Mr LATHAM (11:25 AM) —The opposition has a number of reservations in terms of the public policy that underpins the Energy Grants (Cleaner Fuels) Scheme Bill 2003, particularly in the context of the recent controversy concerning Manildra and the ethanol industry. The background to the government's alternative fuels policy dates to 1999 when, as part of the deal with the Democrats to pass the GST, it announced its Measures for a Better Environment package. Subsequently, in September 2002 the government announced that it would be imposing an excise on ethanol and biodiesel fuels at the same rate as that applying to petrol and that, in exchange, it would introduce a domestic producer subsidy as an offset. This policy followed the release of the fuel tax inquiry—the so-called Trebeck inquiry—which recommended that excise/customs duty should apply to all liquid fuels, with rates applied according to the relative energy content of each fuel.

In the 2003 budget the government announced its intention to reform the fuel tax arrangements and to support measures designed to encourage cleaner fuels. It did so, however, by basically junking the Trebeck report. This indicates one important aspect of government policy making—it is all ad hoc. Its alternative fuels policy is all ad hoc and, of course, it is a strategy of not only picking industry winners but also of picking individual companies within those industries. This is reflected in the outrageous decisions that were made to benefit Manildra at the expense of other Australian companies, some of them much smaller companies, and I will come to that issue in due course.

Labor has a number of concerns about the bill—most particularly, the lack of transparency in the government's fuel subsidy arrangements. We have a concern about the lack of a seamless subsidy scheme—in particular, how ethanol subsidies are not captured in this bill and have been separately appropriated in Appropriation Bill (No. 2). We are also concerned about the ability to prescribe by regulation what constitutes a cleaner fuel. This opens up scope for wide access to the scheme and a lack of accountability and transparency as to who may benefit from this particular provision. Also, we look at the so-called progressive nature of the scheme, where the regulations will prescribe what clean fuel is as it becomes eligible for a grant, not the other way around. We are also concerned about the cost of the scheme and the continuation of production subsidies to an industry without regard to performance or success. The historic performance of the industry, despite it enjoying zero excise status over many years, and the findings of the Trebeck report are genuine concerns. Let me quote from the Trebeck report:

That is a very important quote. When you have got no analysis being undertaken to look at the benefits to rural and regional areas you have really got a government that is flying blind and allocating a substantial amount of money without a guarantee to the Australian taxpayer—the hardworking Australian taxpayer—that the money is going to be well spent to achieve a public interest outcome.

The overall fabric of the policy is poor and has been designed around the needs of selected companies, not taxpayers or consumers. Labor is yet to be convinced that the public interest is being met by this particular legislation. Of course, we point to the Manildra-gate controversy as an example of where the government has gone wrong in its alternative fuels policy. Labor wants an effective biofuels strategy for Australia. We believe in an effective alternative fuels policy, and our energy task force is working on that particular goal in terms of our policy development. One thing we can say for sure is, `Look at the Manildra-gate scandal and you'll find a very good example of how not to do it.' If you look at the way in which the government has handled the ethanol industry you will see a classic case study of how not to run public policy in this country. The Manildra-gate controversy not only involved the misleading of the parliament but also debased the integrity of economic policy in Australia. We have effectively seen the formation of a public-private cartel, with the Howard government working hand in glove with one company—Manildra—to disadvantage every other company in the ethanol market. It is ad hoc, it is picking winners and it is discriminating against other Australian companies and economic interests.

It is more than just picking industry winners; it is picking one company in a particular industry—in this case the dominant ethanol producer in Australia—to protect and preserve that company's near-monopoly status. This is a stunning example of crony capitalism at work. Let me explain the sequence of events and the perversion of public policy. On 24 July last year representatives of Trafigura met with Manildra in an attempt to secure a domestic ethanol product. Manildra stalled and then refused to supply Trafigura and another competitor company, a small Australian owned firm called Neumann Petroleum. On 1 August, the head of Manildra, Mr Dick Honan, met with the Prime Minister. At this point Manildra had an important piece of market information: if it did not supply Neumann and Trafigura, the only way in which they could obtain their product was from overseas. The official record of the meeting shows that Mr Howard and Mr Honan discussed `the payment of a producer credit to ethanol producers to enable Australian ethanol producers to compete with the cheaper Brazilian product'.

On 10 September last year cabinet decided to act on Honan's request by imposing excise on ethanol and paying an equal production credit for domestic producers. By this time, Neumann and Trafigura had arranged an ethanol shipment from Brazil. In an amazing act of favouritism, the government used the resources of the Australian Embassy in Brazil to monitor the shipment and ensure that it could never dock profitably in Australia. At this point the fix was in. While Honan had received a public subsidy of more than $200 million, his two competitors were stranded on the high seas with ethanol losses of $1 million.

The Howard government did not even have the decency to tell Neumann and Trafigura of the new policy arrangements. The government sat and watched the shipment cross the Pacific Ocean knowing that this would financially damage Manildra's competitors. Not surprisingly, Mr Paul Morton, the head of Neumann and its 59 Australian staff described the situation as:

So let that be put on the record: this is a government that is willing to discriminate against an Australian owned, Australian run, Australian staffed small business to protect the big player in the industry and do so in a pernicious and treacherous fashion. There was no transparency, no accountability and no letting Neumann and Trafigura know about the arrangements but rather a deliberate attempt to hurt them financially—not only an attempt to benefit Manildra but to hurt the competitors financially.

If these things had happened solely in the private sector, the members of the cartel would have been prosecuted under the Trade Practices Act—that is how bad this is as a piece of public policy. If this had been happening exclusively in the private sector, they would have been up before the ACCC and the courts for breaches of the Trade Practices Act. It is one of the worst pieces of public policy in memory—a signpost in the deterioration of the Howard government in their drift towards crony capitalism. At the end of day this government does not believe in competitive markets. It does not believe in fair trading arrangements; it believes in preference, special deals and insider arrangements for the mates of and donors to the government. That is what has happened shamefully in the ethanol industry.

In terms of economic policy, crony capitalism of this kind distorts investment. It leads capital into inefficient uses. It hurts competitiveness. It hurts those who are relatively powerless in the industry. It hurts the consumers and the taxpayers who have to pay more. It is bad economic policy and it is a sign that, under the influence of the National Party, the government is trending back to McEwenism. All those rorts, all those distortions, all those unfair trading arrangements that we had in the sixties and the early seventies—they are trending back towards McEwenism under the influence of the National Party. That is all they ever know. They are not interested in competitive markets. It is a very short-term simplistic view of economic policy. They back their mates. They back their donors and the competitive markets can be thrown out the window. That is the basis of McEwenism. It is the only thing the National Party has ever known. It is all they have ever stood for.

Mr LATHAM —What they disadvantage is good economic policy and the likelihood that investment will be used in an efficient public interest way in this country. That is what the National Party is always on about—it is the special deals, the insider deals for mates—and the member for Riverina should know better. She is one of those National Party members who stands up and says she backs small business. Where was she when Neumann Petroleum was left on the high seas sure to take a heavy financial loss because of the deliberate favouritism and policies of the Howard government? Where was she, with all that small business rhetoric, standing up for the small player in the ethanol industry? She willingly allowed the government to do that company in the neck. She sat there knowing that that company would be disadvantaged by this policy arrangement and all those millions of words about small business were just totally neglected and disregarded. Why? Because she with other National Party members were looking after a big business mate. A big business donor to the government was getting preferential treatment and was getting the sort of favouritism that disgracefully is known as McEwenism. She is into it up to her neck, and she has no defence for the outrageous public policy decision that was introduced.

The DEPUTY SPEAKER (Hon. L.R.S. Price)—Order! The member for Werriwa will please address his remarks through the chair.

Mr LATHAM —I will indeed, Mr Deputy Speaker. So there is no defence for the rort that was pulled. There is no defence for the favouritism and the insider deals of the National Party. For all their rhetoric about small business, for all the protests and talk that we hear in this parliament day after day that this is a government that stands for small business, I say just one thing: remember Neumann Petroleum. Remember the small Australian owned, Australian run, Australian staffed company that wanted to do nothing more than trade in the Australian market in ethanol. They went through all the processes and followed all the rules to find out what? To find out that the Prime Minister had cut a deal in secret with the head of Manildra, the big business competitor and then, even worse, set up arrangements that sold Neumann a pup. It allowed them to get that ethanol product shipped out of Brazil and sail across the high seas with the government—and the government alone—knowing that this was going to incur a financial loss for Neumann. They did not even have the decency to tell the small business that they had been sold a pup. They did not even have the decency to tell the small business they were doing them right in the neck.

That is the shame of this public policy fiasco. It is quite frankly a replay of all the worst aspects of McEwenism—the National Party in there trying to mould the market instead of allowing competitive capitalism to do its best; the National Party in there with special deals and favours for its mates; and, the National Party trying to pretend that it knows more, it knows better and it can pick the winners to determine industry outcomes.

I thought that we had left all that behind us 20 years ago, when a Labor government introduced reforms to open up and liberalise the Australian economy, to establish a level playing field and to restore and respect the integrity of competitive markets. We hear government ministers saying, `We supported all those things through the Senate. We were a responsible opposition in supporting all those reforms through the Australian Senate,' but now they are back to their worst. They have crawled out from under their rocks in the ethanol industry and they are back in there picking winners and playing favourites in an industry that, quite frankly, deserves better.

The bottom line is that you have a replay of the bad outcomes of McEwenism. When they get in there doing the rorts, the favouritism and the preference for their industry mates, it hurts the whole industry, including Manildra. The scandal, the bad publicity and the lack of consumer confidence in ethanol should be a lesson to people like the member for Riverina. It just does not work. Rorting industry policy does not work because the whole industry suffers.

The motoring public is very cynical about this issue. I have driven through parts of regional Victoria where service station owners have placards up guaranteeing that there is no ethanol in their petrol. And you have the motoring organisations speaking out for their constituency and raising the fears time after time. When on top of those consumer concerns you see the rorting of industry policy and all the scandal that came out of it—debated in this parliament—the lesson is clear cut: you hurt the industry by rorting industry policy.

After the lessons rammed into our brains in the sixties and the failure of McEwenism, for the National Party, including the member for Riverina, to come back to these rorts is absolutely pathetic. They should know better. But it is not just the member for Riverina who should know better; people higher up in the government should also know better. The Treasurer, Mr Costello, defended the industry rort. He said that this was good public policy. He stood up to defend the way in which the Prime Minister had not only misled the parliament but also formed a public-private cartel with Manildra. But let us go beyond the Treasurer and go to the advice of the Treasury. In its coordination comments to the cabinet on 10 September last year, Treasury said:

It went on to say:

That is the Australian Treasury talking. That is the Australian Treasury giving its best economic advice to the Howard government. It concluded:

One can only imagine what Treasury has to say about this bill.

Clearly Treasury is against the ad hoc policy making. It is against the strategy of trying to pick winners—not only industry winners but also corporate winners—in the ethanol industry itself. The Treasury, very clearly in this advice, is against the sorts of rorts and favouritism that the Liberal and National parties have pulled in the ethanol sector. But it was not only the Treasury; the Department of Finance and Administration is also scarifying in its criticism of government policy. This is what Finance put through in its coordination comments prior to the cabinet decision:

Finance went on to say that it:

Whack, whack, whack! In terms of public policy, whack, whack, whack! Basically it has said that there is nothing good about the government's ethanol strategy.

We have people like the member for Riverina and the Treasurer standing up and saying it is good policy. How would they know? Why are they saying that they know better than the government's economic advisers—the Department of the Treasury and the Department of Finance and Administration? So what will the member for Riverina—a McEwenist economic thinker in the National Party—stand up and say about how she knows better than the government's economic advisers and how she knows better than the workings of competitive capitalism? Do you know what she is going to say? She will say, `I met some of these people and they showed me around their plant,' and then we will probably find out that they kicked in for her election campaign. That is the basis on which she thinks she can decide that this one company alone, Manildra, should receive preferential treatment—that, because she met these people, inspected their plant and got a donation, this is the company that should be the beneficiary of government policy at the expense of all other Australian companies in this industry.

How is the Howard government operating? It is a government for insiders; a government for its mates; a government for special deals—if you meet them, show them around the plant and kick in for the campaign, you are going to get a policy outcome. What does that say about the outsiders—the people who are left out; the people who do not have a direct link through to the Prime Minister's office or a direct link through to the office of the member for Riverina? What does it say about them? Through no fault of their own, they are discriminated against and disadvantaged in the formulation of government policy. It is cronyism. It is a return to Bjelke-Petersen principles. No wonder you can see the fingerprints of the National Party all over it. That is what they know best; it is the only thing they have ever done in public life—the rorts, the cronyism, the special deals and the favouritism. It is plain bad for the making of economic policy. It is bad for the ethanol industry—and we have seen a very public display of that in recent times.

The other bad thing it does is set an appalling demonstration effect, because it says to all the spivs and all the would-be rorters, `The Hawke and Keating governments put you under a rock with liberalising, open economic reform in the eighties and nineties, but now the McEwenites, the National Party, the rorters and the insiders are back in town. Come out from under your rock and try your worst in all the other industries that had been cleaned up over a period of time.' That is the really sad thing about this: it is the demonstration effect to say to the spivs and rorters, `You should get out from under your rock—the National Party is back in town with McEwenism and you have a fair chance with them to get an insider's deal, to cut the favouritism and benefit at the expense of other competitors in your industry.' That is no way to run economic policy.

Labor's view of this particular legislation is very much coloured and fashioned by our recent experience with these rorts in the ethanol industry. It is bad for that industry, and it is bad for the Australian economy. The government's economic advisers know it. They just do not have a Treasurer who is willing to back his own department and stand up to the rorters around the cabinet table. They do not have the integrity to support competitive markets rather than crony capitalism. It is not a good sign, and basically the only way that it is going get cleared up is with the election of a Labor government.

Only Labor in this parliament stands for competitive capitalism—open, free and fair trading, where companies are treated on their merits rather than on the striking of special deals and favouritism. It is only a Labor government that is going to restore the integrity of economic policy in this country. It is only Labor that truly believes in competitive capitalism. It is only a Labor government that is going to develop a sensible, effective, alternative fuels policy—our energy task force is working on that at the moment. We can do a lot better than the government's shameful performance on the ethanol industry. They stand condemned. It has been one of the worst episodes in economic policy in living memory. Our stance towards this legislation is very much fashioned by recent experience. We will do better for the future because we believe in a better system of economic policy—not only for the ethanol industry but for every single industry and company in this country that wants to do things the right, fair and decent way.