Mr PROSSER (Minister for Small Business and Consumer Affairs)(5.02 p.m.) —I move:

That the bill be now read a second time.

This bill is the first of seven in the legislation package designed to give effect to the government's announcement in the 1997-98 budget that it would be cracking down on fuel substitution.

It has been a longstanding and well accepted policy of successive governments that where excise is imposed on petroleum products, differential rates of duty are applied on the basis of the intended end use of the product. The highest rate of customs and excise duty is imposed on fuels such as gasoline and automotive diesel oil for on-road transport use. For example, unleaded gasoline and automotive diesel oil are subject to duty at the current rate of 34.697 cents per litre. Burner fuels such as fuel oils, heating oils and kerosene, attract a concessional excise duty rate which is currently 7.200 cents per litre. Petroleum products for non-fuel use purposes, such as solvents, do not attract excise duty.

The specifications for some concessional and zero-rated petroleum products, such as solvents, may be very similar to those for on-road fuels, particularly automotive diesel oil. Accordingly, substitution of lower duty products for on-road uses is attractive to unscrupulous operators. For example, if product declared as a solvent at the terminal gate of a major oil company is subsequently blended with automotive diesel oil by a party in the retail distribution system, the windfall gain from this fraud is 34.697 cents per litre.

Excise revenue from petroleum products is not insignificant in terms of its contribution to revenue and it is important that it be protected. The 1997-98 budget estimate for collection of excise on petroleum products is $10,840 million, which includes a small amount of excise on crude oil. This is expected to form about 8.1 per cent of total Commonwealth revenue in this financial year. The 1997-98 budget estimated that the measures underpinned by this legislative package will lead to increased revenue of $25 million in a full year.

As well as a fraud on the government and the honest taxpayer, these practices designed to avoid paying the correct excise are also a fraud on consumers and on those honest participants who form the vast majority of the petroleum products distribution and retail system who wish to compete on level terms. In many cases, use of these fuels can greatly harm engine performance and expose consumers to great danger as the blends containing substituted fuel may have a much lower flashpoint than proper diesel.

The government considers these fraudulent and potentially dangerous practices designed to avoid excise revenue legislated by the parliament as simply not acceptable. The government has decided the best way to minimise these practices is to require the introduction of chemical tracers to concessional fuels before they enter home consumption. The tracer, described as a marker in the legislation, will allow Customs to monitor products in the marketplace to ensure inappropriate usage of concessional fuels does not occur. The presence of the marker will make illegal substitution simple to detect, both by Customs and by participants in the market who wish to do so.

This first bill in the package, the Excise Tariff Amendment Bill, restructures the excise tariff and defines those concessional products which must have the prescribed marker added to them prior to the entry into home consumption. In the case of products produced in the refineries operated by the major oil companies, this process will occur prior to the relevant product leaving the terminal gate and entering the distribution system.

An Industry-Customs Technical Implementation Group with representation from the four major oil companies and the Australian Institute of Petroleum (AIP) will make recommendations to the government on practical implementation of the new requirements, including the identity of the preferred marker or markers which will then be subject to regulation. The identity of the marker will be made known with sufficient lead time to allow ready compliance. The industry accepts that it will bear the cost of the marker and its administration to concessional products. In this context, the Technical Implementation Group will provide advice to the government on a regime which will be simple to administer and minimise compliance costs on all parties involved in fuel manufacture and distribution.

Certain products which are excisable at rates below the rate for on-road fuels will not be required to be marked. These include aviation turbine fuel and aviation gasoline and all concessional fuels in packages not exceeding 210 litres, that is, drum and retail stock. The government will closely monitor the consumption of fuels with an exemption from the marking requirement to verify that abuse does not occur.

The Customs Tariff (Fuel Rates Amendments) Bill in the legislative package imposes customs duty on imported product according to the intended end use at the time the product is entered into home consumption (in a parallel manner to excise). Three further bills impose a penalty surcharge on subsequent users who misuse, blend or sell the products other than in accordance with the originally intended end use as indicated by the marker. The administration bill provides for record-keeping obligations, audit and investigation powers for Customs officers, and offences for non-compliance.

As part of the implementation of the measures, Customs has engaged in extensive consultation with parties with an interest. As well as the major oil companies and the AIP, other parties involved in the consultation program include the Australian Petroleum Agents and Distributors Association, the Service Station Association, the Australian Petroleum Production and Exploration Association, the Road Transport Forum, the National Farmers Federation, state motoring organisations such as the NRMA and the RACV, numerous individual fuel recycling companies, and offices of state revenue and state consumer affairs bodies.

While there has also been strong support in broad terms for the initiative amongst those consulted, the government recognises that there is significant detail in the legislative package. If substantiated and genuine concerns about the operation of the measures are apparent, the government will take these into account.

In conclusion, I reiterate that the government is introducing these measures to increase compliance with long established excise taxation policy and to address loopholes in existing excise legislation where it does not deliver this policy. They will be of benefit to government in terms of collecting the proper excise revenue legislated by the parliament, to consumers in terms of safer petroleum products and to those honest participants who form the vast majority of the petroleum products distribution and retail system who wish to compete on level terms.

I present the explanatory memorandum to the bill.

Debate (on motion by Mr Latham) adjourned.