Michaelia Cash (WA, Liberal Party) Share this | Hansard source

We are considering the Excise Tariff Amendment (Condensate) Bill 2008 and the Excise Legislation Amendment (Condensate) Bill 2008 as part of a cognate debate.. The tariff amendment bill seeks to amend the Excise Tariff Act 1921 to apply the crude oil excise regime to condensate produced in the North West Shelf project area and onshore Australia. The proposed changes are to be applied retrospectively from midnight on 13 May 2008. The excise legislation bill seeks to amend the Excise Act 1901, the Petroleum Excise (Prices) Act 1987 and the Petroleum Revenue Act 1985.

The proposed amendments to this bill set out the relevant formulae and methodology to allow the calculation of the condensate price for excise purposes. The government has estimated that the effect of these amendments will raise an additional $2.5 billion from the North West Shelf venture alone over the next four years and continue thereafter to raise an additional $625 million each year from the joint venture for the life of the North West Shelf project.

This $2.5 billion tax grab from the North West Shelf project is a blatant repudiation of the 1977 decision when the then Liberal Treasurer, the Hon. Phillip Lynch, announced in his budget speech that condensate marketed separately from crude oil should be exempt from excise. There was a reason for this decision and it was not taken lightly. This decision was designed to encourage new exploration of oil and gas and to ensure that it was economically viable to recover a greater volume of our oil and gas reserves. Had we not had this decision, these reserves would have been uneconomical to recover and left in the ground—hardly good news for the state of Western Australia.

But in its increasingly arrogant style—and one which has become a hallmark of the Rudd Labor government—it failed to consult industry and it failed to consult other affected parties on this tax grab. But worse than that, it failed to research the adverse financial burden that will be imposed on the people of Western Australia—not anybody else—as a consequence of higher energy prices. Confirmation of the Rudd government’s arrogance is found in the August 2008 Senate Standing Committee on Economics report on the two bills currently before the Senate. On page 33 it is noted:

No discussions took place between Treasury and the North West Shelf venture to discuss the implications of the change.

Clearly, this tax grab was more important to this high-spending, high-taxing government than consulting and researching the actual impact of the decision on the oil and gas industry and on the people of my state. Another example of the arrogance of the Rudd Labor government is again set out in the Senate committee report on page 33 in the following terms:

... the measure had been drafted by the Department of Treasury without any reference to the relevant expert department, the Department of Resources, Energy and Tourism.

That is the absolute height of arrogance from a government. It even failed to consult with its own departmental experts. The effect of the failure of the Rudd government to adequately consult relevant parties has caused the resources industry to raise the issue of sovereign risk in Australia as it applies to this industry. This tax grab has shaken industry and raises the obvious question: whether the Rudd Labor government can be trusted in its dealings with the resources industry.

I note that in an article published in the Age on Thursday, 15 May 2008 on page 6, relations between the government and Woodside petroleum were said to be at a new low. The article stated in part:

Relations between the Federal Government and Woodside’s feisty chief executive Don Voelte have sunk to a new low following the budget decision to rake in billions of dollars from the Woodside-managed North West Shelf joint venture by introducing an excise on condensate ... output.

Dubbed the ‘Voelte tax’ or ‘Woodside tax’ by industry watchers, the surprise tax change will boost government revenues by $2.5 billion over the next four years although its impact is much greater when reviewed against the 20 years-plus life of the project, Australia’s biggest single resources development.

The article, when referring to Mr Voelte’s comments, said:

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

It is obvious that the Rudd government has failed to recognise and understand that continued investment in Australia by the resources industry relies on confidence being maintained by global industry and global investment institutions in Australia being a safe, stable and reliable place to invest.

When global industry and global investment institutions are making a decision on whether or not to invest billions of dollars in a resource project in Western Australia, they look to certainty in the arrangements and agreements they negotiate. They do not want to be dudded somewhere down the track. Clearly, they resent the ground rules being changed at the whim of an envious government and will take such actions into account when considering further investment.

The issue of sovereign risk was raised in an article published in the West Australian newspaper on Wednesday, 16 July 2008 on page 6 under a banner headline ‘Condensate Tax Slug on North West Shelf a Third World Decision’. The article states:

The Rudd Government’s move to slug WA’s multi-billion-dollar North-West Shelf gas project with a $2.5 billion condensate tax will damage Australia’s sovereign risk to such a point that investors will put the country—

that is, Australia—

in the same league as Third World nations, the petroleum industry warned yesterday.

The article goes on to say:

Two of the project’s partners, Woodside Petroleum and BHP Billiton, and the Australian Petroleum Production and Exploration Association have attacked the Government’s surprise budget decision, accusing the Rudd Government of an ill-thought out and uneducated move that could seriously threaten future investment in Australia and—

worse than that—

send the cost of domestic gas soaring.

In failing to properly research the actual impact and burden of this $2.5 billion tax grab, the government has also betrayed the people of Western Australia by not recognising—and this is what happens when you do not consult properly—that the imposition of this tax will now form part of the cost structure of the North West Shelf Venture and will be passed on to consumers of the product—that is, Western Australians. There is a reason for this—that is, we in Western Australia get about 65 per cent of our gas supply in the domestic market from Woodside, and it is consumers of this product who will bear the brunt of this tax grab. Mr Rudd, on behalf of Western Australians, thank you very much!

The government has been warned by some of the venture partners that this tax heist will have to be passed on to consumers, and yet when questioned about this in the parliament the government equivocates on the issue of price increases and is in a state of denial, with its feeble attempts to answer questions relating to consumers of North West Shelf Venture domestic gas having to pay increased prices due to this discriminatory tax grab. Having read the Senate Standing Committee on Economics report and statements of some of the venture partners, I am at a loss to understand the basis of the government’s assertion that the $2.5 billion tax grab from Woodside and other venture partners will not be passed on to gas consumers. The government is in denial. To try to sustain its tenuous position and hide from the fact that consumers in Western Australia will have to pay higher prices for domestic gas sourced from the North West Shelf Venture, the government seeks refuge in quoting, in my view, out of context a few words stated by Mr Voelte when he gave evidence before the Standing Committee on Economics in Perth on 11 August 2008. Mr Voelte said:

What I can say is that our current domestic contracts are in place and will be honoured.

In my view, the words are clear and unambiguous. They confirm in simple, legal terms the position of the venture partners in respect of current domestic contracts. It is clear from Mr Voelte’s statement that the venture partners are bound by some terms of the existing contracts. Quite properly the venture partners have acknowledged that they will honour their current legal obligations. It is self-evident that a failure to do so could attract legal redress. However, nowhere in the evidence given before the committee can the government point to the venture partners stating that they will not exercise their undoubted commercial right to pass the burden of this sneaky Labor tax grab onto consumers as new contracts are negotiated or current contracts renegotiated.

This tax grab destroys the credibility of the Rudd government and shows that they are not trustworthy, given that they broke a 30-year, time-honoured agreement on the exemption of excise of condensate produced from the venture project. The bad news for consumers of the state of Western Australia is that they are the ones who are going to have to bear the brunt of Labor’s tax grab, because we are the only state that relies on the North West Shelf Venture partners for the majority of our domestic gas supply. It seems to me that the burden of this tax grab, which the government claims is in the national interest, will discriminate against WA householders as they are the only ones who will be hit with increased gas prices. Because in WA we use a large volume of gas to generate electricity, this tax will cause the price of electricity to industry and to householders to rise. And let us not forget that WA is already paying the price for the abysmal mismanagement by the former Labor government of the state’s south-west interconnected electricity system, which relies heavily on the North West Shelf Venture gas as an energy source.

Only recently Frontier Economics, in a confidential draft report commissioned by the WA Office of Energy, entitled Electricity retail market review: electricity tariffs, dated April 2008, advised that the A1 tariff—that is, the electricity tariff for small users—would need to rise in 2009-10 by 38.05 per cent and in 2010-11 by 17.19 per cent, excluding the tariff equalisation contribution. If the tariff equalisation contribution is included, then the A1 tariff will have to rise by a huge 47.48 per cent in 2009-10 and 15.31 per cent in 2010-11. These are the projected prices for electricity before we have to add in the additional electricity price rises which will occur as a result of the $2.5 billion tax grab. What do you think the average Western Australian is going to say about that? Better than that, what do you think the pensioners, who are also going to experience an increase in their domestic gas price, are going to say about that?

Did the government Treasury officials take these potential tariff hikes into account before embarking on this $2.5 billion tax grab? The answer has to be no, because there is clear evidence that the government failed to research the actual economic impact on consumers, and in particular householders in Western Australia, of the financial burden that will flow from this tax grab. The government has failed to recognise that the impact of this tax grab will not only feed but fuel inflation. This tax grab confirms yet again that the Rudd Labor government is heading down the familiar Labor path, and we have all seen this path before, of a high-taxing, high-spending government. The inflation figures since this government came to office prove this point.

There are a number of other issues that need to be considered regarding the potential impacts of these bills. They include the removal of the excise eroding what are already thin margins for the domestic gas market. The removal of the excise will be a disincentive for venture partners to sell gas into the domestic market as the domestic margins are so low that it will quite simply be better to deal in LNG. As to the claims that Woodside is a cash cow with record profits, whilst Woodside may record record profits, the $12 billion-plus Pluto LNG project alone sees Woodside reinvest straight back into Western Australia, and reinvestment back into Western Australia provides benefits for the national economy.

This tax grab is all about the politics of envy and it will increase the price of domestic gas in Western Australia. Increased gas prices and increased electricity prices will hurt Western Australians. Not only that, it will hurt in particular the pensioners. This tax grab shows that the Rudd Labor government is not to be trusted and has forgotten the people of Western Australia. More importantly, take note of the recent election result in Western Australia. Labor has been kicked out of office due to its arrogance and its failure to listen to and stand up for the interests of Western Australians. This should be a clear warning to Mr Rudd and federal Labor, whose own failings in Western Australia were a contributing factor to the election loss.