchmark.

What is Expected of Me?

As a contractor, I love a clear brief on what my task is.

Engagements often start with a game of ’email ping-pong’ where I gradually extract more and more information as I interact with people.

After a while, my ’email archive’ becomes my ‘knowledge base’. And that’s not really a good way to handle it.

There are easily accessible tools available that can help. And even though they are most often used in the I.T. industry, these tools can be useful in many other industries.

A task tracker or issue tracker is a software where tasks can be entered, and acted on, assigned, tracked. There are many of these (e.g. JIRA, GitHub,…).

And it does not need to be fancy. If push comes to shove, even an organised collection of Google Docs can work.

A ‘task ticket’ is a single record or document where the task-related information gathers, instead of being scattered over many emails.

It is clear who is handling the task at any moment, and it is clear when the task is completed or ready for the next step.

The task ticket contains enough information to determine when the task can be considered ‘done’.

Using a task tracker is no guarantee for efficiency, though.

It is a bad sign when task tickets consist of bulleted ‘shopping lists’ with ‘items to do’.

It is very common for this to happen, and it negates the advantages of the task tracker. It becomes impossible to track the individual ‘bullet points’ as they are now all swimming in a ‘pool of to-do’s’.

As a contractor, I try to educate the users who create these task tickets to try and avoid this.

At the same time, I’ll take it upon myself to split such ‘meta-tasks’ into separate task tickets.

Using a task tracker makes it clear what the action points are and who will act on them.

It also helps to have regular short meetings with the stakeholders involved to review the open tasks. Often, tasks will balloon out, and need to be split into separate subtasks.

Who are the Stakeholders?

As a contractor, I often get a very limited insight into the stakeholders who are involved.

I call this ‘the keyhole perspective’.

That often is detrimental, as these stakeholders often have a large influence on the project at hand, yet they are ‘invisible’ to me.

In a way, knowing all the stakeholders and what their interest in the outcomes is a Key Performance Indicator.

Budget?

It’s always helpful to get an idea of the order of magnitude for the total budget for the project.

I’ve often encountered situations where the budget available was either unrealistic or not determined yet.

An estimate of the value of the benefits of the project outcome, taken over some sensible period of time can help determining an order of magnitude for the total project budget.

And based on that value, it becomes easier to assess if the project is a go/no-go/maybe-go.

Where is the Documentation?

It takes effort, but the effort of documenting pays back for itself many times over.

In the best situations, documentation is a prime component of the project, and a substantial part of the project budget is allocated for writing and maintaining documentation or manuals.

In many I.T. projects, documentation is treated as an afterthought. It is non-existent, not maintained, scattered, incomplete, organised inconsistently.

Mind you, it is always better to have outdated documentation than no documentation at all.

An outsider ‘coming in’ on a project is often in the unique position of detecting the holes in a documentation set.

Anyone who has been involved for some length of time will not spot the issues because everything is familiar. But a person in the process of being on-boarded will be able to spot things that don’t make sense.

When I find there is no useful information on record, I often offer my customer to document my learnings as to help others going through the same process.

The Lingo

Another related issue I often find is that there is some internal lingo and a set of acronyms in use within the company.

Normal English words are re-purposed to have some very specific meaning within the context of the project.

As an outsider, I then hear a lot of sentences that sound like English, but seem to be void of meaning.

Part of a good set of documentation should be a list of key words and acronyms that are commonly used and have specific meaning.

Who is my Buddy?

As a contractor, I love having someone available to me for questions and a bit of handholding.

This is unrelated to the ‘command hierarchy’. Team leaders are often overworked and overstressed and not often available for dumb questions.

Having a ‘buddy’ is very helpful.

How can I Measure the Effectiveness of my Contribution?

Left to my own devices, I often have the feeling I am throwing the results of my work into a black hole.

Is this useful? Does this help? Are there any issues I can tackle?

Especially during the initial days of the engagement having someone available to provide immediate and specific feedback is invaluable.

Also, explicitly defined KPI can be a tremendous help.

Standards

Are there any standards to adhere to?

In the case of software development projects, when it comes to writing software code, having a software coding convention helps make contributions from multiple team members more consistent. The actual coding standard is not very relevant. The relevant issue is having a convention, not what it says.

The same principles can be applied to other forms of information. When writing documents, a style guide is helpful and helps consistency. Things like templates can help.

Endless Meetings

Meetings are a necessary evil, and I like to try and avoid them if at all possible.

When I am developing software, I often find that there is a need for a demo of the software-in-progress. The traditional approach seems to be to call an (often online) meeting with a bunch of stakeholders and do a live demo with Q&A.

I find that it is often much more efficient if we can ‘decouple’. I do the demo all by myself, using a screen recording software, then send the pre-recorded movie to the interested parties. They can all watch it in their own time, and if things go a bit too fast, they can replay bits of the video.

We don’t need to hunt for a calendar slot that fits everyone involved.

Once they have seen the video, they can provide feedback, often via the task tracker system, or via a one-on-one video session, or via other means.

A task tracker can also help to make meetings shorter. Ask people to write out their ideas, requests, comments, feedback in the system beforehand. That way, they are encouraged to think things through, and ponder the ins and outs before going into the meeting.

It is like taking the notes before the meeting. The meeting can then be much more targeted.

Sniff The Air

An approach that worked well for me with on-boarding is something I dubbed ‘sniff the air’.

This might not translate well to other industries, but it worked quite well when I was able to use it for automation in printing and publishing.

Most of my customers are remote, in another part of the world.

There is a workflow of sorts, with human-performed tasks, and we want to automate that what can be automated, all within reason.

In automation, there is a law of diminishing returns: some tasks are so specific and have so many exceptions, complexities and variations that an attempt to automate them would end up costing more than the value of the savings that can be realised.

When automating in printing and prepress, we want to tackle the frequent tasks that are technically easier to automate, and leave the infrequent, complex tasks to a human operator.

From a cost-perspective, attempting to achieve 100% automation in a workflow is not often optimal.

There is a chicken-and-egg problem, however. As an automator, I very well know what kind of task is easy to automate and what is hard, but I initially know very little about the workflow at hand that needs to be automated.

On the other hand, the people working in the company know a lot about their own workflow, but they know not so much about what can be easily automated and what not. Often there is no documentation or procedure book, and the workflow ‘just grew’.

In those cases, it is very helpful if I can go ‘sniff the air’ for a few days.

The idea is that I sit in with people doing the work, looking over their shoulder, or even do some of the work myself, to get a very good idea of what the pain points are. Then I can come up with a list of tasks that are sensible targets for automation.

Show Me Some Examples

When automating printing and prepress workflows, a lot of the work involves taking documents, doing something to them, and handing them over to the next stage in the workflow.

A slightly less efficient approach which also helps me in my specific tasks is to insist on getting access to a good collection of sample files.

Often I can gain a good understanding of what needs to be done by inspecting a sizeable collection of sample files and manually made mock-ups of the desired end-result.

Lines in the Sand

This is actually a documentation-related issue.

Often it is not clear where the lines in the sand are.

For example: I might need to get access to a server to inspect sample documents, or to try and understand an existing workflow before attempting to optimize.

In some cases, my customers have fully-flegded test servers. These machine’s sole purpose is to be a test server, and it’s perfectly OK to poke and prod and cause issues with the server. There is a quick and easy process to restore the server as if nothing happened, and no ‘real’ processes are affected.

In other cases, my customers only have a single server, their production server. It is used for serving their customers, used for testing, used for development. When I am invited to probe it, I am actually touching the live server, and if I make a wrong move there can be grave consequences.

The lines in the sand in both cases are very different, and it is important to make the situation clear in the documentation provided.

The second case is dangerous and I would also try to allocate time and budget to set up a ‘safe’ duplicate of the production server, so any future tests and inspection can be done on a copy of the production server.

Ill-fitted Administrative Processes

One time, I was contracting for a large company. They were subscribing to the Ariba procurement software, run by SAP. They insisted that, as a contractor, I should use this system.

Being a one-man-band, I had to jump through many complicated hoops to register with the Ariba system. This system is ill-fitted for small companies like my own.

The funny thing was that as part of the enrolment process I had to provide a list of key positions in the company. I had to list my own name over and over as I registered the contact details for the CEO, CFO, CTO, Financial Controller, Head of Administration…

Getting registered was a pain and getting invoices out and paid was a pain as well.

It took months of real time and a lot of time and effort on my part just to be able to send an invoice in a manner that was acceptable to the system.

The lesson I learned was that next time a large company wants my services, but at the same time, they want me to jump through hoops and put up administrative roadblocks, I’ll just walk away and say ‘No thanks’, and I’ll concentrate on serving agile and flexible customers instead.

Payment Terms

Related to this are having to deal with unreasonable payment terms.

Large companies often delay payment 90 days or even more, which is not OK when it comes to working with contractors.

A related trick large companies often use is to separate their administrative departments from the rest of the company.

Often, my customer is a certain department or entity within the larger organisation, and they are not holding the purse strings.

To get paid I need to deal with a separate entity, the administrative department. Part of their job is to make things cumbersome in order to delay payment as long as possible.

My remedy is to discuss this beforehand, and negotiate reasonable payment terms with my customer, while making sure they have the leverage to lean on their administrative branch to fast-track a payment.

If that is not possible, I walk away.

I once managed to force a large company to provide me with a gopher person just to fill out my time-sheets, because they were making it so complicated that it was hindering my ability to do what I was hired for.

I Cannot Be Bothered

A lot of potential customers (often government) will never be able to use my services.

As a consequence of a number of sensible and legal reasons on their part, there is a vicious circle in place, where in order to bid on a possible project, one needs to respond to a complex RFP.

This takes a lot of time and effort with limited chances of success. I never bother. From my angle, the return-on-investment for the effort put into an RFP is very low, and I am lucky to have many better customers to choose from.

As a result, those contracts go to established companies who are good at handling RFPs. They don’t need to be very good consultants. As long they’re good at handling RFPs, they get the contracts.

Furthermore, in my opinion, RFPs often don’t work. I have almost never experienced a successful project where the outcome matched the original project brief.

There is often a stark difference between what my customer wants, and what my customer actually needs.

I am good at my job, and part of my job is to look at the issues from a number of different angles, then help figure out the real needs and make sure they are met, rather than the imagined needs.

Here’s a curse that applies: “May you get exactly what you asked for instead of what you needed”.

Kris Coppieters

To stand out and be noticed you must stand for something important. It must be something different. You must become remarkable, like a “purple cow”. As Seth Godin said in his book of the same name; you need people to tell others about you in the same way they’d tell others if they saw a purple cow.

You don’t need everyone to like you, but those who like you must like you enough to tell their friends. When I started out I aimed to attract 10%. Today with the reach of the internet the percent is probably far smaller. I had no more than 20 fans but these people kept coming back and they recommended me to others who were like them: birds of a feather.

Don’t worry too much about words. People forget them. Speak more than write. Better still, do something that’s a symbol of what you stand for. It’s how you act and look that matters more. People will never forget about how you made them feel. Simplify it.

I had a background in large corporates and I was concerned that people were giving only a small fraction of themselves to work. I saw that this was largely due to the way they were managed and the structures they worked in. I was determined to change it. 

As a founder of Virtual Group we launched our consultancy in a pinstriped tent in a park in front of the tower blocks of our major competitors. Nearly 30 years ago at the height of the rational, neoliberal ideas it did not appeal to most potential clients. But it was different. It was remarkable. It was a symbol of pinstriped quality, canvass-thin overheads, flexibility and what’s possible if you remove all the unnecessary barriers. We called it: “wisdom without walls” and my personal message was “liberating human energy at work”. Nearly 30 years later these remain the things that sustain me and the things people remember about me.

How will you stand out? How will you be different? What will people remark about you?

Bruce Holland

If you are going consulting it’s important to understand your “smarts” and what makes you special because this is what your consulting clients will be buying. 

Your fingerprint of intelligence is what makes you special. Like your other fingerprint, it is something that is unique to you, yet many people don’t think about it.

Everyone has a different fingerprint of intelligence

There are nine types of “smarts”:

1. Linguistic (“word smart”)
2. Musical (“music smart”)
3. Logical-mathematical (“number/reasoning smart”)
4. Spatial (“picture/strategic smart”)
5. Bodily-kinesthetic (“body smart”)
6. Interpersonal (“people smart”)
7. Intrapersonal (“self smart”)
8. Naturalist (“nature smart”)
9. Spiritual/Existential (“purpose smart”).

Example of Bruce Holland

Bruce’s Intelligences are from strongest to weakest are: 

1. Strategic smart
2. Purpose smart
3. Self smart
4. People smart
5. Word smart
6. Reasoning smart
7. Nature smart
8. Music smart
9. Body smart.

The fingerprint you will need for success depends on your field of consulting. For example Bruce Holland’s consulting has been mostly in Strategy and leadership development.

For strategy the most important intelligences are:

1. Strategic smarts is important, first, to be able to see how the organisations fits into its environment, second, how the parts could fit together better to make the whole stronger, third, to see what’s missing from the whole, and fourth, to see what’s important so they can focus their resources at this point.

2. People smarts is important because everyone is different. It’s important to understand the client and what drives them and what makes them special, even if they don’t know this themselves. If you treat them all the same (or the way you like to be treated) you will get lukewarm results. If you treat them how they want to be treated you’ll get magic. 

3. Self smart is important because if you don’t understand yourself on the inside there is no way you can be strong on the outside. If you don’t know who you are, there is no way anyone else can know who you are, and you’ll lack authenticity.

4. Purpose smart has been important to me from the start. I have always had a very clear understanding about my purpose (To Liberate Human Energy at Work) and this has strengthened me whenever I worried whether I was brave enough to approach someone who seemed important and it also carried me through down times that inevitably happen.

For leadership development the fingerprint required is a bit different. People smart is probably the most important followed by self smart and purpose smart. People smart is vital to understand the person, their needs, what drives them, what is holding them back, how to communicate in words that they will understand, otherwise, you will struggle to add value to them. Again, self smart is vital for your authenticity. Purpose smart is important because unless you believe strongly why you were put on Earth you will probably not believe strongly enough that other person also has a purpose, especially if they have no idea about it themselves. For leadership development strategy smart is less important.

Recommended process

I recommend you ask at least 6 people who you trust and who know you well to rank your “Smarts” from 1 to 9.  Then think very carefully about the smarts that are most important for your area of consulting. Make sure there is a close match or find some way to overcome any deficits.

The early years of consulting can be a jungle with many risks before the rewards.

In a useful article in the Tree Grower (November 2016) Nick Ledgard thoughtfully defined wilding conifers, and gave a wide-ranging review of the arguments for and against.  He wrote with authority, and manages a forest of these species with first-hand experience of their performance, production and control.  Sitting in Wellington far from the problem and without that background, I have a different perspective.

At around the time Nick wrote his article I became involved in spinoff work from the 2015-16 review of the Emissions Trading Scheme.  At that time the Paris accord on climate change was only a year old but it was already clear that, as Tom Hanks put it, “We have a problem.”

Carbon Match in its newsletter of Thursday 17 November 2016, said

Under the Paris Agreement, New Zealand expects to have a 2021-2030 carbon budget of approximately 611 million tonnes.  But based on business as usual emissions forecast we would potentially emit approximately 840 million tonnes, (creating) a deficit of some 230 million…  Our hope?  Help from international markets, provided (that) cheaper abatement can be sourced from them.  But as expected, progress on the details of how international market mechanisms might operate has been slow.  Meanwhile our onshore easy-win abatement opportunities appear to be limited, and we don’t seem to have a cohesive plan…

Nothing has changed.  Although the emissions overshoot of 230 million tonnes hit the news at the time I have met people since who are astonished at the idea, so perhaps it’s still not widely understood.  MFAT officials have been working to find countries from which we might buy carbon credits; and while this is allowed under the Paris agreement the rules have yet to be drafted, let alone agreed, and there is no talk yet about prices.

Officials seem to hope that international carbon prices will remain low until around 2030, making the cost to New Zealand (in some way) acceptable.  However they acknowledge the risk:

Up to 80 per cent of New Zealand’s target to cut emissions… by 2030 is expected to be met through the purchase of international credits.  But in a confidential briefing paper to climate minister Paula Bennett last May, officials said that the strategy was risky.  [Carbon News 10 February 2017]

Of course climate change advocates have been arguing that we should establish another million ha of forests to sequester carbon, and the Government is taking some action.  However not everyone is convinced, progress is slow and trees do not grow overnight.

Largely the decision on whether or not to plant more trees rests with individuals and the industry, i.e. ‘the market’.  The ETS review is aimed at making ‘the market’ more efficient, for example by reducing compliance costs and harvest liabilities in the expectation that this will encourage landowners to plant forests where they are appropriate; but it will be over to them to decide whether to plant, or whether to sell their land for planting.

Right now ‘the market’ is not encouraging commercial foresters.  Land suitable for production forestry is expensive; it is hard to get approvals for overseas investment; and even at $25 per NZU, carbon prices aren’t sufficiently high to overcome these hurdles.  In a forward scenario of managed carbon prices this environment is unlikely to change much.  Farmers might start planting, but they are unlikely to produce a million ha of new forests.

What has this to do with wilding conifers?  Well, in short:

1. A deficit of 230 million tonnes of CO₂ is somewhat huge. Aside from agriculture our 100 biggest emitters today put out about 14 million tonnes of CO₂ a year.
2. Supposing the Government is right and carbon prices stay flat, the likely cost of making up the carbon deficit will be around $6 billion, spent offshore with no onshore benefits. In reality the cost might be higher (Treasury estimates range up to $37 billion).
3. Clearly officials believe that the $6 billion or more couldn’t be better spent here, else Government investment would be going into those initiatives – and it’s not.
4. Supposing officials are right – and I doubt it – as a taxpayer I am still concerned at the risk. New Zealand could be held to ransom over the supply of offshore credits.  They might be necessary, but I’d far rather we did all we could to get our emissions under control now, even at a perceived higher cost.
5. Wilding conifers offer a risk management strategy. For them, we don’t need foreign investment.  We don’t have to buy the land.  We don’t need nurseries for planting stock.  We don’t have to plant and tend the trees; many of them are already in the ground.
6. Of course that will mean we lose grassland to forests, with all of the environmental implications of species displacement and water yield. But climate change is already nasty and becoming worse.  We can expect more severe floods, droughts, pests and diseases, wildfires, landslides, coastal erosion, species loss, refugees and immigration.  Our landscapes, lifestyles and wellbeing are heading downhill now, and will never be the same.  In that perspective, the managed loss of grassland to forests looks pretty benign.

Nick Ledgard’s colleague suggested that the idea of growing wilding conifers for carbon storage was ‘a bit like saying that farming rabbits is a solution to improving our export earnings.’  Well, if rabbit farming is better than your existing land use, why not?  Perhaps rather than looking at wilding conifers as a problem we should be looking at them as part of the solution, and spending some of that $6 billion plus on developing a really strong ‘rabbit-proof fence’ to contain them – not killing them as pests.

Howard Moore
16 October 2018.

Howard Moore is a Wellington business analyst who has been involved with forest finance for over 30 years, in terms of loans, leases, forestry rights and sale and purchase agreements.  He closely follows climate change issues in relation to forestry and is a member of the Forest Investment Action Group of the NZFFA.

There are 3351 pages in the Income Tax Act 2007 and it keeps on getting longer.  Because it treats farmers differently from foresters it pays to know why, and where, and what that means if you have a mixed land use.  Happily it’s not too hard to pick out the highlights so if you are growing trees for timber, here’s a summary.  I don’t claim it’s all relevant or sufficient or true, but I hope it’s useful.  The idea is to give you enough information to ask the right questions of some professional you are paying for an answer.  It’s sometimes surprising – and distressing – to find you know more than they do.

The Act is available online and if you are keen, for download, on http://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1512301.html

The first thing to understand is the language.  It’s important to know how IRD thinks about you as a landowner, and why you need to define yourself for tax purposes.  For IRD, a ‘forester’ always grows timber while a ‘farmer’ grows trees.  ‘Timber’ is live, harvestable wood while ‘trees’ are not harvestable, though equally big and green.

With this as a guide you should make sense of the points below, which are given in a sort of alphabetical order.  References to parts of the Act I’ve shown in square brackets [so].

Carbon credits:
If you are growing either timber or trees and earn NZ Units from post-1989 forests under the Emissions Trading Scheme, they are not taxable on issue or surrender, but create taxable income on sale [CB 36].
If you were issued NZ Units for pre-1990 forests, they are effectively capital and not taxable on issue, surrender or sale, [CB 36 and CX 51B].
If you buy and hold stocks of NZ Units for trading then you must value them each year [ED 1], deduct the value at the start of the year from the value at the end of the year, and pay tax on the difference [DB 49] as if it were cash income.

Fencing: this is fully deductible if you are a farmer [DO 1] but depreciable at 10% of the diminishing value (DV) if you are a forester [Schedule 20 and DP 3].  One might think the fence around a forest to keep animals out would get the same wear and tear as a fence around a paddock but IRD thinks not.  If you have planted trees in a catchment and fenced them off to prevent stock entering them, you have a choice: are you fencing to protect the trees, or the water quality?  If the latter, your fence looks fully deductible.

Harvesting and marketing: part of administration costs, and fully deductible for foresters [DP 1].  They are also fully deductible for farmers but like foresters you must declare any income you earn from that harvesting and marketing as part of your normal taxable activity.  Timber harvested and used in the forest or on the farm does not generate taxable income.

Inventory: part of administration costs and fully deductible for foresters [DP 1].

Land clearing: this is fully deductible if you are a farmer [DP 1] but depreciable at 5% DV if you are a forester [Schedule 20].  Of course land cleared for farming might later be subject to a Forestry Right, as farmers must remain flexible about land use change.

Land preparation: this is a capital cost for famers or foresters, depreciable at 5% DV [Schedule 20].

Management, fertiliser, weed and pest control: these costs are fully deductible if you are a farmer managing trees for erosion control, shelter or water quality [DO 2]; and deductible up to $7,500 a year if you are managing for timber [DO 3].  For a forester all management is fully deductible [DP 1].

Planting: planting and planting stock is fully deductible if you are a farmer planting for erosion control, shelter or water quality [DO 2]; and deductible up to $7,500 a year if you are a farmer planting for timber (roughly equivalent to planting around 8 ha a year) [DO 3].  For a forester all planting is fully deductible [DP 1].  Note several Regional Councils offer subsidies for erosion control planting, which do not affect deductibility.

Plant and machinery purchase: this is a capital cost depreciable according to the nature of the equipment.  To find current depreciation rates and methods go to http://www.ird.govt.nz/calculators/tool-name/tools-d/calculator-depreciation-rate-finder.html

Repairs and maintenance: this is fully deductible for farmers and foresters [DG 7 and DP 1].

Spreading of income: Both farmers and foresters can spread income from the sale of timber forward for up to 5 years, using an interest bearing income equalisation account held at IRD [EH 1 to EH 36].  Interest is paid at 3% pa with daily rests [EH 6].  You only pay tax on the amount of income withdrawn from the account in any year.  A forester may also spread income backwards for three years [EI 1, with the rules set out in EW].  It looks as if a forester can use both methods at once, allowing a spread of up to 8 years.

Tracks, roads, culverts and bridges:
For farmers these are capital costs depreciable at 5% DV [Schedule 20].
For foresters these are fully deductible costs if the assets are used for less than 12 months [DP 1]; but capital expenditure if they are designed for a longer life, depreciable at 20% DV if they are partially or not metalled, and 5% DV if they are sealed or metalled [Schedule 20].

Selling standing timber:  Income from the sale of standing timber is taxable [CB 24].  In a sale of land with standing timber, the part of the sale income that’s attributable to the timber is taxable [CB 25].  The buyer of the standing timber can’t claim the purchase as an expense against other income, but must carry it forward until the timber is harvested or resold [DP 11 and EA 2].  This anomaly is because IRD has chosen to make standing timber a ‘revenue account property’ like land for subdivision.  It’s not a big deal if the harvest is imminent, but can be a problem if the harvest is decades away.  Since 2010 the industry has been arguing to remove this anomaly because it affects the marketability of small forests.

Selling standing trees:  The Tax Administration Act 1994 outranks the Income Tax Act and presumes all trees are timber unless proven otherwise.  Trees for shelter, erosion control or carbon are treated as timber, and taxable on their sale as standing trees [CB 25].  Farmers who sell land with such trees should have them valued for tax, or obtain a certificate [Tax Administration Act Section 44 C] proving they are incidental, horticultural or ornamental.  “A certificate as to whether trees are planted mainly for the purposes of timber provides conclusive evidence if it is given by a properly authorised officer of the relevant regional council; or a properly authorised officer of the Ministry for Primary Industries; or any other person suitably qualified.”  This is enlarged on below.

Of course the Income Tax Act has a lot more but the rest is generally less relevant.  If you are interested in navigating it, use the references above as a guide.  You’ll also find it has a search function that highlights all occurrences of your search term, making it easier to find your way.  The big hurdle is in following up cross references to other sections in the Act and when you get there, understanding what they mean.  The really big hurdle is checking to see if what you have is actually all there is, because somewhere, another section or another Act (like the Tax Administration Act) using different language might impact on what you’re trying to do.  I suggest that’s when you call in the experts.

The points above seem to have two interesting implications.  First, it seems to me that because of the identified tax differences, a landowner might improve his position by being a farmer on one part of his land and a forester on the other.  This could be achieved by the farmer entering into a Forestry Right with himself (as a new tax entity to run that part of the land where it was smart to grow timber), while he kept the rest of the farm to grow trees.

Second, it is clear that anyone growing trees on steep land for carbon and erosion control should be aware of tax if they are thinking of selling.  The tax risk could be minimised with a certificate from the Regional Council confirming that harvesting is out of the question; or a certificate from a ‘suitably qualified person’ arguing the harvest costs would outweigh the returns.  Of course costs change and the buyer will have his own objectives, but that’s not the seller’s responsibility.

Howard Moore

September 2018.

Howard Moore is a member of the NZ Farm Forestry Association and NZ Institute of Forestry in Wellington.  He knows little about tax and less about forestry but holds opinions on both and willingly shares his prejudices.