Mr ANDERSON (Deputy Prime Minister) (9:33 PM) —I move:

That the bill be now read a second time.

The Diesel and Alternative Fuels Grants Scheme Bill 1999 represents the fulfilment of commitments that the government made to Australia's rural and regional heartland in the lead-up to the 1998 election. It is being introduced in conjunction with the Customs and Excise Amendment (Diesel Fuel Rebate Scheme) Bill 1999 , which implements changes to the Diesel Fuel Rebate Scheme that extend both the range of eligible uses and magnitude of benefits available under the scheme, although not to the extent originally proposed by the government in A New Tax System, ANTS.

In the lead-up to the last election, the government promised that the impact of the goods and services tax on petrol and diesel prices would not just be offset by reductions in excise to ensure that the price at the pump did not rise.

Recognising Australia's dependence on transport due to the vast size of our continent, we also promised that the price of our major transport fuel, diesel, would fall and fall very substantially to the benefit of businesses and consumers—in particular for those people living in regional, rural and remote areas, where transport costs are a significant part of the cost of living and doing business.

Under this bill and the customs bill, and the environment expenditure package agreed between the government and the Australian Democrats, there will be large and enduring benefits to regional Australia, to the environment and to transport operators in the road, rail and marine sectors. Businesses across Australia will all pay less for fuel than they do now because they will get back the GST paid on inputs, including fuel. It is expected that businesses should save around 6c to 7c per litre by this measure alone, although the actual amount will not be determined until next year after the final pre-GST half-yearly CPI adjustment to excise rates.

In addition to the GST input tax credits on fuel purchased, the Diesel and Alternative Fuels Grant Scheme will provide a further major cut in costs, with grants in the order of 16c to 17c per litre of diesel used for a wide variety of Australian businesses that provide transport services to country areas. These include:

. interstate and city-country road transport;

. the transport of goods from all Australia's rural export regions and processing centres to their markets in the city or offshore;

. essential inputs being transferred from ports or factories in the city to the bush; and

. the very bread and butter, indeed all of the goods, consumed by people living in country areas across this vast continent.

In addition to the grants available under this scheme, which extend to cover alternative fuels, the government is extending concessions available under the Diesel Fuel Rebate Scheme. The major additional benefits are:

. firstly, recognition of the rail industry as an off-road user of diesel and the consequent extension to rail operators of the full rebate of excise on diesel;

. secondly, extension of the full rebate for diesel and like fuels to marine use and other existing qualifying uses, including agriculture, fishing and mining;

. however, in the case of forestry, this industry will continue to have access to the rebate in the proportion that it currently receives.

The government's objective has always been to reduce the price of transport fuels for business. However, in order to honour the agreement reached with the Democrats, it is no longer possible to deliver this entirely through the tax system. As the intention is to offset costs for only a specified part of the transport fleet and its users—those servicing regional areas—the tax system is, on legal advice, an inappropriate means by which to deliver the benefits. Thus we will deliver this measure through a grants scheme. In addition to this, the use of a broad-ranging grants scheme will make the transition to the new long-term scheme of energy credits foreshadowed in the bill much easier, reducing the impact on industry of multiple changes to arrangements.

As agreed between the government and the Democrats, the grant for diesel use in prescribed vehicles and prescribed areas will be set so as to provide a cumulative reduction in the cost of diesel by around 23c per litre, when the GST input tax credits are added in.

The bill not only provides grants for diesel fuel use but also covers alternative fuels, including CNG and LPG, canola, ethanol and recycled oil. Grant rates for each of these fuels will be established by regulation so as to maintain the current price relativities between them and diesel, given that, unlike diesel, they are not subject to excise. Additional fuels may be added by regulation. The grants will be potentially available for all road transport vehicles above 4.5 tonnes, however, fuels used in vehicles between 4.5 tonnes and 20 tonnes gross vehicle mass will qualify only in the following circumstances:

. if the vehicle is engaged in transporting goods or passengers within regional Australia;

. between a metropolitan area and a regional point (and vice versa); or

. between metropolitan areas on an interstate journey.

Fuel used in vehicles of 20 tonnes or more gross vehicle mass will qualify if used by a business for road transport, and if the business is registered for the purposes of the scheme with the Australian Taxation Office. The explanatory memorandum accompanying the bill contains some examples of qualifying journeys, and I commend it to members.

Members will recall that previously the ANTS package had proposed that diesel fuel credits be available to vehicles of 3.5 tonnes GVM or greater. However, this had the potential to encourage business operators to switch to heavier vehicles in order to capture the benefits of the diesel fuel credits. The result could also have been an unintended switch from petrol to diesel powered vehicles, with consequent increases in particulate emissions.

The use of 4.5 tonnes as the cut-off point under this bill for a grant scheme removes these unintended incentives. 4.5 tonnes is a natural cut-off point for vehicle classes because different licensing requirements apply at this level—a truck drivers licence is needed to operate such vehicles. In addition, very few transport vehicles use petrol at this new threshold. Some 99.9 per cent of articulated vehicles and 90.5 per cent of rigid trucks already use diesel, as do a similar percentage of the bus fleet. Thus, the scope for fuel switching in heavier vehicles is extremely limited under this bill. In fact, viewed in the context of the full set of environmental commitments made by the government, particulates emissions in cities will actually fall substantially.

The Bureau of Transport Economics has estimated that, based on its projections of fuel use, reflecting anticipated growth in the national transport task, fuel use would have increased by approximately 50 per cent by 2015—and by more with the added economic stimulus of the tax package boosting national productivity and our export competitiveness. As a result, there would have been a substantial increase in particulate matter emissions—and I emphasise that this is the case with or without the new tax system. In capital cities, where the health impacts and associated costs were likely to have been most noticed, this would have seen an increase from 5.7 gigagrams of particulate emissions in 1997 to 10.3 gigagrams by 2015.

With the establishment of:

. standards for low sulphur diesel in 2002,

. incentives for the introduction of ultra low sulphur diesel from 2003,

. the introduction of mandatory ultra low sulphur diesel standards from 2006, plus

. the vehicle emission standards to be determined and gazetted before this bill takes effect,

it is now expected that particulate matter emissions across Australia will be no greater in 2015 than they were in 1997. And in cities, where the issue is potentially at its most serious, pollutant levels should fall from the 5.7 gigagrams noted earlier to 4.2 gigagrams—a 26 per cent reduction.

I would like to underline what a great achievement this is when one considers the anticipated growth in the national transport task over this period that I have mentioned already. Improved emission standards for both petrol and diesel vehicles are effectively incorporated into this bill.

Section 2 of the bill outlines the commitments we have given in this regard. The commencement of the act is contingent upon them being implemented in Australian Design Rules made under the Motor Vehicle Standards Act. Dates of application have been specifically incorporated in the bill at the request of the Democrats and I am repeating their intent today, because of the complexity of the subject. The outline in the bill in substance recognises our obligations to apply:

. Euro 2 emission standards to all new light diesel in 2002, and continuing models from 2003;

. Euro 3 to all new medium and heavy diesel models in 2002, and continuing models from 2003;

. Euro 4 to all new diesel models from 2006, and continuing models from 2007;

. Euro 2 to all new petrol models from 2003, and continuing models from 2004; and

. Euro 3 to new petrol models from 2005, and continuing models from 2006.

The exception noted in section 2 of the bill is important. Our vehicle industry would have serious difficulty coping with the application of standards under Euro 4 for petrol vehicles. We thus have yet to make a commitment in that area, and the legislation is intended to reflect this.

Overall, the benefit is huge. These standards will mean that emission rates from oxides of nitrogen and particulates in new medium to heavy duty trucks will be:

. 40 per cent and 70 per cent lower respectively after 2002; and

. 50 per cent and 90 per cent lower respectively after 2006 than they are in vehicles meeting current standards.

There has also been some acrimonious debate over carbon dioxide and related greenhouse gas emissions, with the suggestion that greenhouse gas emissions will increase as a result of this package. We need to get this issue straight. Greenhouse gas emissions are a serious matter and one which the government intends to address seriously. But expecting the tax package to solve such an issue is nonsense. Greenhouse gases emitted by the transport sector continue to grow for a reason—the reason is that the economy continues to grow, and transport grows with it. Moreover, there is nothing written in stone or derived from logic that says transport emissions must not rise. For Australia, the question must be what is the least-cost adjustment to reach the Kyoto Convention target, not simply transferring that target to each sector.

Clearly, taxing our transport sector more heavily in order to suppress demand for transport is an unacceptable option, unless we are also attempting to suppress overall economic growth. As a nation, we need to recognise diesel is our main heavy transport fuel. The solution to lower emissions growth in transport lies with improved engine efficiency, use of intelligent transport systems, better intermodal transfer efficiency, higher public transport efficiency and better land use planning.

It is not affected in any substantial way by the price of fuel. The price of fuel has been increased by taxation very significantly in Australia over many years, with not much impact on growth in demand for its use. It is relative pricing that will matter, not the absolute level, as this bill itself demonstrates with its plan to maintain the differentials between fuels. Under a high fuel tax regime, all that will change is the cost of doing business in Australia and, for transport dependent communities in regional Australia, that is not the soft option that it is for some city based think tanks.

We also intend that a further bill, putting in place the administrative arrangements, including the compliance mechanisms needed to support this bill, will be introduced by the government in the spring sittings in consultation with the Australian Democrats. We will be seeking passage of the administration bill prior to Christmas in order that industry can develop record keeping arrangements and plan with confidence for the introduction of the grants scheme on 1 July next year.

Mr Crean interjecting—

Mr ANDERSON —They could certainly plan with confidence if the Labor Party were in, but the confidence would be that fuel excise rates would continue to rise, just like they did despite the commitments they gave the Australian electorate prior to 1993. The administrative arrangements will be developed by the Australian Taxation Office in consultation with the Australian National Audit Office, and its views will be factored into the compliance and audit procedures.

It is the government's intention that the Diesel and Alternative Fuels Grants Scheme and the Diesel Fuel Rebate Scheme will sunset in mid-2002 and be replaced with an Energy Grants (Credits) Scheme. The future Energy Grants Scheme will maintain benefits that are equivalent to those available under the Diesel and Alternative Fuels Credit Scheme and the Diesel Fuel Rebate Scheme.

Very importantly, it is the government's intention that the Energy Grants Scheme will also provide active encouragement for the move to the use of cleaner fuels by measures additional to those available under the Diesel and Alternative Fuels Grants Scheme. The detail of the Energy Grants Scheme will be developed jointly by the government and the Australian Democrats and introduced through a jointly sponsored bill.

This bill is being introduced in a highly charged atmosphere, where emotion may cloud reason. However, there is every reason for all members to support it because lower transport costs benefit all Australians and because of the significant improvements to emission standards inherent in it. Good policy is producing cheaper transport costs at the same time as helping clean up the air in our cities. This bill makes a substantial contribution to the case for tax reform—for without tax reform, the funding required to support it would simply not be available. I commend the bill to the House and present the explanatory memorandum to the bill.

Debate (on motion by Mr Tanner) adjourned.