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Monday, 23 March 1987
Page: 1342

Mr PETER FISHER(9.55) —I am sure that the House will agree that the honourable member for Charlton (Mr Robert Brown) was excellent on preparation but light on fact or understanding of the Petroleum Resource Rent Tax Assessment Bill 1986, Petroleum Resource Rent Tax Bill 1986, Petroleum Resource Rent Tax (Interest on Underpayments) Bill 1986 and the Petroleum Resource Rent Tax (Miscellaneous Provisions) Bill 1986 that he was discussing. He talked about a mosaic of tax reform. I suggest to him that what we are really talking about with these Bills is simply more taxation because of government greed, excessive spending and a massive overseas debt.

The debate this evening is being conducted in a totally farcical atmosphere. We know that the Prices Surveillance Authority has failed miserably, particularly in the area of fuel pricing. Last week in my constituency fuel prices varied from 48c a litre to 62c a litre in a distance of some 300 miles. We now have the giant hoax of the Minister Assisting the Treasurer on Prices (Mr Barry Jones) dealing in prices of biscuits and haircuts but refusing to look at government services and charges where, of course, no action will be taken by this Government. No more significant charges on industry occur than in the area of petroleum pricing. If the Government had any real concern it would cut excise, inflation would drop and I am quite convinced that in turn interest rates would come down. This Government has not got the courage to do that and what it is determined to do with these Bills is milk the motorists further and so further hamper and kill off some of our industries.

I am sure the nation remembers what the Prime Minister (Mr Hawke) said in March 1983. I think his quotes are worth looking at. In March 1983, before the Federal election, the Australian Labor Party promised to cut petrol prices by 3c a litre. The Prime Minister, in his policy speech at the Sydney Opera House on 16 February, said:

. . . Labor will reduce the price of petrol by cancelling the January 1 price increase of $3.23 per barrel. This would have the effect of reducing the price of petrol by the order of the three cents a litre.

We know what happened: Just 26 months after Labor came to office in this place petrol prices had been increased by over 10c a litre and since then by another 13c a litre as a result of price increases and indexation. So much for the Labor Government's responsibility in this area. We know now that two thirds of costs are Government charges. The Government has even taken some of the fuel excise off the contribution that is supposed to be made to the national road network.

The petroleum resource rent tax is a profit based tax designed to replace the present crude oil excise and the royalty system in those fields to which it will apply. The tax is to apply only where there is an excess of project related receipts for a financial year over both project related expenditure for the year and undeducted expenditure of previous years. Theoretically the resource rent tax may look like an improvement on the present system which is production based, but there are enormous problems both with the concept and with the Government's proposed implementation of this tax. The Opposition has opposed and will continue to oppose this resource rental tax because it is an additional tax on the petroleum sector that cannot be justified if exploration is to be encouraged.

On top of this, the resource rental tax will be an administrative nightmare for both the Government and the oil industry.

Mr Braithwaite —Absolutely.

Mr PETER FISHER —I remind the House, as the honourable member for Dawson does, that a resource rent tax in respect of certain mineral based activities has been in the ALP policy since 1977. Following the election of the Hawke Government, the then Minister for Resources and Energy (Senator Walsh) and the Treasurer (Mr Keating) set about to introduce the tax. The legislation to give effect to that decision was introduced into the House of Representatives in the Budget session some two years after it was mooted.

There are four Bills in this package. The first two Bills are the most significant-the first Bill provides the framework for the tax and defines where the tax will apply, how it will apply and how it will be paid, and the second Bill formally imposes and declares the rate of tax at 40 per cent. The other two Bills are complementary to the package. This resource rental tax, introduced as an excuse for an extension of the current Federal Government's attitude that petroleum resources are community property and that the community as a whole has a right to share disproportionately in the returns from the exploitation of these non-renewable resources, makes it a social oil. Of course, this attitude overlooks the fact that the community already benefits substantially from a profit based, relatively high company tax rate of 49 per cent. It also disregards the fact that the community also benefits from non-profit based taxes such as sales tax, payroll tax and fringe benefits tax-not to mention the royalties and production excises also imposed on the oil industry.

Mr Braithwaite —They tax everything.

Mr PETER FISHER —The Government taxes everything. I have already mentioned the 23c that is taken off each litre of oil by government taxes at both the State and Federal levels. That is a most significant figure. What the Government has steadfastly chosen to ignore is that, because of the oil price drop, there are no longer any windfall gains to tax. In nearly three years since the tax was announced, the price of oil has fallen and no windfall now exists to the taxation system.

There are two major reasons why the resource rental tax should be abandoned. Firstly, the changed pricing conditions which apply now, vis-a-vis 1984, have reduced gains to producers and, therefore, act as a disincentive to further exploration and production.

Mr Braithwaite —That is a good reason.

Mr PETER FISHER —It is a good and most significant reason, but it is no more significant than the second one which is the imminent decline in Australia's level of self-sufficiency and the effect that that will have on our economy. It is obvious that any taxation revenues coming from secondary tax at the moment are a penalty to profit and a disincentive to future investment in the industry.

What has happened to this industry in the past 18 months? We know that the world oil price has fallen and that the domestic price of Bass Strait crude oil has fallen from $43.71c a barrel in January 1986 to $29.37c a barrel in March 1987. The average price fell from $29.07c a barrel in the first half of 1986 to $22.85c in the second half of the year. We also know that the domestic price has fallen from $35.36c in July 1984 to $29.07c in March 1987. Of course, the effect of this collapse has been to reduce commercially recoverable crude oil reserves and to reduce the number of anticipated worthwhile exploration prospects. Company cash flows have been more than halved. Now it is nearly impossible to raise equity capital on the stock market for high risk exploration.

Mr Nehl —There is no incentive.

Mr PETER FISHER —There is absolutely no incentive at all. The four rental tax Bills will remove further the incentive that already applies, as the honourable member for Cowper says.

The proposed resource rental tax rate of 40 per cent, with the proposed threshold rate, will render all but a few high risk exploration prospects unattractive at current oil prices. The sensitivity of production to the level of producer return was shown in 1986 when the oil price dropped dramatically and Esso-BHP shut production in Bass Strait because it had become uneconomic. Marginal producer realisation dropped to its lowest level in 10 years at around $3 a barrel and, at that point, export ceased. In order to lift producer returns to levels that made production viable, the Government made temporary concessions at that time to the industry. The on-shore excise was suspended and the top rate of old oil levy was reduced from 87 per cent to 80 per cent. Of course, those figures indicate the ridiculous nature of introducing the Bills at this time.

The Government's 1984 estimate suggested that Australia could be 95 per cent self-sufficient in crude oil in 1990. Recent estimates that I have seen point to Australia being only 65 per cent self-sufficient in that year. If Bass Strait developments do not proceed, that figure could well be as low as 50 per cent. This introduces very real reasons for concern at the nature and intent of the Bills. At the current world price of oil and the current Australian dollar value, crude oil imports in 1990 could cost some $3,000m compared with a net crude oil import bill of only $44m in 1985-86.

Mr Braithwaite —Won't that make a mess of our balance of trade?

Mr PETER FISHER —It would not only make a mess of our balance of trade but also, if the Government were still in power-heaven help us-we would see further taxation measures imposed on the Australian community to pay for the bad policy initiatives that are being undertaken in the Bills.

I have outlined the basic reasons for the Opposition's rejection of the legislation: The changed pricing conditions, which apply now vis-a-vis 1984 when the resource rent tax was announced, give rise to reduced incentive for exploration and production and highlight the effect on the Australian economy of a decline in petroleum self-sufficiency. In order to boost Australia's level of self-sufficiency, more exploration and more development work need to be done-not less. The volume of the work that is needed will not proceed while the level of producer realisation is as low as it is at present. We must also recognise that producer realisation is affected by the price level as well as the tax level. As we have little power to exert on the price level, if we are to effect producer realisation, it must, therefore, be via the taxation levels. By getting rid of the resource rent tax, we would provide a significantly greater incentive to exploration companies to go and explore while still ensuring that the community gained a return on the asset through normal taxation and the royalties system.

In claiming that producer realisation affects exploration, I think it is as well to review the recent performance of the exploration sector. Off-shore exploration expenditure fell by 25 per cent in the year 1985-86. The industry expects it to fall by a further 56 per cent in 1987. We know that total private exploration expenditure declined by 35 per cent between 1985 and 1986. There was also a fall of 55 per cent in on-shore drilling in 1986.

Mr Braithwaite —All because of the taxing policies of this Government.

Mr PETER FISHER —As the honourable member says, it is due to the taxing policies of this Government.

Mr Robert Brown —Is that right?

Mr PETER FISHER —The thing that the honourable member for Charlton failed to recognise in his speech was that price is a critical factor in exploration and in decision-making regarding exploration. Petroleum exploration expenditure in Australia has always tracked the import parity price. There is ample data available to suggest, on a world-wide basis, that exploration activities are directly related to earnings which are the functions of oil prices and tax regimes. Exploration should thus be responsive both in the short and longer terms to any reduction in taxes which results in increased cash flows or expected returns.

The industry, in its submission to the Government on tax reform, drew attention to a number of cases where relatively modest changes in taxation have had a marked effect on exploration spending. I suggest that the four Bills will have a more drastic effect on the amount of spending that takes place in the development of this very vital resource.

Mr Nehl —Disastrous.

Mr PETER FISHER —It will be disastrous. As other honourable members on this side of the House have said, when speaking to the Bills, the significance of oil prices on our cost structure and their accompanying effect on inflation and interest rates is one that this Government is obviously attempting to ignore. I am convinced that if this Government wished, for instance, to do something about the tragic situation that exists in rural areas--

Mr Nehl —They don't care.

Mr PETER FISHER —As the honourable member for Cowper says, I am sure that the Government does not care about the economic and social ills in our rural communities. I am quite sure that if it did care, there would be one major step that the Treasurer could undertake on Monday morning that would bring immediate alleviation of the problems of our rural industry.

Mr Nehl —Bring interest rates down.

Mr PETER FISHER —The Government says that it cannot bring interest rates down. I suggest that, if the Government made a major and radical cut to fuel excise, and removed indexation, we would see an immediate downturn in the rate of inflation and an almost immediate downturn in interest rates. It would make us more competitive. Some of the very major problems that we are facing in our rural industries would be alleviated and, more importantly in relation to these particular Bills, it would ensure that there is a reliable supply of locally-produced crude oil in the future. I oppose these Bills. I believe that, if the Government had any consideration for the future of Australians and for the future of our competitive industries, it would remove these Bills from the House.