In this paper it is argued that liquidity is an important determinate of farm viability. This is particularly so with a rural sector which suffers large variations in income and has a business cycle which typically extends for several years. Present tax arrangements, coupled with a desire by producers to minimise tax, means that surplus cash in high income years is mostly invested in further improvements, developments or capital equipment. An enhanced Income Equalisation Scheme could play a significant role as a risk management tool for producers as well as reducing calls for government assistance during periods of adversity. Suggestions are made for improving the operation and delivery of the scheme including amalgamating Farm Management Bonds and the Income Equalisation Scheme into one scheme operated by financial institutions under an agency agreement.


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