Thursday, 25 September 2008
Excise Legislation Amendment (Condensate) Bill 2008; Excise Tariff Amendment (Condensate) Bill 2008
I draw to the attention of the committee that both of these bills in this package are classified under section 53 of the Constitution as bills imposing taxation for the purposes of proceedings in the Senate. As a result, all amendments to both of the bills must be moved in the form of requests.
I table the supplementary explanatory memoranda relating to the government requests for amendments to be moved to these bills. The memoranda were circulated in the chamber on 16 September 2008.
Bill—by leave—taken as a whole.
by leave—I move:
That the House of Representatives be requested to make the following amendments:
(1) Clause 2, page 1 (lines 7 to 9), omit the clause, substitute:
- 2 Commencement
(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.
1. Sections 1 to 3 and anything in this Act not elsewhere covered by this table
The day on which this Act receives the Royal Assent.
2. Schedule 1
The later of:
However, the provision(s) do not commence at all if the event mentioned in paragraph (b) does not occur.
Note: This table relates only to the provisions of this Act as originally passed by both Houses of the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent.
(2) Column 3 of the table contains additional information that is not part of this Act. Information in this column may be added to or edited in any published version of this Act.
(2) Schedule 1, item 7, page 5 (line 3), omit “or in the regulations”.
(3) Schedule 1, item 7, page 5 (line 9), omit “or in the regulations”.
(4) Schedule 1, item 7, page 5 (line 12), after “following in”, insert “the regulations, or in”.
(5) Schedule 1, item 13, page 7 (after line 14), after subitem (2), insert:
Determination of interim VOLWARE prices
(2A) Subsections 7(2), (3) and (4) of the Petroleum Excise (Prices) Act 1987 apply, in relation to a prescribed condensate production area and the pre-commencement period, as if those subsections were replaced with the following:
“(2) The Minister, or a person authorised by the Minister to exercise the Minister’s powers under this section, must, not later than 2 months, or such longer period as the Minister allows, after the day on which Schedule 1 to the Excise Tariff Amendment (Condensate) Act 2008 commences, determine a price in relation to each month in the pre-commencement period and an oil producing region, to be known as the interim VOLWARE price for that month and that region, being an estimate by the Minister or authorised person, on the basis of the information available to him or her at the time (being information obtained under section 6 or otherwise), of the amount that will finally be determined to be the volume weighted average of realised prices for that month and that region.”
“(3) The Minister, or a person authorised by the Minister to exercise the Minister’s powers under this section, must, not later than 6 months after the day on which an interim VOLWARE price is determined for a month in relation to an oil producing region, determine a price in relation to that month and that region, to be known as the final VOLWARE price for that month and that region, being the final determination by the Minister or authorised person of the volume weighted average of realised prices for that month and that region.”
“(4) A determination of the final VOLWARE price for a month and an oil producing region must not be made unless:
(a) the Minister or authorised person is satisfied that accurate and complete information concerning all of the transactions relevant to determining the price has become available to the Minister or authorised person; or
(b) 5 months and 20 days have passed since the day on which an interim VOLWARE price was determined for that month and information that the Minister or authorised person is satisfied is accurate and complete concerning all of those transactions has not yet become available to the Minister or authorised person.”
(6) Schedule 1, item 13, page 7 (before line 15), before subitem (3), insert:
(7) Schedule 1, item 13, page 7 (after line 16), after the definition of month, insert:
pre-commencement period means the period:
(a) beginning at midnight (by legal time in the Australian Capital Territory) on 30 April 2008; and
(b) ending at midnight on the last day of the last month that ends before the day on which Schedule 1 to the Excise Tariff Amendment (Condensate) Act 2008 commences.
(8) Schedule 1, item 14, page 8 (lines 11 and 12), omit “the definition of first day were 14 May 2008”, substitute “the references to “the first day” in paragraph (a) and subparagraph (b)(iii) of the definition of transition period, and in subparagraph 15(4)(a)(ii) and paragraph 15(4)(b) of the Excise Act 1901,were references to “the day on which Schedule 1 to the Excise Tariff Amendment (Condensate) Act 2008 commences”“.
(9) Schedule 1, page 8 (after line 12), at the end of the Schedule, add:
15 Time for compliance with Excise Act 1901
Section 15 of the Excise Act 1901 applies in relation to condensate as if the references to “the first day” in the following provisions were references to “the day on which Schedule 1 to the Excise Tariff Amendment (Condensate) Act 2008 commences”:
(a) paragraph (a) and subparagraph (b)(iii) of the definition of transition period in subsection 15(3);
(b) subparagraph 15(4)(a)(ii);
(c) paragraph 15(4)(b).
Excise Legislation Amendment (Condensate) Bill 2008
Statement of reasons: why certain amendments should be moved as requests
Section 53 of the Constitution is as follows:
Powers of the Houses in respect of legislation
53. Proposed laws appropriating revenue or moneys, or imposing taxation, shall not originate in the Senate. But a proposed law shall not be taken to appropriate revenue or moneys, or to impose taxation, by reason only of its containing provisions for the imposition or appropriation of fines or other pecuniary penalties, or for the demand or payment or appropriation of fees for licences, or fees for services under the proposed law.
The Senate may not amend proposed laws imposing taxation, or proposed laws appropriating revenue or moneys for the ordinary annual services of the Government.
The Senate may not amend any proposed law so as to increase any proposed charge or burden on the people.
The Senate may at any stage return to the House of Representatives any proposed law which the Senate may not amend, requesting, by message, the omission or amendment of any items or provisions therein. And the House of Representatives may, if it thinks fit, make any of such omissions or amendments, with or without modifications.
Except as provided in this section, the Senate shall have equal power with the House of Representatives in respect of all proposed laws.
The effect of this amendment is to allow the Minister to make retrospective determinations of VOLWARE prices which are used to calculate the amount of excise to pay on condensate during the period from 15 May 2008 until Schedule 1 to the Excise Tariff Amendment (Condensate) Act 2008 commences. It is covered by section 53 because, in allowing the determinations to be made retrospectively, it “increase[s] any proposed charge or burden on the people”.
Excise Legislation Amendment (Condensate) Bill 2008
Statement pursuant to the order of the Senate of 26 June 2000
This bill is treated as a bill imposing taxation because the amendments it makes to other legislation are integral to the imposition of taxation by the Excise Tariff Amendment (Condensate) Bill 2008. As the Senate, under section 53 of the Constitution, cannot amend a bill imposing taxation, the amendments to the bill are treated as requests.
The Excise Tariff Amendment (Condensate) Bill 2008 and the Excise Legislation Amendment (Condensate) Bill 2008 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. Condensate is a light crude oil extracted from natural gas. The measure applies to condensate produced after midnight Canberra time on 13 May 2008 and has the effect of removing the current exemption of condensate from the crude oil excise regime. Some minor amendments are required to ensure that the measure operates from the announcement date of 13 May 2008.
Amendments to the Excise Legislation Amendment (Condensate) Bill 2008 will ensure that a price can be declared for condensate produced in the period following announcement of the measure and prior to the legislation receiving royal assent. Minor amendments to the Excise Act 1901 and the Petroleum Excise (Prices) Act 1987 will extend interim arrangements in the bills to ensure that condensate may be produced and entered for home consumption lawfully prior to the bills receiving royal assent. These amendments are transitional changes and do not establish a precedent for future excise measures.
Two other technical amendments strengthen the operation of the legislative framework, in particular, removing any doubts as to the operation of regulations prescribing the commencement date for excise in production areas producing both stabilised crude petroleum oil and condensate. This measure makes a significant contribution to the government’s commitment to fiscal discipline, generating revenue estimated at $2.5 billion over the period 2011-12. The measure increases the return to the Australian community for allowing private interests to extract non-renewable energy resources located in the North West Shelf project area and onshore. Full details of the amendments to these bills are contained in the supplementary explanatory memoranda.
I must say that the term ‘allowing private interests to extract non-renewable resources’ absolutely typifies the perverse nature of this legislation and the government’s amendment. Who else is going to extract this? Certainly not the government. Only private interests are going to extract oil and gas from our oil and gas licences and petroleum titles; no-one else. As if there is some sort of sin in that. We will be opposing these amendments.
I would just like to ask a question of the minister. Could he shed any light on the Treasurer’s assessment of the letter received from Woodside this week outlining that, in their calculations, the North West Shelf Venture paid $8 billion more in secondary taxes compared to the PRRT arrangements?
In relation to Woodside’s claim that they would have paid less under the resource rent tax, the key point is that the revenue estimates need to be done over the whole life of the project rather than just to this point in time in order to make a meaningful comparison of alternative secondary taxation arrangements applied to the North West Shelf. This is because the revenue profile under the two regimes is very different.
This is a hypothetical proposition, because the North West Shelf project is not subject to the PRRT. That said, under the crude oil excise and offshore petroleum royalty arrangements, the stream of payments commences from when the project begins production or shortly thereafter and ends once the project ceases production. In contrast, the stream of petroleum resource rent tax payments is nil on the commencement of the project to the point in time when all costs, including capital costs, have been deducted against project revenues. Further, undeducted costs in a particular year are carried forward and uplifted at various rates, which has the effect of delaying payments of the PRRT. In other words, it is expected that at this point in time the North West Shelf project may have paid a greater amount under the crude oil excise and offshore petroleum royalty arrangements relative to what it would have paid under the PRRT. This is what Woodside’s figures show.
However, over the remaining life of the North West Shelf project, the project may pay more under the PRRT regime than under the crude oil excise and offshore petroleum royalty arrangements, even if it is assumed that crude oil excise is imposed on production of condensate—that is, the Woodside figures need to take into account the future stream of revenues as well as past revenues. Woodside’s analysis also ignores the value of non-tax concessions received by the project since it started up. It ignored, notably, substantial development and investment allowances, the fact that the state of Western Australia fully funded the construction of the Dampier to Bunbury gas pipeline, and that the state of Western Australia entered into a take away or pay domestic gas contract with the project that meant the state underwrote the project’s cash flow for many years.
The minister’s answer just now is absolutely unbelievable. The minister has just exposed the core claim of the government—that they are putting an end to an unfair taxation advantage enjoyed by the North West Shelf—as an absolute fraud. He has just exposed the core claim put forward by the federal government to justify this $2½ billion tax grab as a fraud. Essentially he refused to answer directly whether they have had a close look at Woodside’s assertion that they would have paid $8 billion less under the PRRT arrangements.
This is the core question. The Treasurer goes out and makes an assertion, ‘We are putting an end to an unfair taxation advantage.’ The question asked during the inquiry, ‘Have you—the government—done any modelling to substantiate that assertion?’ ‘No, we have not,’—even though Mr Hartwell, head of the Resources Division in the Department of Resources, Energy and Tourism, very clearly said in evidence to a Senate estimates committee in 2005 that in his opinion the taxation liability would have been about the same. This is what happened: we had an arrangement between a project proponent, the state government and the federal government with all the parties working together to get this important resource project off the ground—the biggest resource project to this day.
All right, it was 30 years ago—quite right. There was a lot of give and take to make sure it could get off the ground. And you know what the North West Shelf project agreed to as part of its side of the bargain? That it would pay secondary taxation revenue to the Commonwealth and to the states on production from the word go. The reality is this: this is totally different to what happens to any other offshore resource project of this nature today. Here you have a major capital intensive project—with initially $12 billion on the table, now up to $25 billion on the table—which needs certainty in terms of the fiscal arrangements that apply to it. They have obviously got certain assumptions in terms of what the cost structure is that they are operating within. Then the government unilaterally changes their side of the bargain. They are quite happy that the North West Shelf paid significantly more tax in the early stages of the project, because then later, as soon as they might be able to benefit from some upside, we will just hit them with another $2½ billion tax whereas all the other projects are able to deduct all of the allowable expenditure—exploration expenditure, capital investment—and they pay a tax on net profits.
This goes to the integrity of the government. Essentially, for the last three or four months they have been telling the people of Australia that the North West Shelf gas project is enjoying an unfair taxation advantage. The minister today has exposed that assertion as a fraud. Who is going to have to pay the price for it? The people of Western Australia. That is the second thing that Treasury did not do any modelling on. Did Treasury do any modelling to satisfy itself that there will not be any flow-on consequences in terms of the price of gas or electricity in Western Australia? Did it? No, it did not. This is absolutely incredible. Minister, I ask you this very specific question: what modelling has the government asked Treasury for to satisfy itself that its assertion that the North West Shelf gas project enjoyed a taxation advantage compared to other similar projects was substantiated?
The minister says that he has substantially answered that question. I will ask him another question: can you tell me whether there is one offshore gas producer today that is paying excise on condensate? Is there going to be any onshore gas producer who will pay excise on condensate should this bill pass through the Senate?
The North West Shelf actually does not yet pay excise on condensate, because at this stage we have not passed this bill. So essentially you are saying that, after this bill is passed, there will be one project in Australia that will pay excise on condensate and that is the North West Shelf gas project. How can the government get away with this assertion that somehow they are closing a loophole? It is just not accurate.
When we in the Senate inquiry met in Canberra one Treasury official said, ‘I don’t know what all the fuss is about in terms of sovereign risk, because for future projects this will not apply.’ Future projects will be subject to the PRRT. Future projects will be able to deduct all of their allowable exploration expenditure and other capital expenditure plus compounding. Some of them will not pay the PRRT for at least five to 10 years and, according to Commonwealth officials, some might never pay the PRRT.
The PRRT was introduced in recognition of the very capital intensive nature of oil and gas projects. It was introduced to ensure that marginal projects were able to get off the ground. It took some pressure off in the early stages of the project. They would pay their fair share of secondary taxation as the projects became more profitable. This is the core difference between what applies to every other offshore gas project and what applies to the North West Shelf gas project. The North West Shelf gas project waived this entitlement that exists today to have an easier tax burden in the early stages in exchange for some benefit down the track. You are hitting them twice. It is eminently unfair.
This is absolute double dipping, like Senator Johnston just said. It is a drive-by shooting. Minister, I ask you a very specific question: what has the Rudd government done to satisfy itself that there will not be a flow-on impact on the price of domestic gas and electricity in Western Australia? Can the minister give an assurance here and now that the people of Western Australia will not pay the price for this additional tax?
I will not waste the time of the chamber. I place on record that I asked the minister a very specific question and that he refused to answer it. He refused to even get out of his chair. The very specific question was: did the government do anything to satisfy themselves that this would not put upward pressure on the price of domestic gas and electricity in Western Australia? Will the minister be able to here and now give a guarantee to the people of Western Australia that they will not pay more for the price of gas and the price of electricity as a result of this tax? I place on record that the minister could not even be bothered to get out of his chair to provide an answer.
That the requests (Senator Conroy’s) be agreed to.
Bill agreed to, subject to requests.
Bill reported with requests; report adopted.