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Wednesday, 25 March 1987
Page: 1520

Mr HURFORD (Minister for Community Services and Minister Assisting the Treasurer)(6.28) —in reply-In closing the second reading debate I thank all honourable members who have taken part. It has been a long second reading debate with many honourable members making contributions, particularly last Monday. I would like to comment on two issues that have been raised in this debate. One issue is the effect on the industry of low world oil prices. It has been acknowledged during the debate that the petroleum resources rent tax replaces the excise system. In replacing that system, the petroleum resource rent tax regime ensures that producers will be taxed only when they make profits in excess of their compounded expenditure rather than when they start producing. The resource rent taxing point is, therefore, far removed from the point at which an excise is imposed and takes account of all expenditures incurred by a participant in a project.

Undeducted expenditure on a petroleum resource rent tax project is compounded forward annually at a rate of almost 29 per cent. The taxing regime, therefore, ensures that it is only in those cases where a petroleum project receives income well in excess of actual expenditures that the tax will be imposed. Consequently, by its very nature, the tax regime takes account of fluctuating world oil prices.

Opposition speakers have also argued that the petroleum resources rent tax will be a disincentive to exploration. Exploration expenditure will, however, be deductible and compoundable when incurred in a permit area in which a production licence is subsequently obtained. When developing the RRT proposal the Government offered the industry a number of alternative packages. After considering those options, the industry rejected wider deductibility of exploration expenditure in favour of the high rate of compounding and relatively low tax rate, which is the essence of the proposal before the House today. These rates reflect the risk of the deductions in respect of exploration expenditure not being recouped in full for petroleum resource rent tax purposes.

In summarising the Government's position, I can do no better than go back to my second reading speech when I introduced the Petroleum Resource Rent Tax Assessment Bill to the House:

The Government believes that a resources rent tax related to achieved profits is a more efficient and equitable secondary taxation regime than the excise and royalty system that it is to replace. I emphasise that the proposed tax replaces the existing system-it is not in addition to it.

That cannot be said often enough. It has to be said so often due to the misrepresentation about it. I continued:

In contrast to production based secondary tax regimes, the petroleum resource rent tax will be payable only in respect of projects earning a high rate of return on outlays.

I make no apology for repeating that point. I continued:

Particularly in light of the current volatility of world oil prices, the resource rent tax system thus offers considerable benefits to the petroleum industry. It strikes a reasonable balance between the objectives of satisfying the right of the community as a whole to share in the benefits of profitable off-shore petroleum projects, and of providing the participants with adequate returns for the risks they accept in undertaking off-shore exploration and development activities.

I commend the Bill to the House.

Question put:

That the Bill be now read a second time.