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Monday, 26 May 1997
Page: 3576

Senator MURPHY(4.58 p.m.) —In debating the second reading of the Customs and Excise Legislation Amendment Bill (No. 2) 1996, I would just like to go back to a little bit of history with regard to the diesel fuel rebate scheme. The diesel fuel rebate scheme provides rebates of excise or customs duty on diesel fuel purchased for specific off-road uses in mining operations and primary production—for example agriculture, fishing and forestry operations, although the forestry operations have been somewhat limited in more recent times.

The scheme was introduced in its current form in 1982. Prior to the 1982 rebate scheme, exemptions were provided by way of an exemption certificate scheme to mining, farming and fishing industries. The exemption scheme was introduced in 1958-59. The scheme assists Australian mining operations and primary production to remain internationally competitive by making sure we do not unnecessarily tax business inputs. Diesel is, to these industries, as important as electricity or natural gas is to manufacturing operations. Electricity and gas are not subject to excise.

The continuation or otherwise of the diesel fuel rebate scheme has been the subject of some debate over a long period of time. Indeed, when Labor was in government, Treasury often took a view that the scheme was a subsidy paid to industry. That was a view that we clearly disagreed with.

The Labor government has, on a number of occasions, tightened eligibility in various areas of the scheme. We accept that that has had to happen. We have also always accepted that the scheme should be retained. With regard to the retention of the scheme and this current government's position, it was very interesting, both prior to the election and immediately after, that there was some speculation about whether or not the scheme was going to continue. Indeed, I think the Treasurer (Mr Costello) and a few others indicated that maybe the scheme would end. I suppose that was speculation. In so far as agricultural purposes were intended, it was the Prime Minister (Mr Howard) back in late May who, with a nod, nod, wink, wink speech to the NFF, said, `No, farmers are all A-OK. You'll be protected.' Then, of course, just before the budget, Deputy Prime Minister, Tim Fischer, told the mining industry:

. . . in consultation with the mining industry there will be some adjustments by legislation to limit eligibility, but the core thrust and coverage of the scheme will be maintained.

The Treasurer in his budget speech said:

There are measures to tighten eligibility and clamp down on misuse, but the Diesel Fuel Rebate Scheme remains.

As I understand it, it was foreshadowed in the budget documents that there would be a saving of around $440 million over four years. In the budget statement No. 3, the government said:

The operation of the Diesel Fuel Rebate Scheme . . . is to be revamped from 1 January 1997 to curb overclaiming of the rebate and contain the associated growth in outlays. This measure will address the concerns raised by the Australian National Audit Office about `leakages' from DFRS, and curtail the excessive growth of outlays stemming from Administrative Appeals Tribunal/Federal Court decisions.

With regard to those matters, the amendments to the bill before us are primarily intended to restrict eligibility in the mining operations category; to close loopholes; to address, as I said, the recent Federal Court and AAT decisions that have had the effect of widening the definition of mining operations as that relates to the diesel fuel rebate scheme; and to improve accountability of the scheme and reduce expenditure under the scheme from misuse, following strong criticism of the Customs administration by the Auditor-General. With regard to the Auditor-General's report and recommendations, I would particularly like to go to recommendation 2 which in part says:

ANAO recommends that DIST, in consultation with Customs and other relevant departments, comprehensively examine DFRS—

And dot point one states:

seek clarification of its purpose and objectives.

I think that is one of the most important things that the ANAO has suggested with regard to the diesel fuel rebate scheme. The response from Customs is cited here as being accepted in relation to administration of the scheme and DIST's response is that it is accepted.

The proposal there was to clarify the purpose and objectives. If you look back at most, if not all, of the court and AAT appeals and challenges to its application, it has been probably because there has never been a very clear and specific intent and objective for this scheme. Even now, the government has not really addressed that question.

Whilst it is recognised and accepted that some tightening up of the scheme is needed to make sure the rebate applies to specific off-road uses, what is disturbing is that these amendments that are proposed fail to recognise or even take account of concerns raised by the mining and cement industries—and, indeed, even the rural sector. This is despite the fact that the government claims the amendments have come about as a result of extensive consultations and despite statements from their own colleagues—government members—of support for the existing scheme.

The minister will remember that the government set up this high level negotiation group of which Senator Parer and Mr Prosser were members. There was some discussion and, for all intents and purposes, an agreement was reached. But it would seem to me that the industry is still far from being happy—the mining industry in particular—with the outcome of those consultations and, indeed, the shape of the agreement that was finally reached. It has been reached to some extent but there is still significant concern with regard to the ongoing problem that will be associated with the intent of this scheme. What is the real intention of the scheme? The Prime Minister said the group was established to undertake a specific task. The Prime Minister stated:

. . . the intent of the changes should be to achieve the dual objectives of facilitating an expanding, competitive minerals sector while containing the expenditure growth flowing from widening eligibility beyond the intent of the Scheme.

The changes were announced on 31 October and both Senator Parer and Mr Prosser made much about the extensive consultations that had taken place. Yet, even following that, the Minerals Council of Australia still have some concerns. Mr Ellis, on behalf of the Minerals Council, stated:

. . . the legislation and the comments made by the minister in his Second Reading Speech appear to go beyond that agreement. They do not provide the certainty integral to our agreement. Following a detailed analysis of the legislation, the Council will be seeking the Government's cooperation to rectify the apparent unintended consequences . . .

It still comes back to the point that there is no clear definition of what is intended to be achieved from the diesel fuel rebate scheme. There is a broad recognition that it is there to assist industries and create a level playing field. Even when you look at some other countries where diesel fuel, as an input into producing goods, is significantly cheaper than it is here in Australia, there is still this problem.

Of course, we have not heard the government dispel the speculation that there may well be a cap placed on the diesel fuel rebate scheme, which would create total uncertainty. It is a ridiculous situation. I do not know how you would work it; maybe you can explain that, Minister. If you have a cap and you get all of the claims in, what percentage of the claim will be paid, to whom and on what basis? There is nothing worse, in so far as our mining industry and our agricultural industry are concerned, than having those sorts of uncertainties hanging over them.

What is of particular concern to me is the issue that relates to the cement industry. I guess I am referring to the cement industry in my own state because it has a significant investment in Tasmania, both in terms of infrastructure and employment. In 1993 Australian Cement Holdings, which is Goliath Portland Cement at Railton, completed the bulk of its site upgrade—a capital expenditure on site which is ongoing. At the completion, in excess of $100 million will have been spent. In addition, a $50 million ship was purchased in the same year for the specific purpose of transporting cement products to mainland markets.

A major investment is also taking place in the form of a new limestone mine. This development involves some 100 trucks operating at any one time and, consequently, their diesel fuel usage is quite significant. Some 200 people are employed directly at Goliath and the flow-on employment effect is substantial. Shaw Contracting, a Tasmanian based company which is employed by the company, has as many as 100 vehicles on site at any one time. In Tasmania, Australian Cement Holdings owns Besser and Cornwall. In all they employ somewhere in the vicinity of 350 people.

Since June 1995, Goliath Portland Cement has not received the diesel fuel rebate, despite the fact that one company within the Australian cement group is receiving the rebate. This government has been claiming that the very reason they are not receiving the rebate is because, in 1995, we removed it.

Senator Parer —That's true.

Senator MURPHY —Senator Parer says that is true but it is not so. It is true that we did tighten up the eligibility but it was always the intention that the amended legislation would continue to provide a rebate for diesel fuel used for the purpose of mining calcite, or calcium, from limestone for the production of cement. That is even supported in a letter from Mr Prosser, the Minister for Small Business and Consumer Affairs. Firstly, just to dispel this myth that you people keep trying to push about, I refer to a letter dated 9 August 1995 from the then Minister for Small Business, Customs and Construction, Senator Schacht, in which, in part, he says:

However, the law continues to allow rebate to be paid where an activity can be said to be `mining for minerals' and does not simply constitute the extraction of the now excluded materials.

Therefore, the legal test is whether the activities of a claimant are carried out with a view to recovering from the limestone ore, a mineral or minerals such as calcium carbonate (or calcite). If this is the case, then the rebate is payable.

In a further letter from the now minister, Mr Prosser, dated 16 October 1996, the minister, in part, says:

Most quarrying materials previously eligible for diesel fuel rebate became ineligible on 1 July 1995. The only materials presently eligible are limestone for use in de-acidification of soil in agriculture and materials from which the mineral content is extracted, such as rutile.

Minister, that somewhat makes a bit of an untruth what you have been saying and what you told me in estimates.

The cement industry, in its submission to the Economics Legislation Committee inquiry into the Customs and Excise Legislation Bill (No. 2) 1996, highlighted the inequity of the situation. I would like to refer to that submission because they also acknowledge the fact that the then minister, Senator Schacht, had written to them. It was their view that what he had said was correct. In their submission—and I will read part of it—they said:

The Cement Industry mines limestone for the sole purpose of recovering the mineral calcite or calcium from what is a naturally occurring raw material. Under the `mining for minerals' test we believe we are eligible for the diesel fuel rebate.

The Cement Industry enjoyed the benefit of the diesel fuel rebate prior to the legislation passed in July 1995. With the introduction of the Customs and Excise Legislation Amendment Act 1995 (Act No. 87 of 1995), which came into effect on July 1, 1995, some confusion arose as to the continuing eligibility of the Cement Industry in respect of its mining activities directed to the recovery of calcite or calcium. This legislation introduced a clause which excluded—

and this is the important point—

sand, sandstone, soil, slate, clay (other than bentonite or kaolin) basalt, granite, gravel or water, or limestone (other than agricultural use limestone).

The insertion of limestone in the 1995 amendment, was intended to exclude limestone which was quarried but not to exclude limestone which was mined, where mining was undertaken in the pursuit of mineral recovery (calcite or calcium). The blanket exclusion of `limestone' has created unintentional and undue confusion. The intent was to clarify the quarrying issue.

I will come to this a little bit later. The situation with regard to the cement industry is that Customs has always contended—and indeed may well now, as a result of these amendments, contend—that they are quarrying.

If it is the case that, although Customs have been fighting a losing battle in the courts with regard to this matter, and it seems to be getting more confused by the day—I think they are fighting a losing battle; I notice the minister nodded with regard to that—and they are now changing the course of their attack on the basis that if this legislation goes through they will say: `You might have won the battle with regard to the minerals mining test, but we are going to knock you over on the basis of the quarrying test, which we think you will not meet,' that provides a somewhat interesting set of circumstances. One would have to wonder about coalmining in so far as it relates to open-cut. The mining industry would be rather interested in such an interpretation of quarrying.

If a company is mining limestone and then going for a process to extract a mineral which to all intents and purposes, as I understand it—and I will be very interested to hear whether my opinion is wrong—is not excluded by the list of other things that are described as not being minerals for the purposes of the legislation, it will be very interesting to see what sort of position the Minerals Council will adopt. I raised this question with them.

Minister, when I asked some questions of you in the estimates you indicated that, should Customs lose their court processes, they would be paying. The information that is being conveyed to the cement industry appears to be: `We are still not going to pay you even if you win in the Federal Court because we will have this legislation up and we will knock you over on the basis of quarry.' I will be very interested to hear the minister's explanation of that when the times comes.   I also ask you, Minister: even if at some point in time you win the argument about quarrying, will it also be the case that you will not be paying the cement industry retrospectively for those claims they had before this legislation became law?