Senator CAMPBELL (Manager of Government Business in the Senate)(10.03 a.m.) —I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard .

Leave granted.

The speeches read as follows—

EXCISE TARIFF AMENDMENT BILL (No. 2) 1997

The purpose of this bill is to amend the Excise Tariff Act 1921 (the tariff act) to simplify the excise treatment of stabilised crude petroleum oil (crude oil) and liquid petroleum gas (LPG). This bill is part of a legislative package which includes amendments to the Petroleum Excise (Prices) Act 1987.

The provisions of sections 6B, 6C and 6D of the tariff act set out the methods of calculating the excise duty on stabilised crude petroleum oil (crude oil). Section 6B governs the excise duty on old oil, section 6C governs the excise duty on new oil and section 6D governs the excise duty on intermediate oil.

Under each of these provisions, the amount of duty in respect of each type of crude oil is ascertained by reference to the prescribed production area from which the oil is produced and to the prescribed division of a financial year during which the oil is entered for home consumption.

Under section 6B, "prescribed division" in relation to a financial year means one of 36 divisions in that year. Basically there are 3 divisions in each month of a year and this means that the amount of excise duty on crude oil is required to be calculated 36 times per financial year. The payment of excise duty is also made 36 times per year.

This method of continuous calculation and payment of excise duty on crude oil was first introduced in 1983 with the intention of ensuring the systematic collection of excise during a financial year. At that time, the production of excisable crude oil was very high, with excise collections of $4.2 billion in 1984/85 mainly from the Bass Strait region, and this method resulted in relatively even payments of excise throughout the financial year.

In 1987, amendments were made to the method as a result of the deregulation of the crude oil market. The amount of excise duty payable is now based on the volume weighted average of prices realised from the sales of excisable stabilised crude oil by Australian producers (the VOLWARE price of the crude oil). These prices are determined under the Petroleum Excise (Prices) Act 1987 (the prices act) and are determined on a monthly basis. The timing of the calculation and payment of excise duty was not changed. The amount continues to be calculated and paid 36 times per financial year.

As previously referred to, the present method of calculation and payment of excise duty was introduced when the production of excisable crude oil was very high. In 1990, however, the petroleum resource rent tax regime was extended to Bass Strait with the result that only 3 developments in the coastal waters off Western Australia and Queensland are presently subject to excise duty. In 1995/96, the amount of excise on crude oil was only $12.2 million.

It is considered that, with such reduced amounts of excise duty being imposed upon crude oil, the requirement that the duty be calculated and paid 36 times during a financial year now places a disproportionate administrative burden upon crude oil producers and the government. It is, therefore, proposed to amend the tariff act to:

(1)   increase the length of the prescribed divisions from the current period of 8, 9, 10 or 11 days to a calendar month, thereby decreasing the number of prescribed divisions from 36 per financial year to 12 per financial year. This will mean the amount of excise duty will only be required to be calculated 12 times per year; and

(2)   as a consequence of this, require the payment of excise duty 12 times per year in place of 36 times per year.

These amendments require consequential amendments to the calculation of VOLWARE prices under the prices act.

As the calculation and payment of excise duty is based around the financial year, it is proposed that the amendments to both the tariff act and the prices act will commence on 1 July 1997 to avoid any difficulties that may arise from the overlap of the two different timing arrangements during a financial year.

The proposed amendments to the tariff act and the prices act have been developed after consultation with the Australian Petroleum Production and Exploration Association.

This bill also amends the tariff act by removing LPG from the ambit of the tariff act. At present, LPG produced from offshore fields that came into production after 17 August 1977 is excisable under sub-item 17(C) of the Schedule. The rate of excise on LPG is "Free". With the extension of the resource rent tax regime to Bass Strait in 1990, however, the only offshore fields that are subject to the excise regime are those on the North West Shelf. LPG is being produced on the North West Shelf and is excise free. LPG produced from onshore fields is excise exempt.

It is, therefore, proposed to make the production of LPG excise exempt by removing LPG from the ambit of the tariff act. This will remove the unnecessary administrative burden on producers of LPG and the government and will bring the treatment of offshore LPG production in line with the onshore LPG production.

The bill also proposes decreases in the rates of excise duty on aviation gasoline (avgas) and aviation kerosene (avtur) of 0.75 cents per litre with effect from 1 September 1996. The decreases in the excise duty on avgas and avtur were the result of the over-collection of excise duty on these products during 1995-1996. The reductions also take account of the reduction in the operating costs of the Civil Aviation Safety Authority and forecast growth in airline activity which will lead to increases in consumption of aviation fuels.

The decreases were proposed in Excise Tariff Proposal No. 1 of 1996 which was tabled in the House of Representatives on 16 September 1996 and took effect on 1 September 1996.

The proposed amendments, including their financial impact, are outlined in greater detail in the Explanatory Memorandum.

PETROLEUM EXCISE (PRICES) AMENDMENT BILL 1997

The purpose of this bill is to amend the Petroleum Excise (Prices) Act 1987 to simplify the crude oil excise calculation and collection regime. Industry supports these changes.

The Petroleum Excise (Prices) Act 1987 allows for the determination, by the Minister for Resources and Energy, of the volume weighted average of realised (VOLWARE) prices for each excisable crude oil producing region each month; this is the price for excise purposes.

Since the deregulation of the oil industry in 1988 the petroleum secondary taxation regime has altered considerably. At that time the bass strait oil producing region was the only excisable crude oil producing region in Australia. In 1990 the PRRT replaced the excise regime in Bass Strait and PRRT applied to all offshore regions except the North West Shelf project area. However Commonwealth excise continued to apply in state/territory waters, onshore and to the North West Shelf. The fields which are currently subject to excise are: the Jackson field in south west Queensland and the Saladin and the Harriet/Lenita fields in Western Australian coastal waters. These three fields are significantly smaller crude oil producers than the Bass Strait region, with sales directly to ship compared to Bass Strait where pipeline sales were continuous. During 1997-98 the Wanaea field in the North West Shelf region is expected to become excisable.

Currently excise is collected thrice monthly with payment of excise occurring before the producers receive payment for the oil sold. To compensate for this early payment of excise, the volware price calculation allows a compensation factor called `credit terms compensation' for part of the time difference between excise payment and receipt of payment.

The act also imposes the obligation to determine VOLWARE prices for oil producing regions even though their production rate is below the level at which excise liability occurs. These prices exist in three forms: a reference price for the month ahead; an interim VOLWARE price for the month immediately past; and a final volware price when all transaction data is complete. Depending on the date of discovery, the rate at which excise is levied is based on progressive production tranches with some annual production being excisable at a zero rate. This bill removes the necessity to determine volware prices for oil producing regions whose annual production is below the first excisable tranche, leading to administrative savings for industry and government. If the annualised production increases to 80 per cent of the first excise tranche the determination of volware prices could be reintroduced.

This bill, together with the Excise Tariff Amendment Bill (No. 2) 1997, which are presented together as a legislative package, will change the excise collection regime from three times each calendar month to monthly, therefore negating the requirement for the determination of a reference price. In order to maintain revenue neutrality the 15 day credit terms compensation period will need to be changed to 30 days. The method of calculation is laid down in the Petroleum Excise (Prices) Regulations and its amendment is dependent on passage of these amendment bills.

I commend the bill to honourable senators.

Debate (on motion by Senator Chris Evans) adjourned.