Michael Keenan (Stirling, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

Australians are feeling cheated and conned, and they are feeling like they have been defrauded by this government, defrauded by Labor. At the election Labor said they were offering a government that would be putting downward pressure on inflation. They held themselves out on many different occasions as having fresh ideas. But what have Australians got? They have a government whose very first budget has been to up taxes, to increase spending and to forecast, for the first time in a long while, a rise in unemployment. This is a government that is backward looking, a government that is returning to old Labor, a government that brings in new taxes, increases spending and puts jobs at risk. This is hardly a budget that delivers on the Treasurer’s rhetoric that he would deliver a budget that would put downward pressure on inflation. It is not a budget that Governor Stevens at the Reserve Bank would have been hoping for. It is not a budget that puts downward pressure on interest rates. For all the Treasurer’s hairy-chested rhetoric, what we actually have is a budget that increases spending, increases taxes and increases unemployment. It is a budget that will—and this is a word that seems to be doing the rounds at the moment—‘whack’ all Australians: pensioners, singles, families and businesses.

The decision contained in this bill to impose excise on condensate is another of the inflationary measures that are contained within this budget. Condensate is a form of light crude oil that is associated with gas accumulations. It is a type of crude oil that is produced as a by-product when natural gas is extracted from the earth. Condensate is used for, among other things, making plastics and cosmetics. In 1977 condensate produced in Australia or produced separately from a crude oil stream was made exempt from excise. This action was taken to encourage the exploration of and production from onshore and offshore predominantly gas fields that did not have the same profitability of the mainly crude oil producing Bass Strait. This action was taken to encourage the development of petroleum resources in the mainly gas-producing areas in the Cooper Basin and on the North West Shelf. The North West Shelf partners comprise BHP Billiton, Woodside, BP, Chevron, Shell and a Japanese consortium. This is very important. This was the policy that those partners initially signed up to. This is part of the reason they explored the North West Shelf. The policy of exempting the production of condensate from crude oil excise has remained in place since 1977.

It is much more viable to extract gas from a reserve when the reserve also has condensate. The industry argues that the least viable gas reserves have no condensate. Making condensate more expensive will make gas exploration and extraction less viable, and it is also very likely to increase the domestic price of gas. The consumers of this gas include power stations and industry but also mums and dads with gas stoves and gas heaters and motorists using LPG. The cost increases will ultimately spread across the entire economy further feeding inflation, allegedly the main target of this budget. It is another classic example of this government not having a full understanding of the consequences of the decisions that they take.

The Excise Tariff Amendment (Condensate) Bill 2008 and the Excise Legislation Amendment (Condensate) Bill 2008 show just how brazenly and shamelessly this government has gone about increasing taxes. These bills are expected to raise a massive $2½ billion over the forward estimates, and they kicked in from midnight on budget night. Despite Labor’s I think disingenuous view that this tax impost will not ultimately flow on to consumers, I note that the Sydney Morning Herald has reported that the removal of the excise exemption will cost Woodside Petroleum, one of the joint venture partners, up to five per cent of its annual profits. And we have the Prime Minister calling this measure an exercise in financial integrity.

Let us pause for a moment here and look at what the Prime Minister says in this House about this measure in these bills before us. If you recall, last week the member for Curtin, the Deputy Leader of the Opposition, asked the following question of the Prime Minister:

Can the Prime Minister guarantee that his new $2.5 billion tax will not drive up the price of domestic gas and electricity for pensioners, households and businesses in Western Australia?

All members will recall that, not surprisingly, the Prime Minister did not answer that question, but I think his response is very instructive. He said:

On the condensate arrangement, it was actually instituted back then in order to provide for the industry to start with. That is the first point.

He went on:

Secondly, that is quite a long time ago, and since that time the industry has not only become profitable and been established; if you look at the return to the industry concerned, its actual profits in recent years have been not just in the hundreds of millions of dollars but in the billions of dollars. What this seeks to do is to actually close a tax loophole which has existed for a long, long time ...

It was not a tax loophole that was being closed; it was an agreement the joint venture partners made with the government in the late 1970s about how they could appropriately do business in Australia. The Prime Minister’s response seems to imply that, if you are doing business in Australia and you are making a windfall profit, you can expect the government just to come in over the top and slap a new tax on whatever it is you do. This is a pretty serious risk for businesses doing business in Australia. What we have with this measure is the re-emergence of sovereign risk.

What we see from the operations of a government that seeks to impose a measure like this without any consultation, without any discussion and without any notice is a government that does not really understand the consequences of what it does. From midnight on budget night the producer became liable for excise. What sort of message does this send to local or foreign investors about their ability to do business in Australia with confidence and in an environment of certainty? How can investors plan in confidence exploration and production projects that can take literally years to come on stream, and cost tens or perhaps hundreds of millions of dollars, when the government can simply at a whim, without talking to them, change the goalposts?

Let me describe the reaction of Woodside to the measures in these bills, because I think it is very important. Woodside is an operator of the North West Shelf liquefied natural gas project, Australia’s largest liquefied natural gas facility which has a current production capacity of 11.9 million tonnes per annum and produced 24.2 million barrels of condensate in 2007. Woodside managing director and CEO Mr Don Volte said in response to this ill-thought-out measure:

Governments have a responsibility to consult with industry on major issues such as this. On this occasion there was no consultation on changes to arrangements that we considered were binding.

Mr Volte well understands the history behind the excise treatment of condensate. As I have outlined, this exemption was an incentive to the industry to explore these untapped reserves. It is not a loophole, as the Prime Minister has tried to pretend in this place. This exemption was not some sort of escape clause or some trick for avoiding excise. This is an exemption that was granted by the government of the day for the express purpose of encouraging exploration of these gas deposits. I fully endorse what Mr Volte has said. He has gone on to say:

This is not a loophole which is being closed or a free ride that has come to an end. This is a negotiated fiscal arrangement which formed the basis of Australia’s largest resource development.

To similar effect to the comments from Woodside are the comments of Ms Belinda Robinson, who is the Chief Executive of APPEA, the Australian Petroleum Production and Exploration Association. They have rightly been concerned about this sudden change in policy and the total and complete absence of any consultation with the industry. She has said:

Given the magnitude of the investments involved and the important contribution of this industry to the Australian economy, a strong partnership between industry and government is critical. Investment decisions are made on the basis of certainty that fiscal frameworks agreed with governments will underpin the long term viability of projects.

The industry sees the government’s lack of consultation as sending very dangerous signals. These signals have the potential to impact across all of the industry. The industry states that the exemption provided an important incentive for the exploration of gas because condensate occurs in association with natural gas. The production of condensate is important in underpinning the economics of many gas projects. This excise hike may lead some energy companies to reduce exploration and extraction because they are afraid that an arbitrary tax on them can be imposed without any warning.

There is a second reason why these measures warrant further consideration. It was a reason that was raised with us when Treasury came to brief us on this legislation—an offer that was generously made by the Assistant Treasurer that I was very happy to take up. Treasury were completely and utterly unable to rule out whether these measures will firstly have an impact on gas prices in my home state of Western Australia and ultimately feed into gas prices across the country.

I will remind the House of what I said earlier. The Prime Minister was asked in this chamber last week, ‘Will these measures make gas more expensive for consumers in Western Australia?’ and he was completely unable to rule that out. We in this House and in this parliament need to look at these bills further to really get an understanding about what these measures may actually do. It is clear the government have no understanding about what these measures might actually do. If they did have an understanding, then maybe they would have been able to say whether or not they are going to put upward pressure on gas prices. It makes sense that these bills get further illumination. I would certainly like the industry to be able to have a chance to comment on these bills, as you would have expected the government would have allowed them to do prior to actually introducing and announcing these measures. That is certainly what the previous government would have done. That is what any sensible government would do: go and talk to the people who operate in the industry, who know about the economics of the industry. They will be able to give you feedback about the consequences of the actions that you are taking. With that in mind, I move:

That all words after “That” be omitted with a view to substituting the following words: “while not declining to give the bill a second reading, the House expresses its concern that the Government’s decisions reflected in this bill have been made without consultation with business or other interested groups and calls on the Government to support reference of this bill and the Excise Legislation Amendment (Condensate) Bill 2008 to the Senate Economics Committee for inquiry so as to permit consultation with those with practical expertise and responsibility in this vital industry”.

This is a $2½ billion tax take. It was announced without consultation with industry, who were shocked, quite frankly, to read about it on budget night. They have been operating since the late 1970s on the understanding that they had some certainty in their taxation arrangements and that they actually had an agreement with the Australian government—a government that actually lives up to its words and its commitments. Now we find that, if you are making windfall profit, apparently the government can just come in over the top of you and reap that back in tax. I think that is something that is extraordinary.

Secondly, this is a measure that has the potential to make gas in Australia more expensive. I think it is reasonable that the government rule that out if they have any understanding of what this measure might actually do. It makes sense that the Senate Standing Committee on Economics have the opportunity to look at these bills. I would certainly encourage them to go to Western Australia and talk to some of the joint venture partners on the North West Shelf about what this might do and what this means for their business—and, importantly, talk to them about what it means for gas consumers in Western Australia. Does it mean higher bills? I urge the government to seriously consider joining with the opposition in allowing the Senate economics committee to get an understanding about what these measures might do.

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