Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Hansard source

If they want to keep having Senate committee inquiry after Senate committee inquiry, because that turns out to be the only way that we are able to get answers to these questions, we will just keep having Senate committee inquiries. I know that is more a burden on honourable senators than it is on the minister, but he might start extending some courtesy to those senators, particularly the many government senators who are involved in the Senate Economics Legislation Committee.

I thank the minister again for the various degrees of cooperation I have had since he has been in the portfolio, but I ask him to start considering answering some of these more technical questions. I heard him say that many of them are political. I invite him to ignore them if that is the case. It is hard for me to admonish him for ignoring what might be a rhetorical or an ideologically based question, but it is not appropriate for him to avoid the technical questions—those that are genuinely designed and put to seek further information on the bill being proposed so that when it gets to the other place we are better prepared to deal with some of the more technical details of what are usually very complex tax bills, as of course are the bills we are debating.

Australia’s upstream oil and gas industry plays a major role in meeting energy demands both domestic and overseas. Petroleum accounts for just over 50 per cent of Australia’s primary energy consumption and 72 per cent of final energy consumption, with natural gas being exported to a growing list of Asian countries and countries further afield. I want to say more about that as we move through this debate.

The industry is a significant generator of wealth for Australia, although the country imports more petroleum than it exports—indeed, to the tune of $4.7 billion in 2005. In that same year, production by Australia’s upstream petroleum industry was valued in excess of $24 billion and contributed an estimated $7.6 billion in government payments. The Australian upstream petroleum industry directly employs over 15,000 people and makes up about 2.1 per cent of Australia’s gross domestic product. It is an important industry in terms of its contribution to Australia’s output, to employment in this country and, very importantly, to government revenues in this country. The figure I quoted of $7.6 billion in government payments is a significant one indeed.

The way we tax these oil companies is very important. It was Paul Keating who first applied in a very fair and equitable way the resource rent tax to our upstream industry. You will recall, Mr Deputy Speaker Haase—I see that you are nodding your head; as a Western Australian, you would know this issue very well—when we moved from a royalty based system to a profits based system, which is the basic design of the resource rent tax. It is worth noting that, at the time, Mr Keating exempted the North West Shelf project from that regime, because it was a very important project and still in its infancy. The proponents of that project chose to remain under those arrangements and continue to do so today.

I have been seeking to determine the exemption the company also secured at that time on the condensate derived from that project. It was right for Paul Keating to decide at that time not to apply any excise on that condensate—the condensate is the light oil that is derived when gas is extracted from a field—while the project developed from its infancy and matured into one that was strong and could compete in what is now a very competitive LNG market.

It is interesting to note that some 20 or more years on, the North West Shelf project is still enjoying condensate excise exemption. The volume of condensate coming out of the North West Shelf is much greater than it was in the early years of the project. Why? Because the more gas we consume domestically or sell on overseas markets, the more condensate we draw from the field as well. In turn, we sell more condensate, and the loss to the revenue as a result of that excise exemption is becoming more and more significant. To date it might be in the order of $600 million annually. It is not a bad tax break for a project, and one that is no longer in the process of maturing. It is very mature and is now an important player in the very competitive LNG market. I will not dwell on that, but I will ask the House to consider that matter as it addresses the changes to the taxation regime which are contained in these bills.

On the whole, the bill involves some useful modifications of the PRRT program. It is important that we continually reassess the regime to ensure that we get the balance right between getting appropriate government revenues from the production of our natural resources and providing companies with the competitive edge they need to compete in that very competitive market I was talking about. It is important that we constantly review the regime to ensure that we have that balance right. For all intents and purposes, that is what this bill is about, but we do have some concerns about whether the balance in every circumstance has been struck correctly, and I will go through those as I address the various schedules in the bill.

Schedule 3 is about the closing down costs. It is a more problematic area and one that Labor does have some concern about. On that basis, we have asked again that this schedule go to the Senate Economics Legislation Committee for a quick inquiry so that we can better determine the detail of the provisions and better determine whether they have been struck correctly and provide that balance that I was talking about. Schedule 1 of the bill amends the PRRT Act to require petroleum resource taxpayers to transfer and deduct transferable exploration expenditure when calculating their PRRT quarterly tax instalments for each of the instalment periods. Now might be a good time for me to move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House:

(1)

condemns the Government over its failure to formulate a comprehensive, national energy policy;

(2)

questions why major petroleum exploration companies should enjoy the same protections that individual taxpayers are extended under the self assessment system; and

(3)

expresses concern about potential leakage to the Petroleum Resource Rent Tax base associated with measures in schedule three”.

Currently, PRRT taxpayers can only transfer and deduct exploration expenditure at the end of the tax year. This measure should reduce compliance costs for businesses in transferring expenditure between projects. The new interest charge imposed on this sector is relevant to this schedule. It will recoup the time value of money associated with the transfer of exploration expenditure between periods, which is subsequently reversed by the Australian Taxation Office after an audit process.

Schedule 2 of the bill amends the PRRT Act to allow internal corporate restructuring within company groups to occur without losing the ability to transfer petroleum expenditure between the petroleum projects of group members. This was an important part of Paul Keating’s initiative—allowing the proponents and operators of projects to transfer deductible expenses from one project to another to maximise their capacity to claim those deductions and, therefore, assisting them in their competitiveness on the international market that I was talking about.

However, there is a problem in clause 31 of the schedule to the PRRT Act which states that the loss can only be transferred between companies in the corporate restructure if the company to whom the loss is being transferred held an interest in the loss company from the start of the financial year in which the exploration expenditure took place until the end of the year in which the transfer takes place. It is a strong test. It does not allow companies in a common group to transfer losses between petroleum exploration projects at a time after the restructure takes place. The new provision relaxes the test to allow companies to simply have common ownership at the start of the year of the expenditure and common ownership in the year when the unused exploration expenditure is transferred to the receiving interest and, in turn, used. This allows for the transfer of the loss to occur at some time after the corporate restructure. Labor supports the measure, which will reduce the cost to businesses in cases of corporate restructuring.

I want to turn to schedules 4 and 5 and then return to schedule 3. Schedule 4 to this bill amends the PRRT Act to apply the self-assessment regime to PRRT taxpayers as it generally applies to income tax. This change will result in PRRT taxpayers fully self-assessing their tax liability. This change also enables PRRT taxpayers to obtain binding rulings from the ATO on the application of the PRRT Act. While bringing the PRRT into the self-assessment regime seems to accord with a broad based approach—or the bored-based approach we currently have in taxation policy in Australia—the question needs to be asked why this is being done only at this point. If petroleum explorers needed this protection, why is it being done now instead of many years ago? However, the more significant question is why a major exploration company, with all of its resources, with all of its employees, with its army of accountants and advisers, deserves to be afforded the same rights as individual taxpayers that are provided by the self-assessment system. The recent review of self-assessment provides taxpayers with greater certainty and reduced periods over which their affairs can be audited by the Taxation Office. A lower charge is applied for shortfalls between the tax return lodgment and the ATO assessment.

These changes have been undertaken to rebalance the rights more in favour of taxpayers in their affairs with the ATO, and Labor have been happy to support those changes. Indeed, we welcome them. But I suggest to the House that major oil companies do not need these sorts of assistance measures and protections. This is another issue that we will pursue in the Senate committee. We do not have a solid binding opposition to the provision if the department and the minister’s office can give us a better understanding of why this is being done. We may be happy to accept the changes. But it is confusing and extraordinary to me why a self-assessment system designed to lower the load of the tax office and give individual taxpayers a better opportunity to reduce paperwork and the burden of compliance and assess on an annual basis would be extended to major oil companies which operate in this country.

Schedule 5 to this bill amends the PRRT Act to allow the deductibility of fringe benefits tax for PRRT purposes; introduce a transfer notice requirement for vendors disposing of an interest in a petroleum project; extend the lodgment period for PRRT annual returns from 42 days to 60 days; and introduce a number of unrelated minor technical amendments. Labor does not have any particular principled opposition to those changes.

Schedule 3 to this bill amends the PRRT Act to allow the present value of expected future expenditures associated with closing down a particular petroleum project, where these future expenditures relate to so much of this project as continues to be used under an infrastructure licence, to be deductible against the PRRT receipts of this project. This change is made so far as these costs are currently not recognised for PRRT purposes. This is not an insignificant change. I could argue that it is a pretty extraordinary provision. It relates to ‘closing down’ costs when a project is terminated. Costs from the project are allowed to be offset against revenue until the project ends.

Under this provision, the parliament has been asked to support a provision that allows the proposed future expenditure of an unsuccessful project to be used as a deduction against PRRT as long as an infrastructure licence is held. If you like, this is an extraordinary extension of Paul Keating’s original initiatives to allow maximum deductibility across projects, but it is very strange to be now allowing expenditures in the future that, in effect, have not yet been incurred. As I said, the expenditure has not even been made. This is unusual. This is why we want schedule 3 to go to the Senate Economics Legislation Committee to ensure this does not undermine the integrity of what has been a very successful PRRT regime.

This is not the first time this particular provision has been to the parliament. In fact, the last time the government attempted to put in place this provision—if my memory serves me correctly—the government withdrew the attempt after incurring some pressure at either a Senate estimates hearing or it might have been a reference from the opposition to the Senate Economics Legislation Committee. But whatever the committee, Senator Conroy, on behalf of the opposition, put a number of questions to Mr Lawry—I suppose he was the departmental official present at the time. I will not go into too much detail of the conversation—it is a bit lengthy—but after questioning the actual effects of the provision, Senator Conroy said to the official:

So I am right in how I described it? You have explained the context, but the fundamental point is just a deduction against an expense that is not actually being incurred?

That was the conclusion we came to last time this proposition under schedule 3 was put to the House. Extraordinarily, Mr Lawry told Senator Conroy:

In a very literal sense, that is right ...

So the House will not be surprised to learn that the opposition have some concern with this provision in schedule 3 and we will be sending it off to a quick inquiry of the Senate Economics Legislation Committee to further tease out those issues.

The second reading amendment distributed in my name gives me an opportunity to make some broader points about energy policy in this country. I have already outlined for the House the important role which the upstream oil and gas industry plays in our national economy and export markets. It plays an important part in the energy mix which we have in this country. I wanted to give myself and other members of the House an opportunity to talk more broadly about energy policy because those of us who sit on this side at least continue to hold concerns about a lack of energy direction in this country.

There can be no more important an issue than one that keeps the lights on in homes and the fires burning in our industries. The reality is that we do not have energy security in this country any more. We do not have energy security in the transport sector and we certainly do not have it in the supply of power to our homes and to the industries that are so important to this nation state. We had an energy white paper from this government a couple of years ago. I welcomed, at the time, as the shadow minister for energy, the government’s decision to develop an energy white paper, but we have not seen any results from it. We still do not have a clear and concise idea about where the government is heading on energy policy. We do not know what it has in mind about energy independence, energy security, energy efficiency and the impact of climate change on our various means of energy production and consumption. Of course, we have not had much on affordability either and that is a real concern to householders and business consumers.

I said in the House only a couple of weeks ago that, while it is not an exhaustive list, a government producing an energy policy has to have in mind four key points. The first is that it has to plan for our future energy requirements. We have massive growth in energy consumption in this country. We are consuming oil three times more quickly than we are finding it and we have been doing that for about the last seven years, so we are moving on to a decade of excess consumption over new supply. We have increasing energy dependence; we are approaching 60 per cent imported oil dependency. We are now importing 22 per cent of our refined product.

We have to deal with this energy dependency issue and I just do not see a plan from this government—a plan, for example, to translate our enormous reserves of natural gas into liquid transport fuels in this country. Rather than sit back and sell all our natural gas on the international market—a very tough, competitive market—at bargain basement prices, we should be thinking about what we will need in the future. I do not discourage the export of LNG—not by any means. None of our reserves is infinite; the reserves are absolutely finite, and we need to think about our own energy needs in the future.

Using current technology, we have the capacity to produce liquid diesel fuels that will go straight into current vehicles—no changes to engine technology required. While ever the price of oil is through US25c a barrel, this is very competitive. It is economically feasible. With the price of oil hovering around the mid-$70 mark at the moment there is no argument that this is not viable in this country and the government should be doing more to encourage it. So that is our position on our future needs and energy independence.

We need to be cleaner and more efficient. I welcome what the government is doing with AP6. The opposition supports that. It is a great initiative to ensure that electorates like mine—which produce the lion’s share of this country’s energy from fossil fuels, particularly coal—have a future. But we also need to ensure that we move to renewable fuels. Again, my electorate is well placed and has good conditions for wind and solar. Solar is already a significant player. We can do both in my electorate—continue to burn our coal, hopefully more cleanly and more efficiently, but also take up some of that excess demand by way of new renewable technologies. We have to address the impact of energy on climate change and we should be doing it more enthusiastically and more intensely.

The fourth point was affordability. This is crucial to our international competitiveness and to keeping the financial burden on families lower. Again, while the government talks about the national electricity market, it is not moving ahead as quickly as we would all like. We still have an immature gas network in this country and the government could be doing much more about that.

There has been a lot of debate on transport fuels in this place—and, indeed, outside this place, in the media over the last few days. I noted this morning that the member for Gilmore was advocating the mandating of ethanol in this country as a solution to our growing energy dependence. Some say it is a solution to climate change and, even more extraordinarily, some say it is a solution to propping up some of our less than viable agricultural pursuits in this country.

Labor supports the ethanol industry. We believe that ethanol will and should play an important part in the transport-energy mix in this country. Ethanol has great potential to produce regional jobs, which are always very important. It is relatively environmentally friendly. As a fuel mix, it gives independent and smaller service station operators a chance to compete because ethanol is untaxed and a litre of untaxed ethanol in a tank is very competitive against a litre of a fuel that has tax attached to it.

We have been very generous in supporting the government’s most recent initiatives. In fact, it was the Labor Party, in 1992 I think, that started the capital grants program for the ethanol industry—giving money to companies to build projects and to help them through their infant stages until they could become competitive.

We supported the retention of its tax-free status, until the government—in December 2003, I think—decided that the time had come to start applying tax to the biofuel industry. It announced at that time that, from 2008, a tax would be applied to ethanol, biodiesel, LPG, CNG, et cetera, because the view was that they were beginning to become more mature and that by 2008 it might be time for them to start facing some tougher competition through the imposition of a light-handed taxation regime. Of course, the idea was that the tax regime would never reach the level of that which is imposed on the more traditional fuels in this country. The Prime Minister announced that it would be based on energy content—which would give it a competitive advantage—and would be phased in gradually over five years, I think originally starting at a very low level, of around 2.5 per cent.

Some members of the biofuel industry were not happy with that. They lobbied for a more relaxed approach. And, of course, the government later back-flipped and said that it would push out the phasing-in of that tax by another few years, to 2011, and that the final full taxation arrangement would come into effect by 2015. Because the Prime Minister also announced that, rather than base it on energy content he would base it on 50 per cent of the energy content, the final tax on ethanol and biodiesel will be about 12.5c. That compares very favourably with the 38c a litre companies are paying in taxation on leaded and unleaded fuels.

So we have capital grants for ethanol and it has tax-free status to 2011. We have then got a phase-out to 2015, with a gradual imposition of taxes. And, in the end, we will have a taxation regime for these biofuels, including ethanol, which will be half that which is imposed on the more traditional fuels. We have total protection from import competition for the biofuels industry and that will be in place, I think, until 2015.

That is an interesting point. I am not sure that the Prime Minister made it clear to the general community, to the industry and to members of this place that that import protection would be gradually reduced. And that has a few people concerned at the moment. But surely at some point the industry must face some import competition. It will need to face some import competition if we are to reach the levels of ethanol consumption which we are hoping to reach in this country because, quite frankly, the companies currently involved—even using projections about new plants—could not hope to reach the sorts of levels many people aspire to in this place, of around 10 per cent consumption in this country. So we will need import competition, but that will also be important to keep the industry competitive.

It is important that we support the biofuels industry in this country, including ethanol. Some people have the idea of mandating the use of biofuels in this country. I do not agree with that. We have an enormous market share held by one particular company which I am told is insisting on selling blends rather than ethanol. That means importing fuel, mixing it and then selling it on to the major oil companies, and that is an issue we have to look at. We want a competitive market to ensure that petrol prices remain low for the users. Ethanol needs to be part of that mix, but the consumers need to have a choice about their fuel consumption. At some point the biofuels industry—while we support it very strongly—needs to be able to prove that it can stand on its own feet.

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