Tuesday, 13 June 2006
Fuel Tax Bill 2006; Fuel Tax (Consequential and Transitional Provisions) Bill 2006
Debate resumed from 29 March, on motion by Mr Dutton:
That this bill be now read a second time.
The Fuel Tax Bill 2006 and cognate bill are important bills and bills we should have been debating the last time we were here. But I will come back to that topic at some point during my speech. The Fuel Tax Bill 2006 is complex, but it is broadly about three things. The first is moving business from the Energy Grants (Credits) Scheme onto the new Fuel Tax Credits Scheme. The second is promoting changes to the way businesses that are exempt from excise claim back tax paid on fuel. The third is putting in place the legislative structures required to give effect to the phasing in of tax or excise on LPG, CNG—that is, compressed natural gas—and biofuels, including ethanol.
The opposition has expressed support for the broad structure of the new fuel tax regime, which provides for: (1) a single system of fuel tax and associated credits; (2) reductions in the incidence of fuel tax levied on taxable fuels; (3) a staged introduction of a framework for the taxation of liquefied petroleum gas, liquefied natural gas and compressed natural gas from 1 July 2011—that was going to be 2009 originally, but, as a result of industry lobbying, particularly ethanol and biodiesel industry lobbying, it was pushed out to 2011; (4) a staged introduction of excise and phasing out of domestic assistance for biodiesel and domestic ethanol; and (5) the linking of fuel credits to environmental standards.
Under the fuel tax credits system, all taxable fuel acquired or manufactured in or imported into Australia for use in off-road applications for business purposes will become tax free over time. There will be effective tax-free status introduced over time for business off-road use. Petrol for off-road business use will also be eligible for a fuel tax credit from 1 July 2008. This is a part of the phase-in introduction. For off-road usage, the current Energy Grants (Credits) Scheme will be phased out from 1 July 2008, when a 50 per cent fuel tax credit will apply, and 100 per cent for petrol for uses that the current grants scheme recognises. However, the new tax regime will gradually impose a fuel tax for biodiesel, domestically produced ethanol, LPG, CNG and liquefied natural gas. This will be phased in from 1 July 2011 to 1 July 2015. This delay has been essential, as the industry argued, for the development of new capital projects as they work through their infancy.
In layman’s language, all of that means a couple of things. For many years in this country, we have had what used to be called a diesel fuel rebate—a proposition that applied to both off-road and on-road users of diesel. If it was used in business for business purposes, it was effectively tax exempt, and the tax was claimed back through the tax office. It is interesting to note that originally the principle lying behind the off-road process was that, because fuel taxes were hypothecated—that is, spent specifically on road funding—then people off-road should not be making a contribution to that funding model. Of course, over time, the rebate became extended to certain heavy on-road users. That has been a proposition that has enjoyed bipartisan support in this place for many years.
Not all that long ago, the diesel fuel rebate was replaced by what was called the Energy Grants (Credits) Scheme, and that changed the way business claimed back the tax, as well as making various changes to the regime, which I do not think we need to go into the detail of today. Now we are going to a new scheme called the Fuel Tax Credits Scheme, which effectively has the same net result. It is a different name, a different model, and there are some changes around the edges, including extending the rebate—if you want to call it a rebate—on petrol. I have made the point in this place that not too many vehicles driving around in this country are 4.5 tonnes or heavier and use petrol, so I do not know what benefit that is going to have for business.
Probably the most controversial aspect of this bill is the way it changes the way business claims back its tax. This is the reason why we are debating this bill this week rather than the last time we were in this place. At the moment, businesses pay for their fuel and, along with that payment, they pay the excise on that fuel. They are then immediately able to claim that back from the tax office. Rightly or wrongly, for some businesses this is actually cash flow positive. You might have a 14-day or even a 30-day credit arrangement with the supplier, and, if that is the case, it is more than likely that you are claiming the tax back before you have actually made the payment. Cash flow is a very important matter for businesses generally, but in particular for small to medium businesses. I certainly do not have a problem if some businesses have been getting a cash flow positive result out of the existing system. Whether they are or they are not doing that under the current system, if it is not positive cash flow, it is certainly a neutral cash flow if they have been able to claim back the tax at the same time, if not before, they have to pay the tax.
The proposal in this bill is to force businesses, including small to medium businesses, to wait until they lodge their BAS to claim back the tax paid on those fuels. You will appreciate that many small to medium businesses lodge a BAS on a quarterly basis, once every three months, while some only lodge one once a year. Once a year is less frequent, but quarterly is very typical. Under this proposal, you will have businesses carrying literally thousands if not tens of thousands of dollars for up to three months until they have the opportunity to claim that money back on their BAS. I had someone, whom I shall not name, suggest, ‘That’s not a problem, they can just lodge their BAS monthly.’ The people who say these things obviously know very little about the pressures faced by small to medium enterprises in this country.
The BAS is a nightmare, and I do not say that in a political sense. I am sure those on both sides of this place would acknowledge, whether or not they are supporters of the GST, that the BAS is now a fact of life—it is a part of doing business—and that the less often you have to do it the better. It is a significant burden on business and you would not want to do it once a month, so to suggest that businesses can fix the problem by lodging monthly is ridiculous and does not fall too kindly on the ears of those who operate those businesses.
This is a significant issue not just for the people you would typically think about in respect of this bill—those who are engaged in the petroleum industry and those who drive trucks or transport as part of their business—but for all of the associated people who are caught up in this regime. People in the plastics industry, for example, use petroleum based ingredients to make their products, and they will be caught up in these changes. So it is very significant. The impact that this will have on businesses around the country will go well beyond those whom we would think about in the first instance.
The member for Swan, when he speaks to this legislation, will highlight another issue that has just come to my attention: the prospect of some businesses being faced with tax for the first time. A representation has been made to the member for Swan by a business in his electorate. I will let him go into the detail and to name the business if he so wishes. This business simply buys and packages goods to on-sell to the supermarkets—for example, mineral turpentine, white spirits, kerosene, methylated spirits and thinners. The business says that it was not subject to this tax regime under the previous arrangements but it will be under the intended regime, which the bill we are considering today gives effect to.
I apologise to the minister for not seeking his imprimatur before I spoke, but I now seek leave to table the letter from that business so that he can look at the claims it contains. It is not a political letter in any sense. When the minister summarises the debate, he will be able to clarify whether the business that has written to the opposition is right in assuming the impact the bill will have on it.
I am about to acknowledge that, Minister. This is a significant issue for business. The minister has given me the lead-in to go on to the reason we are debating this bill this week rather than the last time we were here. The government did face a revolt from its own backbench. I see the member for Gilmore smiling up the back, and I know she was part of that campaign against her own government. Many members on both sides were very concerned about the significant cash flow impact on small to medium businesses in particular. The government pulled the bill last time we were here—it was on the list for debate all that week—to deal with that significant backbench revolt.
The bill is before us again with a not insignificant government amendment. That government amendment effectively defers the introduction of this system for some two years; in other words, it puts in place a transitionary arrangement. While that was welcomed by business—indeed, welcomed by the opposition—it does no more than to defer the issue. In two years time business will be facing the very same proposition that we have been discussing publicly now for the last month or so, so it is really no solution at all. I have thought long and hard about how businesses might prepare themselves for the new system during the transition phase in such a way as to lessen the burden of the new arrangements, but I have not been able to find any answers to that question. The amendment does not change the regime in any way. It simply says, ‘We are still going to do that, but we will allow you two years to prepare yourself for it.’
I can foreshadow for the Assistant Treasurer the possibility of my moving an amendment in the consideration in detail stage—if not in this place, in the other place—that will extend that transitionary period ad infinitum. In other words, if this change is going to cause significant pain for small and medium enterprises—and for larger enterprise, for that matter—they will be able to stay in the current system. Let us think about what that means. I suspect there will be some who will say that having some businesses in one system and some in the other will be a bit of a nightmare for the tax office. I say to the members opposite: do we care if there is a small increase in burden on the tax office, with all of its resources, if it means alleviating a significant burden on small to medium businesses in particular?
They might ask whether there is a financial implication. I think not. This is only a timing difference. The government should be able to clarify that point, and I invite the Assistant Treasurer to do so during his summary on the bill. Would extending the transition period have financial implications for the revenue base? Does the transitionary period have financial implications for the revenue base? I suspect it does not, and that it is no more than a timing difference. I invite the minister to confirm that or to do otherwise when he speaks at the conclusion of the second reading debate. I do this with good intentions. I am inviting the Assistant Treasurer to come back and tell me why this is not a good idea. Come back and tell me why business, particularly small to medium enterprises, should not be able to stay in the current system ad infinitum if the new regime is going to cause significant problems for them on the cash flow front.
I notice that the most recent Sensis survey of small business has cash flow amongst the top three issues facing small business, and of course the issue of cash flow is always amongst the top concerns. The government quite rightly argues that, in many senses, the new system is better than the old. Instead of having to do the extra paperwork of claiming back the tax in isolation, simply mould it into the business activity statement. That is a good concept and I do not have any problem with it. But I do have a problem with it if it is going to cause significant cash flow problems for small to medium firms.
If the change is only about helping business—and I have not heard the government say it is all about helping the tax office—why not let business choose which is the better system for them? If they want to do the extra paperwork on a more regular basis to secure the rebate earlier, then let them do it. So we say—though it might seem like a conflict in terms—extend the transition period ad infinitum. Give business a choice.
Again, I foreshadow that we are considering moving an amendment in the in detail stage of the bill. I invite the Minister for Revenue to come back, debate the point and tell us why that should not be done. If he comes up with some good reasons that I have not considered, we will be happy to drop the idea. If it is unworkable we will accept that, but there would have to be some pretty strong points.
I want to move on to the introduction of tax on biofuels, LPG, CNG et cetera. This has been a long-running debate. I hope that the politics of this is now settled. People on both sides of this chamber want to support the biofuels industry. They want to support alternative fuels. They want to wean us off our very heavy and increasing dependence on more traditional fuels, as we approach 60 per cent import dependence on oil and are now importing some 22 per cent of our refined petroleum products. Often, when we have this debate, we get bogged down in talking about ethanol, so I want to address that issue. The Labor Party started the ethanol industry in this country. I think it was in 1992 that we first began providing capital grants assistance for the construction of ethanol plants. When we left office, ethanol still enjoyed tax-free status and enjoys tax-free status today.
A couple of years ago the government decided—and the opposition agreed with this proposition—that the time would come when ethanol and biodiesel would be allowed to stand on their own feet. In other words, it is great to give these industries support during their infancy and development, particularly given their high up-front capital costs and the time it takes to get a return on investment—and we all agreed that they should have that support—but, at some point, they should face the tax regime.
On that basis, the Prime Minister finally announced that the phasing-in of those tax arrangements would come into effect. I think it was originally to be in 2008, beginning at a very small rate of taxation—2.5 cents, I think—and phasing up to a tax rate equivalent to the fuel’s energy content. These provisions also applied in varying ways to other non-traditional fuels like LPG, CNG et cetera. There was a backlash from the industry and, in response to that backlash, and to political pressure, the Prime Minister pushed back the introduction of that regime to 2011. I think there is to be a five-year transition, taking it out to around 2015 or 2016.
But the Prime Minister did one other thing. He also announced that, instead of applying the tax at a rate equivalent to energy content, he would apply a rate of tax equivalent to the energy content discounted by 50 per cent. There was no logical reason for discounting it to 50 per cent rather than 40 per cent or 60 per cent or not at all. The Prime Minister was looking for a response to the political pressure and effectively backed down and significantly reduced the tax. At around the same time, the Prime Minister decided that he would give the industry total protection from import competition by applying a full rate of taxation but offsetting it with a production subsidy of the same amount—effectively applying a zero tax regime to all of those fuels.
So where are we? We have an industry that has been enjoying government assistance through capital grants since 1992 and which continues to receive capital grants. We have an industry that will be exempt from fuel tax until 2011 and then will receive a phased-in tax regime which will be less than half of the tax applied to LPG, for example, when it is fully phased-in. And we have an industry which, for the next half dozen or so years, will be fully protected from import competition.
It is true that we should be supporting these industries in their infancy. Ethanol creates regional jobs and is slightly better for the environment than are some of the more traditional fuels. It is also a very significant ingredient in giving independent fuel retailers a competitive edge over the major players, because whenever you displace a taxed fuel with an untaxed fuel it is obviously cheaper and, if you choose to blend that in your fuel, it gives you a competitive edge.
But the concept of mandating I reject. We should not be legislating in this country to force people to buy things. What is next: lemonade in your beer or skim milk in your coffee? And I am still concerned about the state of the market in this industry. It is still dominated in a very large way by one player—to the tune of more than 90 per cent market share, I think. You would be mandating close to a monopoly. So I reject that proposition. But I believe that we should continue to do all we can to grow the market share for these very important alternative fuel supplies, and I extend those sentiments to both LPG and CNG.
Very importantly, I also extend those sentiments to the concept of the gas to liquids industry, because, if we are really going to get serious about establishing energy independence in this country in transport fuels, we have to start making use of our abundant reserves of natural gas. There are 140 trillion cubic feet out there which, by using today’s technology, could be transformed into liquid diesel fuels which would go straight into existing diesel engines without any modification whatsoever. These liquid diesel fuels will be available to us in abundance if the government just does something about making sure that the oil companies take up those opportunities.
It is about broadening the base. We cannot allow oil companies to concentrate only on LNG—that is, liquefying gas and exporting it to the global market. That is a good thing, and the opposition supports that proposition, but at the same time Australia has to be developing itself domestically as a country which is smart enough to use those significant supplies of natural gas for its own domestic purposes. We cannot afford to sit back and wait for the oil companies to tell us, when we really need this gas, that it is a bit too late, that all the easy-to-win stuff has been sold off in global LNG markets and that if we want this gas now we are going to have to pay the higher prices involved in securing the gas, which is typically further offshore and deeper in the sea and therefore much more expensive to win. We need an energy plan on that front, and that energy plan has to include a plan for our land transport needs and take into account the need to address the environment. I am not saying that gas to liquids is squeaky clean on the environmental front when you look at it on the whole-of-life-cycle analysis, but it does have significant environmental advantages.
So the opposition is supporting this bill. It is a new regime that the opposition does not have any great difficulties with. Indeed, there are some improvements in that regime as compared to the one currently being used by those who rely on the scheme. We accept the taxation arrangements on biofuels, LPG and CNG. Again, as I said, we had that debate some years ago, so we are not looking to criticise that or to make changes there.
I am conscious that some in the industry are now on the lobby, hoping to phase in the introduction further out—in other words, instead of introducing the scheme from 2011, maybe going out to 2013. They say that the process has been tardy—I will not say that the government has been tardy; the process has been tardy—and that they need a full five years from the inception of the project to reach a maturity where the project becomes profitable. Because the government has been slow to put this into effect, while the date of 2011 gave those in the industry five years when the agreement was made, it does not now give them those five years. If the government wants to bring that debate to the table, we will be happy to hear those arguments as well, but at the moment I am assuming that there is no intention to do so and the government is sticking to the proposals as they are contained in the bill.
On that point, the industry is also complaining about the phasing out of import competition. This bill is not specific to that, because the government does not need legislation now to begin to reduce that customs levy on imported ethanol and biodiesel. It will not need to do so until 2011. The Minister for Revenue and Assistant Treasurer has kindly written to me in response to some questions I asked on an earlier bill about the parity between domestically produced biodiesels and imported fuel, and he has confirmed that, by the end of this phase-in period, imported ethanol and biodiesel will face the same taxation regime as domestically produced ethanol and biodiesel.
I am not sure that the industry was aware of or fully conscious of that when we reached this agreement on the phasing in of this taxation regime. I am not criticising it per se; I think a bit of import competition can be a good thing, and to those who want to mandate ethanol I say that we need imports if we are ever to reach 10 per cent market share. The domestic industry, in my view, would never reach that level of supply. But, having confirmed that the tax regimes will be equivalent after the phasing in of this regime, I want the minister now to confirm that that means he is going to reduce the customs levy rather than provide offshore producers with the production subsidy. I would assume that it means a reduction in the customs levy, but I would like him to confirm that for the House—as obvious as the question might be—because I think the industry needs to have absolute clarity on that point. I remind the Minister for Revenue and Assistant Treasurer that I pose those questions to him and that the opposition is considering amending the bill in the consideration in detail stage to make the new arrangements for business permanent so that business, particularly small to medium businesses, will have a choice. I 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:
- condemns the Government for failing to properly consult with commercial fuel users on the appropriate model for payment of fuel tax;
- condemns the Government for circulating major amendments less than two hours before debate on the Bill is to be resumed;
- calls upon the Government to reduce our dependency on foreign oil and to promote:
- existing alternatives like liquid petroleum gas, ethanol and biodiesel;
- emerging alternatives such as compressed natural gas, liquid fuel from gas and stored electricity; and
- future fuels, such as hydrogenas Labor has committed to in its Fuels Blueprint;
- condemns the Government for ignoring the impact of rising petrol prices on Australian families;
- condemns the Government for increasing petrol prices in regional Australia through the abolition of the Fuel Sales Grants Scheme at a time of very high petrol prices;
- condemns the Government for failing to strengthen the Trade Practices Act to protect competition in the petroleum industry; and
- condemns the Government for failing to guarantee that the money saved as a result of the abolition of the Fuel Sales Grants Scheme will be specifically directed to roads in regional, rural and remote Australia”.
I rise to speak on the Fuel Tax Bill 2006, the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 and the additional amendment. Before I start, and while the member for Hunter is still in this place, I say to the member for Hunter: what hypocrisy to say that you started the ethanol projects when you were in government. If not the member for Fraser, who was it who killed the ethanol industry? The member for Fraser told a sob story in this House about a garage mechanic saying that ethanol caused problems in a car system. The owner of the car had to go through all the hassles of having his motor reformed. The truth is that the problems were not caused by ethanol but by kerosene. Did the member for Fraser have the guts to apologise to this House? No, not the member for Fraser. He hid behind his constituents and said absolutely nothing; it suited him not to say anything. Just remember that, member for Hunter.
I point out that some unintended consequences could occur with this legislation. I refer to statements made by Renewable Fuels Australia, the RFA. In particular, I want to address the issue of impacts, imports and market access with regard to biofuel operators if this legislation goes ahead in its present form. I have long been an advocate of the Australian biofuels industry and boast a significant Manildra ethanol plant in my electorate of Gilmore. Contrary to the member for Hunter, I am clearly on the record as being in favour of mandating ethanol in Australian fuel and have strongly supported the expansion of the biofuels industry. It is fair to say that we have taken some dramatic steps in the right direction, and for that I am very grateful. The agreement reached between the government and the oil companies is a substantial step in the right direction, but the proof will be in the pudding and we will all have to wait and see what the oil companies will do to meet their part of the agreement.
I also want to refer to the original proposal, the object of this legislation, which is that the proposed amendments to the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 are intended to assist taxpayers to make the transition to the new fuel tax credit system by enabling eligible taxpayers to make claims for the early payment of fuel tax credits. In the context of the changes, the amendments will allow taxpayers a two-year transitional period to align their business practices to the new claiming arrangements and will ameliorate negative cash flow effects that may be associated with claiming fuel tax credits via the BAS. This is wonderful news for our fishermen in the Gilmore electorate, but it is also fair to say that in this Fuel Tax Bill the consumer is becoming more and more aware of the need to explore alternative fuel options and, with that, all support should be given to the Australian biofuels and ethanol industry.
I believe that support of the Australian biofuels industry can be strengthened within the Fuel Tax Bill 2006. In saying that, I would like to see the legislation (1) recognise the market barriers to ethanol and biodiesel fuels entering the mainstream transport fuel market prior to 2006 and ensure that applicable excise rates commence on 1 July 2016 and reach their final stage by 30 June 2020; (2) acknowledge the unique benefits of domestically produced ethanol and biodiesel by providing that any tax or duty imposed be incurred at half the rate imposed on imported ethanol and biodiesel; and (3) ensure that end user levels of diesel and diesel-like fuels meet the national diesel and biodiesel fuel quality standard and be treated the same in terms of tax credits and rebates.
The bill provides that alternative fuels that were previously untaxed would start their transition to their future tax rates from 1 July 2011 at specified annual rates of increase until their final fuel tax rate of 12.5c per litre for ethanol and 19.1c per litre for biodiesel by 30 June 2015. This policy was introduced in 2003 together with a range of measures designed to assist alternative fuels in establishing their place in the transport fuel market before the fuel excise tax regime was introduced between 2001 and 2015.
While alternative fuels such as LPG and natural gas have already established their place in the market and are able to enjoy this benefit, biofuels such as ethanol and biodiesel were not, due to fuel market entry barriers to ethanol and biodiesel that were not effectively addressed until 2006. Consideration must be given to measures that enable the biofuels industry to access these intended benefits and assist in stimulating new ethanol and biodiesel industry growth in Australia. This is consistent with government policy that a viable and sustainable biofuels industry is in the national interest of Australia.
In addition to the transition of previously untaxed alternative fuels to their final fuel tax excise rates between 2011 and 2015, it is proposed that restrictions on the import of alternative fuel would also be progressively removed between 2011 and 2015, at the same time as the transition to the rate of new fuel tax excise regime on alternative fuels. Whilst the formal tax rates are set at 25c per litre for ethanol and 38c per litre for biodiesel, alternative fuels were granted a 50 per cent discount in recognition of the benefits of domestically produced biofuels such as energy security, greenhouse reductions, carbon credits, rural and regional economics, jobs growth et cetera.
Imported ethanol and biodiesel make no contribution to domestic benefits. On this basis, the final excise rates for ethanol were set at 12.5c per litre for ethanol and 19.1c per litre for biodiesel but totally ignore the restricted policies of other countries that Australia will have to compete with. I believe that the measures I have stated for consideration would better acknowledge the nationally recognised benefits associated with domestically produced alternative fuels.
Today the Australian biodiesel industry has access to 100 per cent of the petroleum diesel fuel market and is supplying 100 per cent biodiesel fuel, a 50 per cent biodiesel blend with diesel fuel and a 20 per cent biodiesel blend fuel to on-road and off-road diesel fuel users in Australia which meet the national biodiesel standard and/or the national diesel fuel standard. Consideration must be given to my earlier stated points to avoid any circumstance that will deny biodiesel access to 70 to 75 per cent of the Australian diesel fuel market under the proposed road user charges regime. This embraces the off-road market, including agriculture and mining activities and the heavy transport market associated with vehicles over 4½ tonnes. Under this regime only a fuel containing a five per cent biodiesel blend with petrol will be deemed to meet the diesel fuel standards and thus be eligible for tax credits or grants. This would place Australia out of step with world practice and create a discriminatory, artificial industry and market barrier that will force biodiesel sales to the major oil companies and distributors via a B5 blended diesel fuel. Consideration should be given to guarantee equal treatment between petroleum diesel and alternative fuels such as biodiesel and, in the future, ethanol in the Australian diesel fuel market.
The issue of fairness in the biofuels industry is of utmost importance to those Australians who have invested heavily in local and regional areas, such as my electorate of Gilmore. I do not want to see $500 million and 285 direct jobs jeopardised. It has been a long hard road to rebuild consumer confidence with ethanol after, as I mentioned earlier in my speech, the deliberate scare campaign by members of the Labor Party to discredit not only ethanol—a large percentage of which comes from my electorate—but also the owner of our Manildra plant. In doing so, they succeeded in seeing 30 jobs go from Manildra in Bomaderry and many others in rural areas of Australia.
I note that Minister Macfarlane stated, from a recent meeting with the ethanol sector, that there are further plans to increase sales over the next two years by BP, United Petroleum, Woolworths, Caltex and Farmers Fuel. While all this is fantastic news, together with the reaffirmation of the target of 350 million litres by 2010, I would like to add my support to Minister Vaile’s comment that this date needs to be brought forward and that supply needs to be increased. With our ever-increasing fuel costs and growing demand, I feel that 350 million litres by 2010 is merely a drop in the bucket. Australia can and should do more to ease the crisis and, if that means imposing further voluntary demands on the oil companies, then so be it. One only has to look at our ever-increasing fuel deficit to realise that this trend cannot be allowed to continue. To increase tax on Australian produced ethanol and lower the cost of imported product is not the way to go. It concerns me to see how the large fuel companies can influence our policies.
On a closing note, I note that the ethanol industry in Brazil is quite advanced. If matters continue to unfold as they are, Brazil is set to become a major exporter of ethanol. By imposing extra taxes on our fledgling industry, we are in fact discouraging self-sufficiency and pushing towards a reliance on overseas imports. We have the capability here to be self-sufficient in ethanol and biodiesel, with the accompanying potential to export to other countries. Unless we encourage the growth of our home industry, we may well be consigning ourselves from the frying pan into the fire. We are a net importer of oil and, as our own supplies dwindle, this will inevitably increase. We need to look beyond immediate needs and adopt a longer term strategy that will not ransom us to overseas interests. To suggest that we ought to start taxing ethanol production from 2011 is to me a retrograde step and should be discounted.
It was in September 2005 that the Prime Minister and the Deputy Prime Minister announced that a viable biofuels industry was in the national interest and certain timetables and take-up use was committed to by Caltex, BP and Shell. It was these take-up targets together with the finally revealed tax implications of the Fuel Tax Bill 2006 that lead me to ask this government to rethink its policy by making further amendments and/or changes, as I stated earlier in my speech, in considering to extend by five years from 2016 to 2020 the transitional phase in percentage of excise of imports for biofuels.
Finally, I would like to mention the phase-in timetables for the biofuels industry entering the market in relation to the new excise/import regime. The take-up rate has been very slow. Already some six years have been lost. Therefore, there is a definite need to reconsider the phase-in period; if not, it could pose great difficulties for new entrants into the biofuels industry, as it will be some two to three years before new projects are completed. In speaking to this bill, I ask the government to consider some of the unintended consequences of this bill. I also remind once again the Australian people who it was that killed ethanol in this House.
I rise today to speak on the Fuel Tax Bill 2006 and the Fuel Tax (Consequential and Transitional Provisions) Bill 2006. In response to the member for Gilmore with respect to the ethanol industry, I want to say this: this House is generally supportive of the ethanol industry. It is about time that some ethanol producers understood and accepted that, whilst we are supportive of the development of the ethanol industry, we are not supportive of their endeavours to intimidate refining companies in Australia into purchasing not ethanol but their product, representing imported oil including ethanol, so as to maximise their own profit and their own dividends. If those producers want support for ethanol, let us sell ethanol and not let it be about them trying to intimidate industry into purchasing their refined product inclusive of ethanol, which is what they are currently seeking to do with respect to some of the oil refining companies in Australia and outlets around Australia.
Having said that, I think—and I am surprised the member for Gilmore did not comment on this—it is unfortunate that this debate is occurring at this time. The government has proposed significant amendments to the bill but, in a flagrant abuse of courtesy to the parliament, the amendments were only available two hours before the debate commenced today. Not only has the government provided insufficient time for proper review and consideration of the proposed amendments but we are debating these bills before the Senate Economics Legislation Committee has completed its inquiry into them—an inquiry going to some of the concerns raised by the member for Gilmore.
Again, I believe the government is making a mockery of parliamentary process. The Senate inquiry had the support of members in this House but, for the purposes of this debate, the government is requiring members of the House to ignore that inquiry and anything it might find that might go to the application of the bills once they become law. The committee’s report on the inquiry will not become available until this afternoon, we are told. What message does that send to the 32 organisations and individuals who made written submissions to the inquiry and to the many who appeared in public hearings before the Senate Economics Legislation Committee? It simply sends a message that this government, in an arrogant way, will only pay lip-service to parliamentary processes. They could ask, ‘Why bother? Why waste our time in the future?’ I simply believe that the least the Australian electorate and the peak bodies that represent varied constituencies should be able to expect is that the government follows due process. What confidence can those organisations have in a parliament that flagrantly disregards due process?
It has taken two years to get from the last policy pronouncement to the introduction of these bills into this parliament. It is laughable to now suggest that there is such urgency that debate cannot wait until tomorrow or the day after to enable us to properly review the outcome of the Senate reference. I remind the House that it has taken a long time to get this legislation. The initial policy announcements date back as far as the 2003-04 budget, culminating in the June 2004 energy white paper. These bills are just another example of the tardiness with which legislation is being handled by the government. Just look at the backlog of the legislation before the House. The standards of the House and the Senate are something that I would expect both sides of politics would want to uphold. I ask members on both sides to take a firm stand and to put an end to the sloppiness and stop the slide with respect to the performance of the House and the Senate. I believe we owe it to our constituents.
Let us go to the bills. One of the key features of the proposed reforms is to implement a four-band fuel excise system loosely—and I emphasise loosely—based on energy content. The bands define fuels as having high-, medium- and low-energy content and there is a fourth band for other fuels such as compressed natural gas. Federal Labor supported the proposal to extend the effective excise-free period for biofuels and the LPG industry by three years until 2011 and has supported legislation to introduce mandatory cleaner fuel standards that should benefit environmentally friendly fuels and benefit the Australian community generally with respect to the debate about a clean environment. However, whilst Labor supported this approach, I remind the House that the overwhelming reason was to provide some certainty for the alternative fuels industry and refining industry. That is the crux to investment in Australia—certainty in the legislative environment that industry confronts in making investment decisions.
It is also important, contrary to the views suggested by the member for Gilmore, that we put on the record that federal Labor has always supported the alternative fuels industry. It is interesting that the member for Gilmore, who was elected in 1996, did not raise the issues that I now seek to remind the House about. It was the Keating Labor government which introduced an 18c a litre production bounty for ethanol in the 1993 budget in addition to the zero excise rating for the product. The Howard government abolished the bounty scheme one year early in the 1996-97 budget, the first budget the member for Gilmore had to respond to, and it has consistently undermined the industry since by changing the playing field on a regular basis. In the last parliament alone the Howard government changed its mind three times on the excise regime for not only ethanol but also LPG. And they talk about certainty for the purposes of encouraging industry investment in Australia’s long-term future! The record of the Howard government on this very important industry has been the lack of certainty it has put in place.
Despite his May 2002 view that applying excise to ethanol and LPG was a bad idea, the Treasurer announced that he would do just that in the 2003 budget. He announced that biofuels and LPG would be subject to excise from July 2008. In December 2003 he changed his mind yet again, announcing a new excise regime to apply from July 2011. Between May and December 2003 the LPG industry was in absolute turmoil—and one can understand why. Many of the small business operators involved in LPG conversion and maintenance suffered serious business downturns due to the uncertainty about the excise regime. Of course, the biofuels industry also suffered during this period, with no certainty for new investors in the industry. And the member for Gilmore wants to talk about certainty in the industry! With the problems in the industry because of the lack of strong direction and certainty from the Howard government over the last 10 years, it has taken some time for the industry to recover. It has recovered mainly because record-high petrol prices have meant that consumers have been more willing to set aside their concerns about fuel tax uncertainty than they would otherwise have been and that biofuels are now more price attractive to refiners and marketers. The history of the Howard government’s double backflips on alternative fuels—and they amounted to double backflips—is in stark contrast to the stability of Labor’s position throughout its 13 years in office, when it maintained the LPG excise exemption introduced in 1979 for fuel security reasons.
The other stark contrast is the Prime Minister’s interest in fuel security back in 1979 compared to his complete lack of interest today as Prime Minister, when fuel security has never been so important and petrol prices have never been so high. As I have said before, this government treats tax cuts as ‘go away’ money for motorists worried about petrol prices. It has no long-term vision for where we are going with the very serious challenge of fuel security for Australia. It is the debate and the new Cold War internationally. It is where we really are in the global community at the moment in terms of energy. Energy is the cause of tension in the global community. Yet we found nothing in the recent budget to bolster Australia’s fuel supply security or to look to the long term. The fact is that, without developing large-scale alternative fuel industries in Australia, we will increasingly be hostage to supplies from the Middle East, West Africa and Russia—and, frankly, who would want to put our future in the hands of the instability that currently exists in the Middle East, West Africa and Russia? We need long-term government action now aimed at securing Australia’s future and the future of our children and grandchildren. We should not leave Australia to be held hostage to the Middle East, West Africa and Russia. It is about time the Prime Minister understood those concerns, which are widely held by Australian industry and ordinary householders. I do not need to spell out the implications of that for energy security.
Australians around the kitchen table tonight want to know that their governments and the companies with stewardship of their resources have a plan to secure their energy supplies for the future at affordable prices. That is what ordinary Australian households are concerned about at the moment—security at reasonable prices. But there is no plan by the Howard government and, therefore, those people sitting around the kitchen table this evening are not relaxed and comfortable with the lack of the Howard government’s action on fuel security and Australia’s medium- to long-term interests. Creating the right fiscal and regulatory regime to make gas to liquids a new industry option and a new fuel supply source for Australia is just not on under the Howard government, and it ought to be.
The Prime Minister was thinking about energy security in 1979, but it is not on his radar in 2006. Despite its enormous potential for Australia—and it is enormous—the Prime Minister has decided to tax gas to liquids diesel as a high-energy fuel with no discount as an alternative fuel. Unlike other alternative fuels, he has done nothing to provide any industry framework to encourage the establishment of the gas to liquids fuel industry in Australia. The Labor Party, alternatively, has always been a strong supporter of both gas to liquids and coal to liquids. This is, of course, interestingly about the commercialisation of clean coal technology for power generation in Australia, which is about the greenhouse debate and the environment debate whilst also giving us a sense of security with respect to access to fuel for the future.
I can recall the former Prime Minister, Paul Keating, as the resource minister over 20 years ago, being a great advocate of gas and coal to liquids technologies. He was ahead of his time on this issue. Similarly, we pursued this issue in the last parliament with the position of Joel Fitzgibbon, the former shadow minister for resources, and we will continue to pursue it because we believe establishing new nation-building industries is not easy. It requires more than anything sustained leadership, a focus at the national level, to actually make it happen. It requires leadership and determination, something that the Howard government lacks with respect to this major challenge.
I also remind the House that there is a more recent history. It is now almost five years since Senator Minchin, who was then the Minister for Industry, Science and Resources, appointed a gas to liquids task force to investigate the feasibility and benefits of establishing a gas to liquids industry in Australia. So the Prime Minister might not have much interest, but there is a little bit of form on the other side in the actions of the former minister for resources, Senator Minchin, to actually consider the gas to liquids industry. But, despite that report, five years on no action has been taken. Our reliance on imported oil and fuel is increasing and, while the LNG market is booming, it remains a tough job to get new gas projects off the ground in Australia.
Senator Minchin’s task force noted that, while Australia could simply wait for the market to provide an incentive for a gas to liquids industry, once gas supply infrastructure is in place and investment is sunk in other countries where taxation infrastructure incentives are on offer today, those countries will serve as investment hubs for expansion for many years to come. It is about focusing on potential lost opportunities that would be lost for many years to come. Unfortunately, that is what is happening. Just go to Qatar to see whether the findings of the task force are actually happening at the moment. The implication of the task force was that Australia’s remote gas fields could be left stranded from markets for even longer because, by and large, it will be cheaper to expand existing projects than to build new ones here. I am sure this is a concept Australia’s LNG industry already fully understands.
The task force highlighted the potential significance of a gas to liquids industry to Australia’s economy, saying it could underwrite offshore gas supply infrastructure to bring forward the possibility of major new domestic gas pipelines to connect the national market, increase domestic gas competition and energise gas exploration—a pretty important challenge and objective for Australia. The task force said:
These benefits would be of national strategic significance to Australia.
It further went on:
The cost of any government intervention must be considered against the potential benefits.
The potential benefits, as we all appreciate, go beyond unlocking new resource wealth and creating new industry, more jobs, more apprenticeships and more exports. They include the opportunity for Australia to address this most pressing problem of all: our future transport fuel security. When do you ever hear the Prime Minister addressing our future transport fuel security? It was not addressed in the recent budget and it is not being addressed by the Prime Minister today.
It is also interesting that three years ago a CSIRO report, Energy and transport sector: outlook to 2020, laid out its proposed strategy for Australia’s transport future. It defined that strategy as one that identified gas to liquids and coal to liquids as the keys to our future transport fuel security. It was not just the opposition, it was not just Senator Minchin, as the then minister for resources; it also included CSIRO. The report said:
The global future for evolution of transport fuels and vehicles is driven by greenhouse gas and oil supply issues and is very uncertain. Australia’s strategy must be flexible and segmented. The proposed strategy, offering a 60% reduction in GHG, decreased dependence on oil and a platform for future H use, involves:
- Migration to diesel, using best practice technology and fuel standards;
- Production of “clean” diesel from natural gas or coal with CO sequestration;
- Development of hybrid cars and light vehicles, fuelled by diesel.
- Niche segments may be developed for compressed natural gas, with the added advantage of commencing infrastructure options for future hydrogen-based systems.
These are all current issues in the debate not only about nuclear, clean coal technology and solar energy but also about where we as a community will achieve security with respect to transport fuels.
The tragedy is that we can all see the potential but that the reality remains just beyond our grasp. Without sustained and committed national leadership to deliver the right policy settings and the right fiscal environment—that is about government policy, if the House does not understand it—it will remain beyond our grasp. It will leave us open to pressure from the Middle East with respect to future access to transport fuels. I am not prepared to risk Australia’s future in the face of the instability that currently exists in the Middle East. Just look at the price of oil in Australia at the moment.
Therefore, I suggest it is time for the Prime Minister to seriously review the petroleum resource rent tax regime and, in doing so, consider special treatment of capital investment in gas to liquids projects and associated gas production infrastructure. The Prime Minister should be facing up to some responsibility for resource related infrastructure instead of passing the buck to the states. In that context, he should think about the dividend to the Commonwealth from the potential Gorgon project—a huge dividend to the Commonwealth that could be ploughed back into the development of this industry. Above all, the Howard government should be sending a clear signal to Australians that it is interested in their future fuel supply security and will not deliver it to the perils of the Middle East. The Prime Minister should be sending a clear signal to industry that we want a gas to liquids and coal to liquids industry as part of Australia’s national energy strategy.
I return briefly to the objectives of these bills. The opposition welcomes the measures in these bills and proposes amendments that provide for a more appropriate framework and administrative regime for providing credits for business fuel use. However, the government is to be condemned for failing to properly consult with commercial fuel users on the appropriate model for payment of fuel tax and for its failure to understand the implications of the workings of the BAS on cash flow in small and seasonal businesses. I commend the second reading amendment to the House. (Time expired)
The Fuel Tax (Consequential and Transitional Provisions) Bill 2006 is a companion bill to the Fuel Tax Bill 2006 and provides the transitional arrangements to phase in the fuel tax credit scheme while phasing out the Energy Grants (Credit) Scheme, Fuel Tax Grant Scheme and the state administered Petroleum Products Freight Subsidy Scheme. The Commonwealth government announced a major program of reform to modernise and simplify the fuel tax scheme in its energy white paper, Securing Australia’s energy future.
The reform program is scheduled to commence on 1 July 2006 with the introduction of a single fuel tax credit scheme to replace the current complex system of fuel tax credit concessions, with final changes taking effect from 1 July 2012. The changes will lower compliance costs, reduce tax on business and remove the burden of fuel tax for thousands of individual businesses and households. When fully implemented, the fuel tax credit scheme will ensure that general fuel tax is only levied on business use of fuel in travelling on a public road in motor vehicles with a gross vehicle mass of 4.5 tonnes or less; on-road business use in motor vehicles with a gross vehicle mass of more than 4.5 tonnes but only to the extent of the road user charge; on-road private use in motor vehicles and in certain off-road applications; and aviation fuels.
The break point of 4.5 tonnes or less gross vehicle mass aligns eligibility for fuel tax credits with the additional licensing conditions that must be met in all Australian jurisdictions to drive a vehicle of this mass or greater and the Australian design rules for heavy vehicles. In addition, the heavy vehicle charges determination that establishes the road user charges for heavy vehicles applies to vehicles over 4.5 tonnes.
Under the fuel tax credit system, all taxable fuel acquired or manufactured in, or imported into, Australia for use in off-road applications for business purposes will become tax free over time. This will for the first time provide fuel tax relief to businesses involved in a range of activities. For example, businesses involved in manufacturing, quarrying and construction will become entitled to fuel tax relief. Other major beneficiaries will include primary production, mining and commercial power generation. Further, the excise currently levied on burner fuels such as heating oil and kerosene and on fuels used in commercial and household electricity generation will be effectively removed from 1 July 2006.
As part of this process, all currently untaxed fuels used in internal combustion engines will be brought into the fuel tax system over time with the intention of imposing fuel tax on fuels where they are used in transport applications. Fuel tax will be applied to the currently untaxed fuels of liquefied petroleum gas, liquefied natural gas and compressed natural gas from 1 July 2011. Effective fuel tax on these fuels will phase in over five equal annual steps commencing on 1 July 2011 and ending on 1 July 2015. The final fuel tax rate applying to these fuels will incorporate a 50 per cent discount on the energy content fuel tax rates that would otherwise apply.
The purpose of the transitional provisions is to ensure that the claimants receiving a grant continue to benefit from the fuel tax concessions and to phase in the extension of eligibility for off-road business use and fuel over time. Currently ineligible off-road activities will become eligible for a 50 per cent fuel tax credit from 1 July 2008 and a full tax credit from 1 July 2012. The bill also makes consequential amendments to 10 other acts which will operate under the general compliance and administrative umbrella of the Australian Taxation Administration Act 1953. The Fuel Tax Bill 2006 administers certain other indirect taxes, such as the GST, luxury car tax and the wine equalisation tax, and will operate under a new part of the schedule to the Taxation Administration Act 1953. This part will be modelled on the current indirect tax provisions in part VI of the Taxation Administration Act 1953. This means that entities will generally have the same rights and obligations in relation to the Fuel Tax Bill 2006 as they now have to other indirect tax laws.
The bill also repeals the Fuel Sales Grants Act 2000, from 1 January 2007, and the States Grants (Petroleum Products) Act 1965 from 1 July 2007 in accordance with the government’s decision to abolish the Fuel Tax Grant Scheme and the Petroleum Products Freight Subsidy Scheme from 1 July 2006. As a supplement to measures already in place for addressing the environmental impact of fuel use, the government will introduce two new measures to ensure that those businesses receiving fuel tax credits meet appropriate environmental standards. These environmental measures are the requirement of large fuel users who claim over $3 million each year in fuel tax credits to become members of the Greenhouse Challenge Plus program.