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Wednesday, 10 September 2003
Page: 19622

Mr FITZGIBBON (9:06 AM) —The Taxation Laws Amendment Bill (No. 8) 2002 seeks to implement a number of changes to the petroleum resource rent tax regime that have been sought by major industry players. Schedule 5 deals with changes to the PRRT to cover a change of use from a production licence to an infrastructure licence and the partial use of a facility by a third party. In the first case, it is proposed to allow estimated expenditures associated with closing down a project to be deducted before they are incurred. This could happen if a facility continues to be used under an infrastructure licence by another project, but no projects are affected to date.

Transfer of the facility at the conclusion of the PRRT project confers a residual value that adds to the profitability of that project. In my view, there is no justification for attributing a fictitious cost to the transfer, and it could confer a large tax benefit on any PRRT taxpayer who takes advantage of it. The costing provided in the explanatory memorandum is ridiculously cursory and very wide ranging. I suggest that it is not much more than a guesstimate. There is no immediate need to address this issue. It could be dealt with when and if the need arises and when all the issues, including the real revenue implications, can be better assessed. On that basis, Labor opposes the infrastructure licence proposal.

Partial use of PRRT project facilities could occur when petroleum from another project is processed or tolled through the facilities. Currently, tolling receipts and expenditures may not be taken into account for PRRT purposes. Consequently there is no incentive for partial use arrangements and this could impact adversely on the productivity and international competitiveness of projects. Labor wants to see the most efficient use of capital by the companies that have the rights—and, I should say, the obligation—to develop the community owned finite petroleum resources in the nation's best interests. Labor supports the partial use proposal.

These are just two of many PRRT changes coming before the House over the next few months, all of which, as I have indicated, have been sought by the industry itself. The industry argues that deeper sea exploration and development, among other things, are increasing costs and, therefore, greater tax breaks will be required to keep investment solid. Labor wants to take a big picture approach to the PRRT regime and to energy policy generally. Labor wants an approach that addresses the real impediments to the further development of Australia's petroleum resources, particularly our gas reserves. These impediments have as much to do with the concentration of ownership, global competition for capital and gas market constraints as with the flaws in the PRRT and with the property rights and regulatory regimes facing the industry. Labor wants to work with gas customers and sellers to look at measures to expand the market options for value adding in industrial and transport fuel projects and, of course, for the domestic consumption of natural gas. Labor will require the companies that have custodianship of community owned gas resources to do more to commercialise them or to allow others the opportunity to do so.

The further development of Australia's natural gas resources at a time when crude oil self-sufficiency is rapidly in decline is fundamental to nation building in Australia over the coming decades. Australia's oil and gas industry is critical to Australia's economic wellbeing. It employs around 6,000 people, it is a significant contributor to the nation's GDP and it is central to Labor's vision for nation building. The industry exports around $12 billion of crude oil, LNG and LPG and replaces another $7 billion of products which we would otherwise need to import. In 2001-02 it contributed around $2.8 billion to Commonwealth government revenue in PRRT, excise and royalties and another $2.4 billion in company tax and other taxes. These taxes are in effect flowing from the exploitation of our natural resources.

This contribution to Commonwealth revenue is appropriate, given that the industry profits from the development and exploitation of the nation's natural resources. It was the Whitlam government which first argued for a more equitable contribution to the tax base from Australia's extractive industries. In 1977 Paul Keating, as shadow minister for minerals and energy, announced that Labor, in government, would apply a secondary—but profit related—tax to these industries. In 1989 the PRRT legislation became the manifestation of that policy. The tax allowed a welcome neutrality for investment decisions when compared with the old arbitrary levy arrangements. It also gave new meaning to the concept of providing a dividend to the owners of Australia's finite resources—that is, of course, the Australian community. Like much of the policy emanating from that government, it was entirely irrational.

Our colleagues on the other side of politics—and indeed some in the industry—argued that the petroleum and minerals industries were already overtaxed and that the new tax was some sort of socialist measure which would result in the ruin of the industry. History now demonstrates how invalid those claims were. Indeed, the past two years have been relatively kind to those who work in or invest in the industry. The effective after-tax return on assets employed in 2001-02 was 14.8 per cent. The return on funds employed was 19.6 per cent. In the previous years the figures were 17.9 per cent and 23.8 per cent respectively. These are substantially better returns than at any time in the past 15 years and they reflect the huge impact that crude oil prices have on the industry's fortunes.

The Labor Party wants this industry to be always healthy. While the figures I have cited fall somewhat short of the results that were common in Bass Strait's heyday, they are still very solid and enviable. The initial investment decisions regarding Bass Strait were made when the international price of oil was around $US1.70 a barrel. The price peaked in 1981 at $US36.36 a barrel, an increase of more than 2,000 per cent in just 11 years. In those days, Esso Australia and BHP reaped huge windfall returns and the need for some tax on economic rent became apparent to most. When Labor first introduced PRRT, some Bass Strait fields were said to be among the 10 most profitable ever in the world. But they were not all this way, and a means of equitably and neutrally taxing them was urgently required. However, the industry now believes that more needs to be done. This is reflected in the changes being sought in this debate today.

Labor is more than happy to consider these proposals in their totality and, as I said earlier, in the context of an energy policy—a medium- to long-term strategy for oil and gas in this country. This is the point I was making after question time yesterday when Minister Macfarlane had misrepresented me with respect to the Gorgon gas field. I have never said that the LNG plant on Barrow Island should not proceed. What I have said is that it is not in the nation's best interests to process that gas from an island far from shore, thereby denying the second important tranche of that development, which is gas to shore to fuel nation-building, value-adding industries, particularly in the transport sector.

Many of these gas resources are stranded and are difficult and expensive to recover, and that is what this RRT debate is largely about. What we have to do as a nation is look at a means, or many means, of making those fields more commercially viable. One very important way to do that is to create more demand onshore. That will require some government intervention and some government encouragement. We do not have an energy policy in this country. My commitment is that Labor will produce one. Labor will produce an energy policy that takes a whole-of-government approach and takes into account upstream and midstream issues and the important consumption issues onshore. That is what I was talking about with respect to Gorgon.

I do not accept the differential in the cost between bringing Gorgon onshore and bringing it to Barrow Island. I think there has been a bit of a fiddling of the figures there. But I am pleased that the Gallop government in Western Australia has made it a condition of consent that, before the joint ventures establish a second LNG train on Barrow Island, they must bring that gas to shore for domestic consumption purposes. I welcome that. I did not see Minister Macfarlane or any member of the government seeking to insist on any sort of condition like the one that has been imposed by the Gallop government. So I welcome that, and I would like to see Gorgon come onshore. I would have preferred that we as a nation did not build LNG processing plants on a class A nature reserve, notwithstanding ChevronTexaco's good environmental record in terms of its oil development on that island.

The SPEAKER —I am sure that the member for Hunter realises that we are stretching relevancy just a tad, but I invite him to continue his speech.

Mr FITZGIBBON —The bill before us today seeks to make changes to the resource rent tax regime, on the basis that the companies are arguing that they need more assistance to attract investment to the industry. I say that Labor are more than happy to discuss these issues. We are supporting one of the measures today—we think it is commonsense—but we are opposing the other because we do not think there is any urgency about it and we think the costings are all too vague to be acceptable to us.

But what I am also saying is that the granting of these leases to these multinational companies in a highly concentrated industry brings not only rights but also obligations. I get a little sick and tired of seeing evidence of companies warehousing our natural resources. I still am very sceptical about the determination of ChevronTexaco and Shell to exploit the Gorgon field. With the contract they announced not so long ago out of the Gorgon field, they are effectively selling gas to themselves. I think an artificial market is being created.

It is a funny thing: they come cap in hand looking for extra tax breaks all the time, but it appears to me that people only ever get excited about the Gorgon field—which has been with us for some time now, of course—when the retention lease falls due for renewal every five years. There is a lot of talk at the moment about Gorgon being developed from Barrow Island and a lot of fuss about the appropriate use of that island for an LNG processing plant. I say governments need to become far more serious about `use it or lose it' principles.

Labor will take a close look at the submerged lands act to determine whether the balance is right and even whether we should be considering making lease renewal contestable after the second time round. These are finite resources owned by the Australia community. It is right that we create an environment conducive to strong investment to create jobs in this country. It is right that we have a strong LNG export industry—which again creates jobs in this country—but it is also right that we ensure that we have a medium- to long-term plan for this nation, in the face of our rising oil import dependency, to ensure that a sufficient amount of those gas reserves are held aside for our own domestic purposes.

We need a government with an energy policy that looks like driving new projects, like gas-to-liquid transport fuels, to create the domestic demand on the mainland to ensure that those fields are commercially viable for domestic purposes. Again, Labor is more than happy to consider all these RRT regimes. I have also just been through this debate within the Standing Committee on Industry and Resources, where we are considering impediments to investment not only in the oil and gas industry but also in the various mining industries. We have also considered these proposals, and we will shortly be tabling a report and making some recommendations to the parliament. I look forward to continuing the debate when that tabling occurs.