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Farmers and regional businesses will be offered super-cheap loans to keep afloat during the drought under sweeping changes to an existing finance scheme.
As part of a $500 million drought stimulus package to be announced tomorrow, the Morrison Government plans to overhaul the Regional Investment Corporation's (RIC) funding rules.
The ABC understands $2 million loans under the RIC would be offered to farmers under a reconfigured 10-year payback schedule.
The first two years would be at no interest and no repayment, followed by three years interest-only and then another five years to pay loans back.
The loans would be available to farmers to feed, water, freight and stock their businesses, or anything that might keep their operations going.
Businesses that support or supply farmers in drought-stricken areas would be eligible for $500,000 loans under the same interest and repayment arrangements.
While the Government expects the loans could be worth hundreds of millions of dollars, most of the cost of this measure would be "off-budget".
The RIC was established last year to administer low-interest government loans.
It approved 211 drought loans worth more than $200 million in its first 14 months.
This financial year, it has already approved 70 drought loan applications worth more than $60 million.
It is understood the assistance will extend the Drought Communities Program to offer an additional six drought-affected councils $1 million.
The Government will also provide an additional $1 million to the 122 councils that have already received funding under the program.
It will be the second time Mr Morrison has extended the program in less than two months.
The Government was criticised for providing the grant to the Moyne Shire in Victoria, which rejected the grant on the basis its farmers were experiencing one of their best seasons in decades.
It was also forced to overturn a decision not to provide the grant to Victoria's Moira Shire, which is heavily dependent on agriculture and was experiencing dry conditions.
There will also be $50 million discretionary spending for councils that do not meet the funding criteria of the Drought Communities Program.
The criteria is based on Bureau of Meteorology data and requires that 17 per cent of all employment in the local government area is directly linked to agriculture.
The Government's stimulus package will also see more than 120 local councils in drought-affected regions share in more than $130 million, which will be offered as a supplementary payment under the Roads to Recovery program.
The program provides funding direct to local councils to improve roads, and the Government hopes it will lead to job creation in drought-affected areas.
The Government is also expected to redirect $200 million from the Building Better Regions Fund to create a Special Drought Fund, that will provide up to $10 million for local councils.
It was not yet clear how this funding would be spent.
The Nationals recently proposed a $1.3 billion drought response, which included providing $10 million drought grants for local government areas to be spent in consultation with community leaders. Under that proposal, the funding would be provided on a 50:50 basis between the state and federal governments.
Drought Minister David Littleproud, speaking on Sky News, said federal funding would not be contingent on state governments matching it.
But he said the states could do more to help communities confronted by drought, including subsiding local government rates, and payroll tax.
"This would be a real opportunity, a game changer for them to give a stimulus that would really piggy back off the stimulus that we're about to put in to these communities," Mr Littleproud said.
The National Farmers' Federation (NFF) said extra funding must flow immediately to drought-hit communities.
"We shouldn't have to wait months and months for these measures when they get announced to hit the ground," chief executive Tony Mahar said.
The NFF recently wrote to Prime Minister Scott Morrison, calling for six urgent measures to be met to assist regional communities.
The NFF wish list included funding to help farmers pay their local council rates, payroll subsidies equivalent to Newstart for farm businesses, exit packages to help farmers leave the land, a $2,000 top up to the Assistance for Isolated Children Allowance, two years interest free on government loans, and a plan to eradicate feral pigs.
The Australian pork industry estimates feral pig eradication could cost $100 million over five years.
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