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Monday, 23 March 1987
Page: 1340

Mr ROBERT BROWN(9.35) —I am pleased to have the opportunity to make some contribution to this discussion of the Petroleum Resource Rent Tax Assessment Bill and cognate Bills after the contribution that has just been made by the honourable member for Mayo (Mr Downer) because there are three particular issues I would like to take up in relation to the contribution that he made. The first one is the reference which he repeated and which had been made by other members of the Opposition concerning the increases that have taken place in relation to excise taxes on petrol. What they have failed to do at the same time is to suggest that to a very large extent those excise increases represent, balance out and compensate for the reduction which has taken place in the crude oil levy as a result of the import parity pricing system, so that the effect of that on the price of petrol has been almost negligible. So let me put that argument to rest.

The second issue is that he indicates, quite correctly, that his legislation makes no concession for dry wells. Of course it does not. The purpose of this legislation is to relate to projects, and of course projects which involve dry wells stand by themselves. One of the positive advantages of this sort of approach is that, to a very large extent, the gambling element might be encouraged to be lifted out of the exploratory exercises in the petroleum industry. As the honourable member for Mayo would know, as a result of people exploring in areas which were most unlikely exploration sites, a lot of dry wells have been found.

It was not so very long ago that people were talking about the unlikelihood of oil being discovered in Australia because of the antiquity of this continent. Of course, to a large extent the oil is being found mainly in the off-shore shelf areas, certainly not on the mainland or in the older areas of the western or eastern plateaux. There was a possibility of oil being found in the central lowlands, between the eastern highlands and the western plateau, and some oil has been discovered there. Natural gas has been found in areas which would not have been anticipated many years ago. There is a possibility that this approach will take that gambling element out of the exploration program. Of course, exploration programs in the petroleum industry have always had a very substantial gambling element. The third issue I would draw attention to is the claim that the reduction in the number of exploration wells in some obscure way is related to this legislation.

Mr Braithwaite —Of course it is.

Mr ROBERT BROWN —The honourable member for Dawson repeats the claim and says: `Of course it is'. In countering that, let me say that of course it is not. Exploration activity in 1986 slumped to only half of its 1985 level. Last year it was known that this legislation was coming in this year, so there was a reduction of 50 per cent in the exploration activity in 1986 compared with 1985 and the Australian Petroleum Exploration Association expected only 136 exploration wells to be drilled this year, 1987, compared with 264 last year. It is quite legitimate on the part of the Opposition to try to maintain that in some way that development has been related to this legislation. The more enlightened among those opposite-the honourable member for Mayo and the honourable member for Dawson (Mr Braithwaite)-know that that simply is not the case. In fact, the Minister for Resources and Energy (Senator Gareth Evans), in his second reading speech made this point:

On the basis of current world oil prices-

honourable members know that that is more relevant than the question of this resource rent tax-

it is unlikely that any petroleum resource rent tax revenue will be received-

from this particular legislation-

before the 1989-90 financial year.

What nonsense are Opposition members talking about? If they want to come in here and argue against the petroleum resource rent tax, they can do so by all means, but let them not believe for one moment that they are going to mislead or confuse Government members. They are not going to misrepresent this legislation. Of all people in the community, let me assure them absolutely that they are not going either to confuse or mislead those people in the petroleum industry. I heard the honourable member for Mayo make certain claims and, if those claims are endorsed by the honourable member for Dawson--

Mr Braithwaite —Hear, hear; absolutely.

Mr ROBERT BROWN —I have heard him endorse those. He now compounds his mistake and compounds his foolishness by claiming that the claim made by the honourable member for Mayo was one of substance. He will now lose credibility among those people for whom he speaks because people within the petroleum industry know that those blokes opposite are not on the right track. They know that those fellows opposite are not on the right track. Opposition members know that, due to the continuing fluctuations in world oil prices and the uncertainties that are inherent in predicting success in off-shore petroleum exploration and subsequent production, the amount of revenue likely to be obtained in any year from this legislation cannot be projected. I say again to the honourable member for Dawson that people within the petroleum industry, people who have been involved in exploration, know that the points that I have just made are points of substance. They know that the points that the honourable member for Dawson has attempted to make and the endorsement that he has given to quite spurious, inadequate and inaccurate claims by the honourable member for Mayo simply represent and reflect the inadequacy either of his understanding or of his belief that he can make spurious claims of that kind and have them accepted by people in the industry and in the wider community who know better.

As honourable members know, this legislation makes provision for a number of aspects of the Government's approach to the whole question of resource rent taxation in the petroleum industry. It establishes, for example, all of the requirements as far as the revenue provisions are concerned. It establishes all the principles that are to relate to the expenditure conditions--

Mr Braithwaite —Squeezed the last drop of taxation out of it.

Mr DEPUTY SPEAKER (Mr Mountford) —Order! The honourable member for Dawson will remain silent.

Mr ROBERT BROWN —Mr Deputy Speaker, if I respond to some of those interjections by the honourable member for Dawson--

Mr DEPUTY SPEAKER —Please do not respond.

Mr ROBERT BROWN —I will follow your advice, Mr Deputy Speaker, and I appreciate the spirit in which you have offered me the advice. But, if I were to respond to some of those interjections from the honourable member for Dawson, it would have the effect, as Hansard reporters know, of having them recorded in Hansard. The reason I am not responding is that I do not want to cause him any embarrassment when people read the Hansard. But, if he persists with those interjections, I will respond and they will then be recorded for posterity and he knows that he does not want to see that any more than anyone else wants to see it.

The important provision relating to the expenditure requirements of this legislation is that any accumulated items of expenditure in the past will be carried forward into the future. Not only will they be carried forward into the future, but they will be carried forward at a compounded rate. (Quorum formed) I am sure that neither you, Mr Deputy Speaker, nor anyone else will mind my referring to the fact that, because of the powerful case that I am presenting, I am honoured and complimented by the fact that no less than the Deputy Prime Minister (Mr Lionel Bowen) and the Treasurer (Mr Keating)-and everyone else-have come into the chamber to hear it.

Mr Snow —How many Opposition members are there?

Mr ROBERT BROWN —I have looked at the Opposition side and, if it were not for the fact that at least six members of the Government are sitting on the Opposition side, there would be no one there except the honourable member for Dawson, who has now decided to keep quiet because every time he interjects and exposes his ignorance on this issue, I shall respond to his interjection in order to make sure it is recorded in Hansard for posterity.

I was saying that the expenditure provision will mean that expenditure will be carried forward into subsequent years and that it will not only be carried forward, but also at a compounded rate. It will be carried forward at the level that it had reached in the previous year, together with the addition of the long term bond rate plus 15 per cent. The claim has been made that insufficient provision has been made in this legislation for the cost of the actual exploration program.

Mr Braithwaite —Are bad debts allowed?

Mr ROBERT BROWN —As the honourable member for Dawson should know, a number of items of expenditure are not included. The honourable member for Mayo referred to one of them, dry wells. As the honourable member for Dawson should know, there are separate requirements and regulations relating to bad debts, taxation and depreciation provisions. If he stops interjecting, I might get to some of them and be able to explain to him the fundamental points in this legislation.

I initially intended to be fairly soft on the Opposition as far as this question was concerned but in view of the interjections and the attempts to frustrate my contribution to this debate, I have decided that I should make a few other observations. I want to place in context how the Government sees this issue. I said as early as 1981 that what the Commonwealth Government had to do was to decide whether it would leave in all of those areas of resource development the type of taxation vacuum that had been left by the Fraser Government and by previous governments which allowed the State governments then to step in with a whole array of charges, royalties, duties and freight charges, all of which were intended to fill that vacuum. The situation has progressively developed so that the only area that remains outstanding is that of off-shore oil exploration. When the present Treasurer was opposition spokesman for resource development, to a very large extent at that time he was the architect of the whole concept of an adequate project-related non-discretionary profit-related resource rent tax. What we are seeing at present is the implementation of precisely that concept. People on the Opposition benches have put forward the claim that in some way this represents a tax on top of the previous existing taxes, but that is far from the truth.

It has been emphasised that rather than being an addition to existing taxes it will replace the excise and royalty system that exists at present. Not only will this legislation replace the existing system but also it will not affect existing oilfields in the North West Shelf and the Bass Strait. They will continue to be affected, as they have traditionally, by the existing taxation system which is related to them. It is only in those new areas of oil exploration, discovery, development and production where these new provisions will exist.

What this Government is doing at present is slotting into place the last part of a very significant and major mosaic of taxation reform as far as the Commonwealth is concerned. We have got into place the fringe benefits tax, the capital gains tax, the elimination of negative gearing and the entertainment tax, and the substantiation requirement. We are trying to get into place the Australia Card to chop out some of the last vestiges of taxation evasion and social security fraud, and we are now slotting into place one of the last elements of this exercise that the Government has been involved in-an exercise that has been designed to equalise the whole of the taxation system in Australia to make sure that the contributions to the national revenue made by people in the productive sector or in the private household sector are equal to their capacity to pay. That is what we are intent on doing at present.

I repeated before the concern that has been expressed in the community generally about the inadequacy of Commonwealth taxation provisions in this area. I am not the only one to have done this. I indicated the pioneering role that has been played by the present Treasurer when he had specific responsibility in this area. We can even go to the report of the Senate Standing Committee on National Resources tabled in the Senate in 1981. I remind the House that the Committee consisted of six members from both sides of the Senate. Members of the present Opposition were represented on that Committee as well. Let us hear what it had to say. The Committee stated:

The Committee believes that any review of the current taxation applying to resources based industries should include consideration of the use of a resource rent tax or other variable tax on profit. Where an industry's profitability provides a return on its investment significantly greater than that necessary to call forth the investment in the first place then there are valid reasons for considering a higher rate of tax on that `excess' return on investment. This is particularly the case where, in the provision of services such as electricity to industry, there is some justification for believing that the full value of the resources used to provide that service are not being recovered from the purchaser.

The Senate Committee quite clearly renewed that plea for the national Government to look again at the possibility of levying a resource rent tax and in the process it also considered ways by which the various State governments had stepped in, as I said before, to fill the vacuum which had been created by a reluctance on the part of consecutive Commonwealth governments to do something about this resource rent tax area. We have claims, for example, from the Queensland Government about it being a low tax government. By the time we include those effective de facto resource rent taxes which are in the forms of rail freight, the tax level increases substantially.

Mr DEPUTY SPEAKER (Mr Cowan) —Order! The honourable member's time has expired.