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Tuesday, 13 June 2006
Page: 4


Mr FITZGIBBON (12:51 PM) —The Fuel Tax Bill 2006 and cognate bill are important bills and bills we should have been debating the last time we were here. But I will come back to that topic at some point during my speech. The Fuel Tax Bill 2006 is complex, but it is broadly about three things. The first is moving business from the Energy Grants (Credits) Scheme onto the new Fuel Tax Credits Scheme. The second is promoting changes to the way businesses that are exempt from excise claim back tax paid on fuel. The third is putting in place the legislative structures required to give effect to the phasing in of tax or excise on LPG, CNG—that is, compressed natural gas—and biofuels, including ethanol.

The opposition has expressed support for the broad structure of the new fuel tax regime, which provides for: (1) a single system of fuel tax and associated credits; (2) reductions in the incidence of fuel tax levied on taxable fuels; (3) a staged introduction of a framework for the taxation of liquefied petroleum gas, liquefied natural gas and compressed natural gas from 1 July 2011—that was going to be 2009 originally, but, as a result of industry lobbying, particularly ethanol and biodiesel industry lobbying, it was pushed out to 2011; (4) a staged introduction of excise and phasing out of domestic assistance for biodiesel and domestic ethanol; and (5) the linking of fuel credits to environmental standards.

Under the fuel tax credits system, all taxable fuel acquired or manufactured in or imported into Australia for use in off-road applications for business purposes will become tax free over time. There will be effective tax-free status introduced over time for business off-road use. Petrol for off-road business use will also be eligible for a fuel tax credit from 1 July 2008. This is a part of the phase-in introduction. For off-road usage, the current Energy Grants (Credits) Scheme will be phased out from 1 July 2008, when a 50 per cent fuel tax credit will apply, and 100 per cent for petrol for uses that the current grants scheme recognises. However, the new tax regime will gradually impose a fuel tax for biodiesel, domestically produced ethanol, LPG, CNG and liquefied natural gas. This will be phased in from 1 July 2011 to 1 July 2015. This delay has been essential, as the industry argued, for the development of new capital projects as they work through their infancy.

In layman’s language, all of that means a couple of things. For many years in this country, we have had what used to be called a diesel fuel rebate—a proposition that applied to both off-road and on-road users of diesel. If it was used in business for business purposes, it was effectively tax exempt, and the tax was claimed back through the tax office. It is interesting to note that originally the principle lying behind the off-road process was that, because fuel taxes were hypothecated—that is, spent specifically on road funding—then people off-road should not be making a contribution to that funding model. Of course, over time, the rebate became extended to certain heavy on-road users. That has been a proposition that has enjoyed bipartisan support in this place for many years.

Not all that long ago, the diesel fuel rebate was replaced by what was called the Energy Grants (Credits) Scheme, and that changed the way business claimed back the tax, as well as making various changes to the regime, which I do not think we need to go into the detail of today. Now we are going to a new scheme called the Fuel Tax Credits Scheme, which effectively has the same net result. It is a different name, a different model, and there are some changes around the edges, including extending the rebate—if you want to call it a rebate—on petrol. I have made the point in this place that not too many vehicles driving around in this country are 4.5 tonnes or heavier and use petrol, so I do not know what benefit that is going to have for business.

Probably the most controversial aspect of this bill is the way it changes the way business claims back its tax. This is the reason why we are debating this bill this week rather than the last time we were in this place. At the moment, businesses pay for their fuel and, along with that payment, they pay the excise on that fuel. They are then immediately able to claim that back from the tax office. Rightly or wrongly, for some businesses this is actually cash flow positive. You might have a 14-day or even a 30-day credit arrangement with the supplier, and, if that is the case, it is more than likely that you are claiming the tax back before you have actually made the payment. Cash flow is a very important matter for businesses generally, but in particular for small to medium businesses. I certainly do not have a problem if some businesses have been getting a cash flow positive result out of the existing system. Whether they are or they are not doing that under the current system, if it is not positive cash flow, it is certainly a neutral cash flow if they have been able to claim back the tax at the same time, if not before, they have to pay the tax.

The proposal in this bill is to force businesses, including small to medium businesses, to wait until they lodge their BAS to claim back the tax paid on those fuels. You will appreciate that many small to medium businesses lodge a BAS on a quarterly basis, once every three months, while some only lodge one once a year. Once a year is less frequent, but quarterly is very typical. Under this proposal, you will have businesses carrying literally thousands if not tens of thousands of dollars for up to three months until they have the opportunity to claim that money back on their BAS. I had someone, whom I shall not name, suggest, ‘That’s not a problem, they can just lodge their BAS monthly.’ The people who say these things obviously know very little about the pressures faced by small to medium enterprises in this country.

The BAS is a nightmare, and I do not say that in a political sense. I am sure those on both sides of this place would acknowledge, whether or not they are supporters of the GST, that the BAS is now a fact of life—it is a part of doing business—and that the less often you have to do it the better. It is a significant burden on business and you would not want to do it once a month, so to suggest that businesses can fix the problem by lodging monthly is ridiculous and does not fall too kindly on the ears of those who operate those businesses.

This is a significant issue not just for the people you would typically think about in respect of this bill—those who are engaged in the petroleum industry and those who drive trucks or transport as part of their business—but for all of the associated people who are caught up in this regime. People in the plastics industry, for example, use petroleum based ingredients to make their products, and they will be caught up in these changes. So it is very significant. The impact that this will have on businesses around the country will go well beyond those whom we would think about in the first instance.

The member for Swan, when he speaks to this legislation, will highlight another issue that has just come to my attention: the prospect of some businesses being faced with tax for the first time. A representation has been made to the member for Swan by a business in his electorate. I will let him go into the detail and to name the business if he so wishes. This business simply buys and packages goods to on-sell to the supermarkets—for example, mineral turpentine, white spirits, kerosene, methylated spirits and thinners. The business says that it was not subject to this tax regime under the previous arrangements but it will be under the intended regime, which the bill we are considering today gives effect to.

I apologise to the minister for not seeking his imprimatur before I spoke, but I now seek leave to table the letter from that business so that he can look at the claims it contains. It is not a political letter in any sense. When the minister summarises the debate, he will be able to clarify whether the business that has written to the opposition is right in assuming the impact the bill will have on it.

Leave granted.


Mr Nairn interjecting


Mr FITZGIBBON —I am about to acknowledge that, Minister. This is a significant issue for business. The minister has given me the lead-in to go on to the reason we are debating this bill this week rather than the last time we were here. The government did face a revolt from its own backbench. I see the member for Gilmore smiling up the back, and I know she was part of that campaign against her own government. Many members on both sides were very concerned about the significant cash flow impact on small to medium businesses in particular. The government pulled the bill last time we were here—it was on the list for debate all that week—to deal with that significant backbench revolt.

The bill is before us again with a not insignificant government amendment. That government amendment effectively defers the introduction of this system for some two years; in other words, it puts in place a transitionary arrangement. While that was welcomed by business—indeed, welcomed by the opposition—it does no more than to defer the issue. In two years time business will be facing the very same proposition that we have been discussing publicly now for the last month or so, so it is really no solution at all. I have thought long and hard about how businesses might prepare themselves for the new system during the transition phase in such a way as to lessen the burden of the new arrangements, but I have not been able to find any answers to that question. The amendment does not change the regime in any way. It simply says, ‘We are still going to do that, but we will allow you two years to prepare yourself for it.’

I can foreshadow for the Assistant Treasurer the possibility of my moving an amendment in the consideration in detail stage—if not in this place, in the other place—that will extend that transitionary period ad infinitum. In other words, if this change is going to cause significant pain for small and medium enterprises—and for larger enterprise, for that matter—they will be able to stay in the current system. Let us think about what that means. I suspect there will be some who will say that having some businesses in one system and some in the other will be a bit of a nightmare for the tax office. I say to the members opposite: do we care if there is a small increase in burden on the tax office, with all of its resources, if it means alleviating a significant burden on small to medium businesses in particular?

They might ask whether there is a financial implication. I think not. This is only a timing difference. The government should be able to clarify that point, and I invite the Assistant Treasurer to do so during his summary on the bill. Would extending the transition period have financial implications for the revenue base? Does the transitionary period have financial implications for the revenue base? I suspect it does not, and that it is no more than a timing difference. I invite the minister to confirm that or to do otherwise when he speaks at the conclusion of the second reading debate. I do this with good intentions. I am inviting the Assistant Treasurer to come back and tell me why this is not a good idea. Come back and tell me why business, particularly small to medium enterprises, should not be able to stay in the current system ad infinitum if the new regime is going to cause significant problems for them on the cash flow front.

I notice that the most recent Sensis survey of small business has cash flow amongst the top three issues facing small business, and of course the issue of cash flow is always amongst the top concerns. The government quite rightly argues that, in many senses, the new system is better than the old. Instead of having to do the extra paperwork of claiming back the tax in isolation, simply mould it into the business activity statement. That is a good concept and I do not have any problem with it. But I do have a problem with it if it is going to cause significant cash flow problems for small to medium firms.

If the change is only about helping business—and I have not heard the government say it is all about helping the tax office—why not let business choose which is the better system for them? If they want to do the extra paperwork on a more regular basis to secure the rebate earlier, then let them do it. So we say—though it might seem like a conflict in terms—extend the transition period ad infinitum. Give business a choice.

Again, I foreshadow that we are considering moving an amendment in the in detail stage of the bill. I invite the Minister for Revenue to come back, debate the point and tell us why that should not be done. If he comes up with some good reasons that I have not considered, we will be happy to drop the idea. If it is unworkable we will accept that, but there would have to be some pretty strong points.

I want to move on to the introduction of tax on biofuels, LPG, CNG et cetera. This has been a long-running debate. I hope that the politics of this is now settled. People on both sides of this chamber want to support the biofuels industry. They want to support alternative fuels. They want to wean us off our very heavy and increasing dependence on more traditional fuels, as we approach 60 per cent import dependence on oil and are now importing some 22 per cent of our refined petroleum products. Often, when we have this debate, we get bogged down in talking about ethanol, so I want to address that issue. The Labor Party started the ethanol industry in this country. I think it was in 1992 that we first began providing capital grants assistance for the construction of ethanol plants. When we left office, ethanol still enjoyed tax-free status and enjoys tax-free status today.

A couple of years ago the government decided—and the opposition agreed with this proposition—that the time would come when ethanol and biodiesel would be allowed to stand on their own feet. In other words, it is great to give these industries support during their infancy and development, particularly given their high up-front capital costs and the time it takes to get a return on investment—and we all agreed that they should have that support—but, at some point, they should face the tax regime.

On that basis, the Prime Minister finally announced that the phasing-in of those tax arrangements would come into effect. I think it was originally to be in 2008, beginning at a very small rate of taxation—2.5 cents, I think—and phasing up to a tax rate equivalent to the fuel’s energy content. These provisions also applied in varying ways to other non-traditional fuels like LPG, CNG et cetera. There was a backlash from the industry and, in response to that backlash, and to political pressure, the Prime Minister pushed back the introduction of that regime to 2011. I think there is to be a five-year transition, taking it out to around 2015 or 2016.

But the Prime Minister did one other thing. He also announced that, instead of applying the tax at a rate equivalent to energy content, he would apply a rate of tax equivalent to the energy content discounted by 50 per cent. There was no logical reason for discounting it to 50 per cent rather than 40 per cent or 60 per cent or not at all. The Prime Minister was looking for a response to the political pressure and effectively backed down and significantly reduced the tax. At around the same time, the Prime Minister decided that he would give the industry total protection from import competition by applying a full rate of taxation but offsetting it with a production subsidy of the same amount—effectively applying a zero tax regime to all of those fuels.

So where are we? We have an industry that has been enjoying government assistance through capital grants since 1992 and which continues to receive capital grants. We have an industry that will be exempt from fuel tax until 2011 and then will receive a phased-in tax regime which will be less than half of the tax applied to LPG, for example, when it is fully phased-in. And we have an industry which, for the next half dozen or so years, will be fully protected from import competition.

It is true that we should be supporting these industries in their infancy. Ethanol creates regional jobs and is slightly better for the environment than are some of the more traditional fuels. It is also a very significant ingredient in giving independent fuel retailers a competitive edge over the major players, because whenever you displace a taxed fuel with an untaxed fuel it is obviously cheaper and, if you choose to blend that in your fuel, it gives you a competitive edge.

But the concept of mandating I reject. We should not be legislating in this country to force people to buy things. What is next: lemonade in your beer or skim milk in your coffee? And I am still concerned about the state of the market in this industry. It is still dominated in a very large way by one player—to the tune of more than 90 per cent market share, I think. You would be mandating close to a monopoly. So I reject that proposition. But I believe that we should continue to do all we can to grow the market share for these very important alternative fuel supplies, and I extend those sentiments to both LPG and CNG.

Very importantly, I also extend those sentiments to the concept of the gas to liquids industry, because, if we are really going to get serious about establishing energy independence in this country in transport fuels, we have to start making use of our abundant reserves of natural gas. There are 140 trillion cubic feet out there which, by using today’s technology, could be transformed into liquid diesel fuels which would go straight into existing diesel engines without any modification whatsoever. These liquid diesel fuels will be available to us in abundance if the government just does something about making sure that the oil companies take up those opportunities.

It is about broadening the base. We cannot allow oil companies to concentrate only on LNG—that is, liquefying gas and exporting it to the global market. That is a good thing, and the opposition supports that proposition, but at the same time Australia has to be developing itself domestically as a country which is smart enough to use those significant supplies of natural gas for its own domestic purposes. We cannot afford to sit back and wait for the oil companies to tell us, when we really need this gas, that it is a bit too late, that all the easy-to-win stuff has been sold off in global LNG markets and that if we want this gas now we are going to have to pay the higher prices involved in securing the gas, which is typically further offshore and deeper in the sea and therefore much more expensive to win. We need an energy plan on that front, and that energy plan has to include a plan for our land transport needs and take into account the need to address the environment. I am not saying that gas to liquids is squeaky clean on the environmental front when you look at it on the whole-of-life-cycle analysis, but it does have significant environmental advantages.

So the opposition is supporting this bill. It is a new regime that the opposition does not have any great difficulties with. Indeed, there are some improvements in that regime as compared to the one currently being used by those who rely on the scheme. We accept the taxation arrangements on biofuels, LPG and CNG. Again, as I said, we had that debate some years ago, so we are not looking to criticise that or to make changes there.

I am conscious that some in the industry are now on the lobby, hoping to phase in the introduction further out—in other words, instead of introducing the scheme from 2011, maybe going out to 2013. They say that the process has been tardy—I will not say that the government has been tardy; the process has been tardy—and that they need a full five years from the inception of the project to reach a maturity where the project becomes profitable. Because the government has been slow to put this into effect, while the date of 2011 gave those in the industry five years when the agreement was made, it does not now give them those five years. If the government wants to bring that debate to the table, we will be happy to hear those arguments as well, but at the moment I am assuming that there is no intention to do so and the government is sticking to the proposals as they are contained in the bill.

On that point, the industry is also complaining about the phasing out of import competition. This bill is not specific to that, because the government does not need legislation now to begin to reduce that customs levy on imported ethanol and biodiesel. It will not need to do so until 2011. The Minister for Revenue and Assistant Treasurer has kindly written to me in response to some questions I asked on an earlier bill about the parity between domestically produced biodiesels and imported fuel, and he has confirmed that, by the end of this phase-in period, imported ethanol and biodiesel will face the same taxation regime as domestically produced ethanol and biodiesel.

I am not sure that the industry was aware of or fully conscious of that when we reached this agreement on the phasing in of this taxation regime. I am not criticising it per se; I think a bit of import competition can be a good thing, and to those who want to mandate ethanol I say that we need imports if we are ever to reach 10 per cent market share. The domestic industry, in my view, would never reach that level of supply. But, having confirmed that the tax regimes will be equivalent after the phasing in of this regime, I want the minister now to confirm that that means he is going to reduce the customs levy rather than provide offshore producers with the production subsidy. I would assume that it means a reduction in the customs levy, but I would like him to confirm that for the House—as obvious as the question might be—because I think the industry needs to have absolute clarity on that point. I remind the Minister for Revenue and Assistant Treasurer that I pose those questions to him and that the opposition is considering amending the bill in the consideration in detail stage to make the new arrangements for business permanent so that business, particularly small to medium businesses, will have a choice. I 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 for failing to properly consult with commercial fuel users on the appropriate model for payment of fuel tax;

(2)   condemns the Government for circulating major amendments less than two hours before debate on the Bill is to be resumed;

(3)   calls upon the Government to reduce our dependency on foreign oil and to promote:

(a)   existing alternatives like liquid petroleum gas, ethanol and biodiesel;

(b)   emerging alternatives such as compressed natural gas, liquid fuel from gas and stored electricity; and

(c)   future fuels, such as hydrogen as Labor has committed to in its Fuels Blueprint;

(4)   condemns the Government for ignoring the impact of rising petrol prices on Australian families;

(5)   condemns the Government for increasing petrol prices in regional Australia through the abolition of the Fuel Sales Grants Scheme at a time of very high petrol prices;

(6)   condemns the Government for failing to strengthen the Trade Practices Act to protect competition in the petroleum industry; and

(7)   condemns the Government for failing to guarantee that the money saved as a result of the abolition of the Fuel Sales Grants Scheme will be specifically directed to roads in regional, rural and remote Australia”.


The DEPUTY SPEAKER (Mr Jenkins)—Is the amendment seconded?


Ms Corcoran —I second the amendment and reserve my right to speak.