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

I was hoping the Minister for Revenue and Assistant Treasurer would stick around for a while—

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

I am happy to.

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

because I want to again express my concern about the way the government is handling the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 and the Petroleum Resource Rent Tax (Instalment Transfer Interest Charge Imposition) Bill 2006 by denying members an opportunity to speak and by denying our right to move amendments. We do not expect to win those amendments, because we do not have the numbers in this place, but we and the people who put us here—the people whom we represent—expect that we will be allowed to move those amendments, to put the alternative point of view. It is an absolute disgrace that the government is denying us that opportunity. In the 10 years I have been here, I have rarely seen such a misuse of power in this place.

The other thing I want to express my concern about is that the minister, in his summation of the last tax bill, again failed to answer the many questions that I had invited him to answer during that summation. I will be doing it again on this bill, and I will just keep doing it until such time as he sees fit to start answering my questions. I do not know what the problem is. I do not know whether he does not have the resources to answer them, he does not have the support in staffing to answer them, he does not know the answers to them or he just does not want to admit to the answers. It is very likely that many of those answers will not fall kindly on the ears of the Australian people.

I invite him to reconsider his approach. Many of the questions that we put are not put for political purposes. They are genuine attempts to seek further information from the minister and the minister’s department.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

Every one is political.

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to 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.

Harry Jenkins (Scullin, Australian Labor Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Bruce Baird (Cook, Liberal Party) Share this | Link to this | Hansard source

It is my pleasure to speak on the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 today and to support my colleague the member for Hunter on the importance of the oil and gas industry to Australia. It is perhaps not as glamorous as some of the other industries that we have in Australia, but it has certainly been a major force in stock market activities. In the last week or so the fortunes of some of our major companies have declined a little; nevertheless, our major resource companies—BHP, CRI and Woodside—have been driving the Australian economy very significantly over the past 12 months, and their involvement in the petroleum sector is very significant. We think of the oil exploration that took place offshore in Bass Strait and the great benefits that came from that consortium between BHP and Esso. BHP has had a long involvement in the resources sector, and petroleum continues to escalate in value as the price of crude oil escalates through APEC countries. We are finding the effects of that at the bowser, and some concerns have been raised around Australia at the continued rise in petrol pricing. Obviously, the public would like some addressing of those issues.

But it is true to say that Australia’s upstream oil and gas industry plays a major role in meeting energy demands both domestically and overseas. Petroleum accounts for just over 50 per cent of Australia’s primary energy consumption and some 72 per cent of final energy consumption, with natural gas being exported to a growing list of Asian countries and further afield.

The latest figures that we have available show that the total value of the industry in 2005 for the petroleum sector was some $24 billion. The tax payments—and the PRRT, the petroleum resource rent tax, has been the major vehicle through which to tax oil production—amount to some $7.6 billion. Considering the benefits right across the economy from taxation of the oil and gas sector, we can only imagine what would have been the case if those discoveries had not been made. Much of the money that goes into our education, our health system and the myriad activities that Australia is involved in would be certainly impacted by the loss of such a significant industry.

Our total exports are worth some $12.6 billion. That includes the refined products, and that relates also to natural gas and LPG. It forms a very significant part of our overall exports and continues to grow rapidly. It was one of the great coups of this government to negotiate with the Chinese government over the long-term exports of LNG to China. We see that as being worth some $25 billion into the future. So the potential significance of this industry is major.

Imports amount to $17.3 billion. That is growing as reserves in Bass Strait continue to decline, but exploration expenditure in this country is worth some $1 billion. The Australian upstream petroleum industry directly employs over 15,000 people and represents 2.1 per cent of Australia’s gross domestic product. It also makes enormous contributions to state and regional economies and underpins much of Australia’s economic activity.

The petroleum resource rent tax is significant. It was introduced a number of years ago. There were some predictions at the time it was introduced that it would impact on the level of exploration in this country. In fact, we have seen a decline in the level of exploration activity, and that relates to the potential for oil discoveries within this country. We have seen some of our major companies such as BHP and Woodside—BHP is particularly active, with headquarters in North Africa, in Algiers; and Woodside with their headquarters in North Africa, in Tripoli—undertaking major oil exploration activity. BHP is also moving into the Gulf of Mexico with exploration. That highlights the importance of diversification away from Australian resources and Australian petroleum reserves, because of the declining number of explorable areas within our own region.

It is important that we set the rates right for the petroleum resource rent tax assessment, because in some ways it is like buying a lottery ticket. The rewards have to be significant in order for you to put up your money, with fairly high chances that you will never win the lottery or win Lotto. So it is, somewhat, with oil exploration. The costs are huge and your chances of finding oil are small; therefore, the rewards have to be significant. Governments have imposed this petroleum resource rent tax in order to recoup for the country in which the exploration takes place, so that we have this amount going straight into the Treasury revenue. But we need to be careful that the rate that is set is not such that it drives our oil explorers offshore to look at some of the more likely prospect areas such as North Africa, where large companies are operating right now. It is also important to recognise the international competition that exists not only in the petroleum and gas area but also in the minerals area per se.

Just three years ago 22 per cent of the mineral exploration in the world took place in Australia. Now it has fallen to 12 per cent. The reason there has been such a significant fall is the level of tax incentives that are given by the Canadian government particularly, and by other governments around the world. Our major companies are in a globally competitive environment, so in the setting of our taxation for the resources sector we need to see what our competitors are doing. There has been a big increase in Canadian oil and mineral exploration. It has gone up in a very major way. Part of it is the throughput tax which the Canadian government has decided to implement and the mineral sector is arguing that we should follow suit. The question is: what is the trade-off? Do we get appropriate returns for the Australian people and do we have the taxation returns that we would want to see for the Australians who have been blessed by these wonderful natural resources in this country? Our neighbour across the Tasman has a New Zealand dollar that is much less in value than ours. One of the big reasons for the difference in value is that our neighbour does not have the resources we have. That country has primary industry and manufacturing activities—a very significant, very effective manufacturing sector—and a productive workforce. The big difference is in resources. We are indeed the lucky country. And if we are the lucky country it is important that we administer our resources appropriately, that we ensure appropriate returns and that we have taxes such as the petroleum resource rent tax which is placed and pitched at an appropriate level to attract investment—but not so high as to see exploration go offshore.

What is the petroleum resource rent tax? It is a tax on total net income which comes from all petroleum projects in Commonwealth offshore territories, excluding the North West Shelf. It is assessed on a project-by-project basis. The liability to pay the PRRT is imposed on a taxpayer in relation to their individual interest in the project. This liability is based on the project receipts less project expenditure.

I turn to the bill and the amendments that are proposed. This bill will provide continuity of ownership for a company with two projects operating. It will allow them to continue the ownership of both projects, and exploration expenditure that is not deducted will be allowed to be transferred from a non-paying to a paying project. The amendments that the government has introduced will reduce compliance costs, as well as improving administration, and will remove any inconsistencies in the Petroleum Resource Rent Tax Assessment Act 1987.

The changes are consistent with the government’s overall approach to taxation reform directed at simplifying Australia’s taxation system and making the Australian taxation system more internationally competitive. Currently PRRT taxpayers can only transfer and deduct exploration expenditure at the end of the year of tax. Consequently, companies often overpay PRRT in the first three instalment quarters, only to receive an adjustment for this overpayment in the fourth quarter. An interest charge will be applied at the end of the year of tax if any unusable amounts of transferable exploration expenditure are claimed in the quarterly instalments. The interest charge is designed to recoup the time value of money associated with the delay in payment of tax.

In addition, internal corporate restructuring within company groups is allowed within the bill without the company losing the ability to transfer exploration expenditure between the petroleum projects of group members. This measure removes a taxation distortion within the tax which will as such prevent a company group from adopting the most efficient corporate structure to suit their needs. As we have seen with this structure, the distortion results ultimately in company groups maintaining inactive companies with the sole aim of protecting their future ability to transfer unused exploration expenditure. The amendments will apply only to internal corporate restructures that occur on or after 1 July 2006. The bill will allow internal corporate restructuring to occur under the PRRT without incurring a tax penalty, which is consistent with the Commonwealth’s approach adopted for income tax purposes. Again, it streamlines the tax. An assessment regime is built into the legislation for PRRT taxpayers, just as it is applicable under income tax. With the way the system currently operates, PRRT taxpayers are only able to gain administrative advice from the ATO, whereas, under the new regime and measures introduced in this bill, PRRT taxpayers will be able to obtain legally enforceable rulings from the Australian Taxation Office in relation to all matters regarding tax.

Other aspects of the bill are outlined in some detail in the explanatory notes. This bill provides greater simplicity and greater certainty for our major and smaller companies that operate in petroleum production and those who are involved in exploration and hoping at some stage in the future to move to the development of their downstream and upstream oil activities. In summary, it is important that in setting the taxes for the resources sector we provide the right incentives for oil and exploration companies to undertake the exploration that is necessary—incentives that will reward companies that put their funds upfront in developing the fields. It is also important that we look at our globally competitive environment to see what other countries are doing—particularly Canada, which is moving in a very competitive environment.

The fact that our exploration activity, as a percentage of the world’s total, has fallen from 22 per cent three years ago to just 12 per cent now shows the importance of finessing our taxation regime as it relates to the resources sector. We only have to look at the Stock Exchange to see how much the Australian economy is being driven by the resources sector and at the importance of the oil industry to our own economy. When we look at the value of the oil industry, adding in natural gas and LPG, we see that it is worth some $24 billion and tax payments of $7.6 billion. It is a major contributor to the Australian economy. We need to ensure the long-term future of this sector and of the companies operating in this field, such as BHP, Woodside and CRI. Such companies are not only becoming icons of the stock market but also driving our country’s economic growth. We have seen the growth that has occurred in the economy of Western Australia, which has been experiencing boom conditions for the last few years. Much of that has come from the resources sector. We can only suggest that, without the resources sector, we would experience a much greater challenge in developing the economy than we do currently.

I commend this bill to the House. Its intention is to refine some of the aspects of the PRRT tax that is applied to the petroleum industry. It is up to the House to ensure the long-term strength and wellbeing of this sector of our economy, which means so much to our long-term growth and stability, not only with imports but also particularly with the expanding giants of India and China who await our resources. The sector has provided us with many of the jobs that have been created under this government. One of the reasons that this government has been so successful is that, since it came to power, we have seen the creation of 1.7 million jobs, many of them in the resources sector. I commend the bill to the House.

Martin Ferguson (Batman, Australian Labor Party, Shadow Minister for Primary Industries, Resources, Forestry and Tourism) Share this | Link to this | Hansard source

I rise today to speak on the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 and the Petroleum Resource Rent Tax (Instalment Transfer Interest Charge Imposition) Bill 2006. In doing so, I say in response to the member for Cook that I agree with many of the issues he has raised in his contribution today. This is a very important debate. I simply say that I am disappointed that today, despite the importance of this debate, which is about Australia’s future energy security, the Howard government has chosen to guillotine consideration of these bills. At the moment, with its reliance for energy stability and security in the 21st century being placed on the unstable Middle East, Australia stands exposed. The Howard government has guillotined consideration of not only this bill today but also two other very important bills. We were not permitted to move amendments on the Fuel Tax Bill, aimed at assisting small business with changes in fuel tax excise arrangements in Australia. Similarly, on the tax laws legislation relating to the Medicare levy and measures going to the new business tax system, the Howard government chose this morning to circumvent debate to prevent the opposition and the Independents from moving amendments aimed at improving the bills before the House today.

I am very disappointed about this bill, which really goes to our future. Australia has a problem with the security of its energy supply. We can see countries beyond Australia, such as Qatar, attracting investment aimed at converting valuable gas to liquids for the purpose of trying to assess and secure energy security. However, we have a Prime Minister who wants a debate about nuclear energy. Nuclear energy in Australia simply does not stack up economically, yet he is not prepared to sit down and consider what would be the appropriate investment regime to attract investment into Australia going not only to the conversion of gas to liquids but also to the conversion of coal to liquids, which is about giving Australia some security with transport fuels. I raise these matters because, in the context of changes and useful modifications to the PRRT regime, I think we should be thinking about these other issues. I say that because it is appropriate to reduce compliance costs, improve administration and remove inconsistencies in the Petroleum Resource Rent Tax Act 1987.

The PRRT regime is a very important source of revenue for the Commonwealth. It is a very important tax to ensure that all Australians get a fair return on their oil and gas resources. PRRT revenue is expected to grow to $4 billion in 2009-10—no wonder the budget process is awash with revenue—and is currently estimated to be $1.4 billion. Clearly, PRRT is becoming a major part of our revenue base and, as such, any measures that erode that base or risk its erosion should be of great concern to the Australian community. That is why the opposition is referring these bills to a Senate committee to ensure that due consideration is given to these important measures.

But I also say, on behalf of the opposition, that we want our oil and gas industry and the revenue that flows from it to be healthy. That is important because that revenue base, as the recent budget process proved, is about tax cuts and about funding schools, roads, hospitals and all the other government services that the Australian community expects. The industry is also critical to Australia’s wellbeing and, importantly, its untapped potential goes to nation building in Australia, particularly in the gas arena and particularly in the gas to liquids conversion process. While we currently ride a resource boom, it is only six years since the price of oil was just $12 per barrel and times were not so good for Australia. The message is that there will always be good times and not so good times. We have to create the right policy and fiscal environments to keep the industry healthy throughout the cycle. Getting the PRRT regime right is the correct thing to do in that debate.

But I am also concerned about capacity constraints in the Australian economy, particularly the skills shortages that are dampening investment in the resources sector at a time when global demand and global prices mean that we should be maintaining our investment momentum. Australia cannot afford to let its oil and gas industry slip. Resources remain our biggest global competitive strength. I simply say, on behalf of the opposition, that Australia needs a new generation of nation building industries and infrastructure and a debate about energy security, which is a debate that the Prime Minister does not want to have.

The Prime Minister is interested in a debate about nuclear power—a debate that does not stack up economically in Australia—but he is silent when it comes to a serious debate about energy security in Australia. When have you heard the Prime Minister talking about our requirement to work with the private sector to create an investment regime in Australia that favours and encourages gas and coal to liquids? That is about energy security. That is about investment and long-term opportunities in Australia. But, unfortunately, the Prime Minister is silent on the future energy demands of Australia.

David Hawker (Speaker) Share this | Link to this | Hansard source

Order! It being 2.30 pm, the debate is interrupted in accordance with the resolution agreed to yesterday. The debate may be resumed at a later hour. The member will have leave to continue speaking when the debate is resumed.