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The gulf and the good oil: coalition cost reductions for the oil industry



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SPEECH BY

TIM FISCHER MP

LEADER OF T H E NATIONAL PARTY

SHADOW MINISTER FO R ENERGY AND RESOURCES

THE GULF AND THE GOOD OIL:

COALITION COST REDUCTIONS FOR THE OIL INDUSTRY

COMMOi iWLALTH PARLIAMEi ίΤΑΡΎ LIBRARY m i c a h

APEA CONFERENCE

M ELBOURNE

WORLD CONGRESS CENTRE

WEDNESDAY, 10 APRIL 1991

FOR FURTHER INFORMATION PLEASE CONTACT, (06) 2774058

1 .

Ladies and Gentlemen, it is a great pleasure to once again address the APEA Conference both as Shadow Minister for Energy and Resources and Leader of the National Party.

I have been impressed by the commitment that you show as a vital industry, in the face of the high risks involved, and your sensible stand in relation to extreme environmentalists.

The representation that APEA provides for its members is outstanding. From my point of view, the opportunity to discuss issues with a single organisation, and then get local input from individual companies is very valuable, and I salute your work.

Today I want to focus on a number of issues arising from the Gulf and then the good oil in relation to reducing your costs.

Since I spoke to you last we have had the Gulf War, and I should recount that I visited the Gulf over Christmas to see our ships and see first-hand local conditions.

At the outset I take this opportunity to salute the work of the Australian contingent and to congratulate the American President and USA on outstanding leadership and the outstanding outcome in relation to liberating Kuwait.

Let me say, the massive size of the Middle East oil industry is one thing to behold, its fragile exposure to acts of war is another, involving destruction of much of the Kuwaiti and Iraqi oil producing capacity for sometime.

One related positive outcome was that the Gulf War reinforced in many people's minds that Australia's self-sufficiency in oil is of great national significance. The past and continuing success of the Australian oil industry enabled us to weather the disruption to world oil supplies caused by the

Gulf War.

Australia has its place in the first rank of industrialised nations, because of our initiative and ability to develop the resources of our country. Our vast nation is unified because of efficient transport for which we depend almost wholly on the product of your industry, and full credit to you and your

industry in this regard.

The benefits to the economy through the development of resource industries in line with appropriate environmental considerations are clear.

2.

Simply put, having a local oil industry provides much needed jobs, import replacement compensating by degrees for a badly managed external debt, and sends a clear signal both at home and abroad that Australian industry has a balanced approach to economic development and environmental issues.

Yet there are still misconceptions in the community about the value of oil production, and of the manageable but necessary environmental risks that must be taken to achieve it.

The message of the benefits that accrue from oil exploration and production needs to be heard throughout Australia and the world, and not just in this conference hall to a supportive audience.

In my speech to last year's APEA Conference in Darwin, I mentioned an oil development in Holland which has been allowed to take place in a wildlife breeding ground, under strict environmental constraints.

The goal posts in the environmental and resource debate in Australia have moved so far from sanity that a development such as the one in Holland could not be considered here, and I want to encourage you today to do

more about how you are perceived by the public.

Focussing on the Gulf War again, the four newsworthy oil issues were the oil price, the spill in the Gulf, the setting alight of the Kuwaiti oil wells, and the profits and supposed profits gained by oil and petrol companies.

The oil spill and the oil fires were incredible acts of environmental vandalism, and rightly deserved the condemnation of the entire world.

The oil price was of concern to everyone who owns a motor vehicle.

The profits made by your industry received media coverage largely without comment or analysis. It is not newsworthy to explain why a record profit is achieved, if in fact it was.

Reporting such as that only reinforces community perceptions that oil companies are exploiting community resources unfairly. The good results of a few major players are assumed to be representative of the whole industry.

But it is necessary that the other side of these issues be presented and that people have the opportunity to become aware of the benefits that flow from the industry.

3.

As an industry I would respectfully urge you to do more than simply reply to your opponents when a controversial issue develops. It is the direct actions of organisations like Greenpeace that make news and hence reinforce adverse community perceptions.

For a variety of reasons, any rebuttal of accusations, will only ever be a tag on media reports headed by a sensational accusation. Pictures of brightly coloured boats courageously attacking multinational corporations, are far more newsworthy than a picture of an oil company representative explaining the benefits of oil exploration. Such images appeal to a nation with a rebellious past such as Australia.

Nevertheless, in the recent spat between Greenpeace and BHP, real progress was made in fighting back and I commend BHP Petroleum in that regard and Keith Orchison for his weekend coverage.

But the industry needs to promote a positive image all the time, and not just when a controversial issue arises.

Many in the community perceive the relative silence of the industry in promoting itself as an admission that there is something to hide.

It is highly desirable that people become able to put media reports of record profits and the environmental effects of oil exploration in perspective. It is important that they understand that the overall rate of return for the industry does not compensate for the high risks involved, and that much of the profit created by successful companies is ploughed back into the industry.

As we in this Hall are well aware, the Australian oil industry contributes a great deal to our society and this message must be spread around.

Mr Chairman and delegates, at the last APEA Conference I called for a re-appraisal of the secondary taxation applied to oil exploration and production in this country.

Even though the Government announced some significant changes in the Budget, I question whether they really have their priorities in the right place. For far too long the oil industry has been viewed as a revenue earner for the Government, while as I have pointed out, the contributions that the industry makes in other ways have been ignored.

While balancing the Budget is an important aspect of Government, it does not follow that a high risk industry can be taxed indefinitely, without regard for its health and viability.

4.

A short term gain for the Government, however politically attractive in Budget terms, does not help an industry to grow and prosper.

The Government seems to be only just realising the important contribution of the oil industry to the economy, and the expanded contribution it can make given appropriate encouragement.

In that regard, the Government has seen fit to follow the general direction of Coalition policy, and amend the Resource Rent Tax to extend deductibility for exploration expenditure to be company wide rather than limited to a particular project.

The changes to Bass Strait announced in last year's Budget are clearly important, but the delay in introducing the amendments into Parliament is becoming of great concern.

Gas consumers in Victoria are rightly concerned about the possibility of a price increase, and the absurd possibility of any increase being retrospective to 1 July 1990, the announced commencement date for the legislation.

It would be difficult for the starting date of the legislation to be altered now, since so much planning and action is now based on the details in the Budget announcement.

It is therefore the clear duty of the Government to bring in the legislation as soon as possible. Victorian gas consumers deserve an explanation as to the reason for the eight month delay.

We are seeing the same disregard of basic rights by the Government that has surfaced in other areas of my portfolio over the last year.

I am very pleased to report that the Coalition successfully opposed in Parliament the legislation to sell off the Moomba to Sydney gas pipeline. The Government's intention was to disregard the existing contract with the Australian Gas Light Company and grab whatever money was available from the sale, at the expense of New South Wales gas consumers and the viability of many industries in that State.

It was this jackboot approach that led to their downfall on this issue. Rather than selling off the major asset as the Government tried to do, the Coalition will examine privatising the Pipeline Authority as a whole, taking into account the specialist expertise in the Authority, and negotiating with AGL over the existing contract.

5.

The second issue involved the Government retrospectively legislating away the rights of BHP and Esso to a refund of excise paid in Bass Strait.

This issue was being considered in the Administrative Appeals Tribunal, being the body empowered to consider such a matter, when the Government, because of legal advice that they would lose the case in the AAT, rammed a Bill through Parliament with Democrat support.

Although that battle was lost, there are encouraging signs that the Government has seen the light. Today a Bill to alter the duty on uranium exports is to be considered. I have in fact arranged to have it delayed to this afternoon so that I could address you here this morning. The circumstances surrounding this Bill are almost exactly similar to the previous case.

A refund is due to the uranium miners for overpayment of duty. The Government has acknowledged the correctness of the Coalition's viewpoint by not legislating retrospectively to avoid the refund.

Returning to Bass Strait, it was clear that the tax burden needed to be lessened. From the Coalition's viewpoint there is a further fundamental importance associated with this change, and with the decision to alter the structure of the Resource Rent Tax, making expenditure deductible on a company wide basis.

The importance of this for the Coalition is that it is a move towards a taxation regime which allows the market to operate as free from interference as possible.

We need to get away from the idea that the Government can allow an industry to be taxed until it hurts, and then make concessions if the industry is strangled. No-one can plan effectively on that basis. At the same time we need to get away from the idea that we can subsidise an industry and ignore the consequences for other industries that remain unsubsidised, or have a lesser subsidy.

It is critical that industries are able to plan with confidence, knowing that the ground rules will not be changed by Government. If there is one message that I have heard repeated most often by resource industry representatives over my years in Parliament, and particularly the last year, it is the need for certainty that the playing conditions will remain the same over the life of the project.

6.

We need to create the right environment for industry, to make it internationally competitive, the Government should set the consistent and correct framework and then step back.

The ridiculous impediments on industry must be removed. For a start, clear processes are required for environmental approvals for resource projects. The public must be made absolutely aware of the cost of impeding development of resources.

Our international reputation has been tarnished by the blatant opportunism of the Hawke Government in delaying Coronation Hill so as to pick up the green vote for the last election.

Australia's credibility is further eroded by the absurd three mines policy on uranium, which is needlessly restricting our export income.

Canada has 30% of the world market and only 10% of the world's low cost reserves, while in Australia the position is reversed. We have only 10% of the market but 30% of the low cost reserves. And there are three world class deposits in Australia, where development has been halted until the policy is scrapped.

The Coal Export Duty has earned us criticism from both the OECD and the International Energy Agency.

And yet none of these issues were addressed in the Prime Minister's much heralded Industry Statement on March 12.

One issue that was addressed in the Industry Statement, that of resource security for the forest industry, only shows the hopeless saga we have reached under the Hawke Government.

It is absurd that the Government's political opportunism has pushed this issue to the point where legislation should be necessary to continue investment in an established industry operating under strict environmental controls.

Mr Chairman and delegates, the next Coalition Government is absolutely committed to cost reduction for industry including the vital oil industry.

This will be done with our policy approach of less Government, less tax, less intervention, more incentive and more productivity. I highlight five specific areas of policy in this regard.

7.

The Coalition's decision to adopt a Goods and Services Tax will benefit Australia generally and the oil industry in particular, particularly by reducing several key taxes and specifically abolishing wholesale sales taxes.

When one analyses some of the fundamental economic problems facing Australia, you quickly come up against hurdles like incentive and the lack of it, savings and the lack of it and investment and the lack of it.

In response to this, the Leader of the Opposition, Dr John Hewson, the Liberal and the National Parties have proposed shifting the main source of taxation from income to consumption. The result is the Goods and Services Tax (GST) proposal of which many of you would be well aware.

There needs to be incentive in Australia to work harder, to save and to invest. Yet under the current taxation regime workers are taxed at a very high rate for each incremental hour of work and dollar of saving. This distorts our productive performance and savings regime which in turn distorts our foreign debt because of the resultant lack of domestic savings.

I have heard the criticism that essentially we are shifting the source of taxation but that the same amount of tax has to be collected. This proposition is flawed on two counts.

Firstly, one of the chief benefits of the GST tax is that it picks up the so called black economy. Anyone who purchases goods and services has to pay the tax, however as you would all be aware, not everyone who earns income pays income tax.

Overseas experience is that when governments change from high levels of income tax to consumption taxes in one form or another, the size of the black economy is consistently underestimated.

Secondly, the next Coalition Government will make substantial reforms in reducing the size of government and therefore government revenue. I fully expect you all to be fairly jaundiced about such a bald statement but I assure you that John Hewson will stay the course.

The real advantage of the Goods and Services Tax (GST) is that at last Income Tax can be reduced and we can totally abolish the ramshackle Wholesale Sales Tax regime.

You would all be aware of the inconsistencies of Wholesale Sale Taxes but the unconverted might explain why there is sales tax on caravans but not air tickets, on ice cream but not caviar, on plastic bowls but not gold plated taps, on hand tools but not Italian suits.

8.

By way of example, the on shore oil industry often has a need to move much by truck or road train with seismic work, exploration and the rest. One trucking company near Moomba has 40 trucks and spent $500,000 on spare parts last year, $125,000 of this as Sales Tax which we will abolish. In fact, Sales Tax on transport freight and transport equipment is $4.6 billion - this will be abolished lowering your cost structure.

Lastly, a Goods and Services Tax will allow us to shift resources into productive areas. This is achieved firstly by exempting from GST all goods and services which are business or farm inputs - included in this is diesel and petrol fuel - and secondly by zero rating all exports.

Mr Chairman in short, what the Coalition is committed to is:

- the abolition of Capital Gains Tax, replacing it with a Speculative Gains Tax

- the abolition of Sales Tax - lock, stock and barrel

- the introduction of a Goods and Services Tax,

rebating all business inputs, zero rating exports and lowering Income Tax, with relevant compensation.

Secondly, the reduction of tariffs to negligible levels by the year 2000. One of the key causes of Australia's continued pursuit of mediocrity has been the legacy of protection.

It has sheltered our industries and infrastructure from the need to achieve world standards. Short term favours from governments have become a long term problem of uncompetitiveness and inertia.

The best illustration is the third area of cost reduction and this is our industrial relations landscape which is an international joke but one which often prevents long term investment in this country. A recent sharp example has been the SPC dispute. You would all be aware of the issues involved in this dispute.

The most important thing is that both management and workers were aware of the problems facing the firm and prepared to make sacrifices for the sake of SPC's viability and their collective long term future. At this point John Halfpenny attacked while Bob Hawke, Paul Keating and Joan Kimer did their Pontius Pilate impersonations.

9.

At the end of the day productivity has increased 48% at SPC with more to come. It has come about through a realisation that both workers and management were in pursuit of the same objective and happy to discuss sensible options. The supreme irrelevance of the Industrial Relations Commission was vividly illustrated despite their rear-guard action.

It is also clear that the vast majority of Australians supported SPC's efforts to stay viable which has resulted in a significant boost in sales and a bright future for SPC.

On the up side, a similar story can be told about Power Brewing in Queensland. On the down side, we have such examples as the building industry, the meat inspection saga, rotting tomatoes awaiting processing at Heinz in Victoria and of course the example that comes into everyone's mind - the waterfront.

Fourthly, the Labor Government has made little progress in its waterfront reform program. What progress it claims, it does so by making molehills into mountains.

Specifically, Hawke and Collins claim that by the end of this year 1,500 waterside workers will have left the industry and that this will then have covered 80% of the workforce. This is an extraordinary piece of mathematics - as the Government's goal is to see 3,000 go, if 80% is to provide 1,500 then the other half will have to come from the remaining 20%!

Hawke claims that efficiency has improved by "up to 60%". It has not. Hawke claims that Labor's reform program is on schedule - it is not. Inefficient work practices still exist, rorts still abound. The WWF still has monopoly control of all labour on the waterfront. Charges for waterfront activity have not come down by one cent.

Labor's reform program avoids the key issues and, unless considerable change takes place in its approach, Labor's program will still leave an enormous need for further reform by a Coalition Government.

Fifthly, on the issue of fundamental change can I say that in relation to the National Rail Freight Corporation (NRFC), there is the opportunity to greatly boost the Australian rail network and it is being threatened by the actions of a handful of Luddites.

Negative thinking and parochialism threatens the viability of the NRFC before it even begins operations. A county the size of Australia needs an efficient rail network to move its produce over large distances.

V

10.

I sincerely hope that State Premiers and the Federal Government will give the NRFC the opportunity to fundamentally change and improve Australia's approach to rail transport.

The slow death of the NRFC by strangulation would be a sad reflection on our federation and nothing less than a crime when one considers the national transport problems of country the size of Australia.

The Coalition will stay the course on these fundamental changes, we will also stay the course on development decisions such as Coronation Hill, we will lower your costs and I wish your conference well.