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Wednesday, 13 June 1984
Page: 2946

Senator CHANEY (Leader of the Opposition)(5.38) —Mr President, before speaking on the Excise Tariff Amendment Bill 1984, may I confirm that we will be dealing cognately with that Bill and the Liquefied Petroleum Gas (Grants ) Amendment Bill 1984?

The PRESIDENT —Is it so agreed? There being no objection, it is so agreed.

Senator CHANEY —The Opposition will not oppose these Bills, but I will move an amendment to the motion for the second reading of the Liquefied Petroleum Gas ( Grants) Amendment Bill. The Excise Tariff Amendment Bill seeks to do three things. It will eliminate the rounding of excise duty rates for those goods which are automatically indexed every six months. It provides for the insertion of a standing provision in the Excise Tariff Act covering the imposition and application provisions which are normally included in Bills amending the Schedule to the Act. It also enacts the excise tariff proposals No. 1 which alters the excise duty rate on liquefied petroleum gas from 1 January 1984.

I think it is fairly widely understood in the community-although it may well sink from the public consciousness-that the Government has changed the approach to excise duty and has introduced indexation, which means that there is a biannual adjustment of excise, which is of course an adjustment upwards, although if we get negative inflation it might be an adjustment downwards. Hence the Government has ensured that it takes increasing amounts of taxation through the excise system. That is a fait accompli.

One of the deficiencies caused by what has been put in place by the Government is that there is no rounding provision in the Act to ensure a rounding up of the adjustments made under the automatic indexation regime. That provision would have ensured that the Government would collect very large sums-tens of millions of dollars-in additional revenue. That rounding might have brought the Government some satisfaction because, as was reported in the case of beer alone, the Government would have collected another $20m.

The Opposition regards the Government as behaving correctly in seeking to amend that arrangement to ensure that the rounding does not occur and that there not be additional imposts on consumers. I make it quite clear that there is still an additional six-monthly impost on consumers. It is just that the additional amount which was effectively cribbed by the rounding up provision will no longer be collected, and the Opposition supports that change.

The second Bill, the Liquefied Petroleum Gas (Grants) Amendment Bill, causes the Opposition more concern. I foreshadow an amendment which has been circulated in the name of the Opposition which, at the end of the motion that the Bill be read a second time, proposes to add the following words:

. . . 'but the Senate condemns the dishonest approach of the Government in failing to reduce the price of liquefied petroleum gas in January 1984 by $50 per tonne in line with the then-existing policy in order to mask the removal three months later of three-quarters of the former subsidy.'

The purpose of this Bill is twofold. It sets a new pricing formula for liquefied petroleum gas which places the major emphasis on stability of prices rather than parity with import or export prices and will over time ensure that the price of liquefied petroleum gas falls below the export parity price. The second purpose is to alter the subsidy arrangements for LPG by immediately reducing the subsidy from $80 per tonne to $20.31 per tonne and to set in place a mechanism that will reduce and eventually eliminate the subsidy. These new arrangements will apply until 31 March 1987.

The changes in the arrangements effectively shift the funding of the subsidy on LPG from the Government to the producers. The Opposition believes that the Government's handling of the LPG pricing and subsidy arrangements smacks of the political sleight of hand we have come to expect of this Government in these matters. The Government kept the price of LPG artificially high between 1 January of this year and the end of March because of its refusal to make the adjustment which was required to take account of the changed export parity price of LPG. In other words, if the Government had applied the policy which was in force at that time, there would have been a substantial reduction in the price of LPG on 1 January. By the Government's action for just about three months, consumers of LPG generally were paying at least $50 per tonne more than they would have been paying for LPG had the then current policy been applied.

The reason for doing this is quite evident. The Minister for Resources and Energy (Senator Walsh) used the then continuing reduction in parity prices-by March, on the applicable formula, the price should have been down by about $60 per tonne-to mask the removal of three-quarters of the former $80 per tonne subsidy. The politics of that action are pretty obvious and I suppose it can be seen to be quite a smart move. Consumers in receipt of an $80 per tonne subsidy were likely to be rather cross when the Government allowed that subsidy to disappear and the price of the product they were using to rise substantially. But the actions of this Government ensured that the price reduction which the consumers should have received because of the operation of the parity pricing policy was not given until three-quarters of the subsidy was removed. That meant there was a stability of price and effectively the Government masked the effect of its actions.

I draw attention to the fact that the Government's actions were both very carefully timed and highly political because the Minister did not announce this change until late in the afternoon of the day of the New South Wales State election. A matter of some interest in country areas was what the Government would do about the subsidy arrangements. As I noted at the time of the Minister' s announcement, he was careful to make it when it would be too late for New South Wales consumers to register any disapproval they might have felt through the ballot box at the New South Wales State election.

This exercise, I am sure, has effectively masked for many members of the consuming public the actual decision which has been taken by this Government. I suppose in a sharp political sense the Minister and the Government are to be congratulated for that, but in terms of giving the public some understanding of the rules which are being applied and the actions of the Government itself, I do not think it was a very admirable way to go about it. The Government has left in place a subsidy of about $20 per tonne, and it has introduced in this legislation a mechanism which will cut what is left of the subsidy every six months until it is eliminated. When this will happen is a function of how well parity prices behave. It could happen as soon as October this year if world parity prices continue to fall as they have for the past 12 months. But if it does not happen then, it will certainly happen later.

Whatever justification the Minister may have for holding up the price for those consumers who are subject to a subsidy, and I concede the raw politics of the way the Minister went about it, I must say that it is hard to see any justification for his actions with respect to those consumers who form the unsubsidised sector of the market and who likewise were entitled to a reduction in price from January 1984. The failure to cut the price in January meant that LPG consumers were slugged with about an extra $6m for the LPG. There were a couple of rather critical articles in the Age newspaper at the time the changes were made. I will refer very briefly to them. Mr Terry McCrann noted in the Age of 27 March 1984 that these consumers would be excused if they digested Senator Walsh's generosity with a considerable dose of salt especially when he chose to end his statement at the time by emphasising that the new wholesale price was equivalent to about 3c a litre of automotive LPG.

Automotive LPG is the major unsubsidised consumer of LPG and the approximately 3c per litre cut that the Minister so generously announced in March is a cut which, under the rules that had applied, he could have announced in January. So the consumers in fact paid a higher price during that period. Again, Mr McCrann in an article on 28 March argued that this legislation achieved the unique distinction of being unfair to both LPG producers and consumers. Of course, this is only a reflection that the legislation, as with all recent measures announced by Senator Walsh relating to the oil industry and related industries, shows that the Government's major objective is to safeguard or increase its revenue.

The Minister has made great play of what he says are the advantages of the changes which will be made by this legislation, namely, the expected price stability in the future. The Opposition would agree that the fluctuations in the price of LPG have been an annoyance to consumers. Consumers are generally more annoyed by fluctuations up and down. I do not think there would have been loud complaints at the cut in price on 1 January but there has been an instability in price which has made things more difficult for consumers and for the industry.

I think it is important to look at how the Minister has achieved this stability and at whose expense. The basic mechanism, as explained in the Minister's second reading speech, is as follows: The Government has set a March 1984 price of LPG at the export parity price ruling at that time. Every six months the price will be adjusted on the basis of the average of the monthly export parity price from 1 April 1984 to the month preceding the new price date. The choice of 1 April may mean that the Minister thinks he has made a fool of everybody, the producers and the consumers. The increases in the wholesale price, resulting from increases in parity prices when they occur, are not allowed to exceed the increases in the fuel and light component of the consumer price index for the six months prior to the adjustment date.

This will tend to smooth out fluctuations in price as the Government claims but it is a double-edged sword because, in a situation of falling prices, which is what we have experienced in the last 12 months, the price will be held artificially high. A lot of consumers have been hit or potentially hit in three ways, at least in the short term: The subsidy has been cut, the price decrease was three months late and, if prices continue to fall the new mechanism will hold prices artificially high. The Opposition admits that many consumers will probably benefit in the longer term if the Government does not change the rules again. In essence this new mechanism limits the rise in the domestic wholesale price of LPG to whichever is lower, the increase in the world parity price or the increase in the fuel and light component of the CPI in the immediately preceding six-month period. As the rises are non-cumulative over time the rise in the domestic LPG wholesale price will fall below the cumulative increase in both the world parity price and the fuel and light component of the CPI.

This is all very good in providing an implicit subsidy which will eventually help replace the Government subsidy. But the question has to be asked: Who pays the subsidy? In direct terms the producers pay as they are forced to sell the LPG at a price lower than they could sell it on the world market. However, in the long term we all pay due to the misallocation of the resources implicit in this fiddle which has been engineered by the Government. With the domestic price of LPG falling below the export parity price we will soon reach a situation where producers will prefer to sell their LPG overseas rather than supply the domestic market at an artificially low price. This could lead to shortages unless the Government introduces a system similar to the crude oil allocation system. We should, if possible, try to preserve Australia from any further bureaucratic intervention in these areas. The prospect of having to force suppliers to provide for the Australian market is not one which charms the Opposition.

The only winner, of course, is the Government. The Government has substituted the subsidy that the industry has to fund with a subsidy that the Government has to fund. It is another case of the Government putting its short term revenue objectives before the long term interests of the country. The hypocrisy of the Government's position is exposed not only by this fiddle with subsidies but also by the way in which the Minister's Press release and his second reading speech have described the benefits of the new policy. He said 'Many consumers will pay less and no consumers will pay more than they do under the existing arrangements '.

Senator Walsh —That is true.

Senator CHANEY —As the Minister has said, that is true. Indeed, Mr McCrann, whom the Minister was critical of a moment ago, notes in the articles that I mentioned earlier that, as a matter of objective fact, this is completely accurate, but he fails to mention that if the existing arrangements had been properly followed by the Government on 1 January, all consumers would have paid substantially less for their LPG for the three months ending March 1984. The many consumers who will pay less should have started paying less three months earlier and would still be paying less. The no consumers who will pay more also should have paid $50 per tonne less for the three months from 1 January to 31 March. Although it is true that they are now not paying more, they are paying more than they would have had to if the old system had been continued.

This whole exercise should be an object lesson to all taxpayers. It should be carefully studied by everyone as an example of the sleight of hand of this Government in its approach to taxation measures and any other measures that affect its short term revenue objectives. I repeat: The Opposition commends the Excise Tariff Amendment Bill as a measure which properly restores some justice to consumers. It says of the Liquefied Petroleum Gas (Grants) Amendment Bill: The Government has achieved price stability at a cost to industry and consumers in a time of falling prices. In any event it has done it in a way which ensures that whatever cost there is it will not be borne by the Government.