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Thursday, 2 June 2011
Page: 5747


Mr LYONS (Bass) (12:46): This is the first time I have spoken with you in the chair, Mr Deputy Speaker Adams. The electorate of Lyons is a great electorate. I rise in the House today to speak on the Taxation of Alternative Fuels Legislation Amendment Bill 2011, the Ethanol Production Grants Bill 2011, the Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011, the Customs Tariff Amendment (Taxation of Alternative Fuels) Bill 2011 and the Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011.

The current taxation arrangements for fuel impose excise on certain domestic manufactured fuels and excise-equivalent customs duty on relevant imported fuels. Fuels subject to fuel tax include petrol, diesel, fuel oil, kerosene, benzene, toluene, xylene, biodiesel and fuel ethanol. The bills before us today reflect policy first announced in 2003 in the Howard days, implementing longstanding plans to bring alternative automotive fuels into the fuel taxation regime on the basis of their energy content, with a discount of 50 per cent to reflect the benefits of alternative fuel use. The Truck Industry Council, in its submission to the Implementation Of Alternative Fuels Taxation Policy inquiry, stated:

The principle of applying excise according to the fuel' s energy content is considered fair and equitable.

It is worthy to note that the financial impact of the alternative fuels taxation measure has been included in the forward estimates since the 2003-04 budget. Taxation of LPG contributes to the largest part of this revenue. Essentially, these bills bring certain alternative fuels used for transport purposes into the fuel taxation regime and make them subject to the excise duty or excise-equivalent customs duty. The fuels affected include liquefied petroleum gas, LPG, and compressed natural gas, CNG.

It is important to note that only fuels used in vehicles will be taxed. Fuel for domestic use, such as for barbecues and heating, will be exempt from the tax. The rates for these fuels are based on the energy content of the specific fuel and are discounted by 50 per cent to reflect the potential benefits of these alternative fuels. The changes are phased in over a transition period to allow affected parties time to adjust to the changes. This is very important. Three tax bands are now used to reflect the energy content of the fuels: high, medium and low. Methanol, LPG and compressed natural gas are currently outside the fuel tax system and are thus excise free. We recognise that there has been considerable debate about this. We took steps to consult with industry about this bill and, as a result of those discussions, the introduction of the excise was pushed back from July 2011 until December 2011. It is important to note that there is a five-year transition period to phase in taxation on alternative fuels such as CNG, LPG, methanol and biodiesel. The bills allow for a longer lead-in period for ethanol, which will be subject to a 10-year phase-in period.

Taxing alternative fuels improves the operation of the fuel market by enhancing competition between the different types of fuel, improving market efficiency, economic choice and the consequent allocation of resources. Ethanol is a renewable, environmentally friendly source. It is sourced from natural products, like annual sugarcane crops. Blending ethanol and petrol in various proportions has been put forward as a means of reducing greenhouse gas emissions and alleviating adverse economic conditions in the sugar industry. Ethanol blended fuels represent 3.5 per cent of the world gasoline market. Ethanol blended fuels are widely used in countries such as the US and Brazil. In Brazil they represents 41 per cent of the local fuel market. I am pleased this bill has a 10-year phase-in period for the excise to allow this industry to grow. Presently, fuel tax on biodiesel is imposed on the full rate, as it is for petrol and diesel. Under these bills, biodiesel will be subject to fuel tax at a high-energy content rate of 100 per cent of the petrol and diesel rate but discounted by 50 per cent. Australia enjoys the lowest LPG prices in the OECD. By introducing taxation on these fuels, we bring Australia into line with the taxation treatment of LPG in most other OECD countries. Methanol has not previously been subject to excise or excise-equivalent customs duty. There is evidence to suggest that methanol is not widely used as a transport fuel, either directly in blends or as a fuel substitute. Under Australian fuel quality standards, methanol cannot be used as an extender or additive to petrol or diesel for commercial sale. This is due in part to the significant damage that methanol can cause to some engines designed to run on petrol or diesel. Methanol is mostly used as an industrial chemical and as racing fuel.

There has been some criticism that taxing LPG would have an impact on taxis. The impact of including LPG in the excise system on taxis depends on decisions by the state and territory regulators. If the excise is passed on in full, it could add approximately 3.5c to the average metro taxi fare trip upon the introduction of a 2.5c per litre excise on 1 December 2011. This will increase to approximately 19c for the average metro taxi trip when the final excise of 12.5c per litre is introduced in 2015. While the government is aware that the LPG industry does not want to be taxed until their market share hits 10 per cent—they are currently just under six per cent—this would blow a $600 million hole in the bottom line, and petrol and diesel, which are their main competitors, are all taxed. The majority of OECD countries, in particular France, Germany and the UK, as well as New Zealand, Canada and the US, all tax LPG to various degrees. In addition, the EU is looking to substantially increase the tax on LPG over the next five years to take into account climate change.

A sustainable alternative fuel industry will provide rural and regional economic development, create new jobs and revenue streams, help reduce our reliance on imported, finite fossil fuels, improve fuel security and improve air quality and the environment. Many of the alternative fuels subject to this excise are embryonic industries and we recognise this fact. Future Australian transport fuel energy security embraces two major changes: climate change and the transition from oil. Both these events will occur roughly at the same time. Climate change is the great challenge of our generation. Australia is very vulnerable to the effects of climate change. We are already the driest inhabited continent on earth, heavily exposed to the dangers of extreme heat and drought. We are home to many globally important and vulnerable ecological systems. Australians are overwhelmingly coastal dwellers. Our industries and urban centres face ongoing water limitations. Our economy, including food production and agriculture, is under threat. The longer we wait to act on climate change, the more it will cost and the worse its effects will be.

The government is currently developing an energy white paper that will look at alternative fuels policy more broadly. While the government has not made any final decisions about the treatment of fuel in the carbon price arrangements, a principle of carbon pricing is to apply a price that reflects the emissions of different activities. The government is committed to addressing the relative emissions generated by those fuels as part of its consideration of arrangements for fuel under the carbon price.

Australia has a lot of cars and trucks on its roads. Of the nearly 500,000 trucks on the Australian register, over 90 per cent use diesel. The alternative fuel debate is one well worth having. The government recognises that alternative fuels have the potential to reduce environmental harm as they have the capability to reduce Australia's carbon footprint. They provide an alternative to conventional fuels, which ensures that there is a wider and more diverse range of energy sources, and the alternative fuel industries create jobs, particularly in rural and regional Australia.

As the Assistant Treasurer, the Hon. Bill Shorten, stated in his first reading speech on these bills:

The support of the parliament for this legislation is crucial.

Under the former government's legislation that will apply unless new legislative arrangements are made, the taxation arrangements for both imported and domestically produced ethanol will both jump to 7.6c per litre from 1 July 2011. This will mean that on this date the net excise on domestic ethanol will rise by 7.6c per litre and the duty on imported ethanol will fall by more than 30c per litre. In addition, the tax on imported and domestic ethanol will continue to rise each year by more than 7.6c per litre until they are both taxed at the petrol rate of 38.143c per litre. Biodiesel will also be overtaxed from 1 July 2011 if the bills are not passed. The consequences of these arrangements would be devastating for industry. The Gillard government is committed to completing the unfinished business of the Howard government and to acting in the national interest. It is imperative to have these bills passed to avoid the unintended tax consequences on the ethanol and biodiesel industries.

Once enacted, the legislation will provide certainty for alternative fuels taxation so that industry will be able to make decisions, confident in the knowledge of the tax arrangements that apply.

…   …   …

It is critical that the bills are considered promptly in the parliament. Royal assent is necessary before 1 July 2011 to prevent the changes legislated for ethanol, biodiesel and renewable diesel by the Howard government coming into operation on 1 July 2011. These changes would seriously undermine Australia's renewable fuels manufacturing industry.

These bills have been developed following an extensive consultation process with industry that included the release for comment of a discussion paper and release of exposure draft legislation.

The alternative fuel industry should be aware that there will be a review after 1 July 2015, once the tax has been fully implemented. It is likely to consider the impact of the tax, its interaction with the carbon price and the market demand for these fuels. The government remains committed to ensuring that alternative fuels make an important contribution to transport fuel use in Australia both today and into the future. I commend these bills to the House.