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Wednesday, 27 May 1987
Page: 3450

(Question No. 4359)

Mr Conquest asked the Treasurer, upon notice, on 20 August 1986:

In view of the collapse of the price of crude oil, will the Government (a) reduce the range of secondary taxes applied to current Australian production to ensure a reasonable rate of return on investment and (b) offer 100 per cent investor tax credits for investment in approved and bona fide exploration companies.

Mr Keating —The answer to the honourable member's question is as follows:

(a) I would point out that, in response to industry's concerns with existing secondary taxation arrangements, a review is currently being conducted of the arrangements applying to areas not subject to resource rent taxation. The outcome of this review will be announced as soon as possible.

The Government's move in 1984 to introduce a resource rent tax (RRT) on offshore greenfields petroleum projects represents an attempt to put in place a more economically efficient and equitable system of secondary taxation, designed to achieve the above objective. The RRT will be payable only in respect of projects earning a high rate of return on outlays. The recent volatility of world oil prices has underlined the point that the RRT offers considerable benefits, over the long term, to the petroleum industry when compared with production-based taxes.

The Commonwealth has also demonstrated its concern that its crude oil excise arrangements should remain relevant to prevailing circumstances. With the fall in oil prices in 1986, the Government acted to improve the flexibility of the crude oil excise by introducing certain concessions:

- From 1 July 1986 the 87 per cent top rate of crude oil excise for free market sales of `old' oil was replaced by a sliding scale ranging from 65 per cent at a realised price of $A12.50 or less per barrel up to 87 per cent at $A35.00 or more per barrel. Also, rebates of excise were increased for free market sales of `new' oil where such sales were below the import parity price.

- In addition, from 1 August 1986, the top rate of excise payable on `old' oil sold under the domestic allocation arrangements was reduced from 87 per cent to 80 per cent. Also, the excise on all onshore oil production was waived. These reductions in excise apply initially until 30 June 1987, subject to review if there is a sustained increase in the import parity price.

These arrangements are due to expire on 30 June 1987 and are subject to the review referred to earlier.

(b) Eligibility for treatment under the mining provisions of the tax law are dependent upon the Commissioner of Taxation being satisfied that the taxpayer concerned is:

* carrying on or proposes to carry on prescribed petroleum operations; or

* carrying on a business of petroleum exploration in Australia and the expenditure is necessarily incurred in carrying on that business.

Where investors meet these requirements and thereby establish their `bona fide' status, they are already entitled to an immediate income tax deduction for mineral (including petroleum) exploration expenditures.