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Wednesday, 31 May 2000
Page: 16757


Mr MOSSFIELD (10:30 AM) —The Petroleum Excise Amendment (Measures to Address Evasion) Bill 2000 addresses excise evasion and substitution in the petroleum industry. The issue of chemical substitution has received some publicity in recent times, and this appalling activity has caused the bill to be brought in the House for debate and/or approval.

The background to this legislation is that excise on petroleum products is levied at different rates, depending upon the intended use of the product. Fuels intended for on-road vehicle use, such as diesel fuel and unleaded petrol, have attracted a higher tariff than fuel sold for non-transport use, such as heating oil and kerosene, while other products sold for non-fuel use, such as solvents, do not attract any excise duty. Unscrupulous operators in the industry have avoided excise duties on transport fuel through the substitution of lower excise petroleum products into motor fuels. This action has the effects of reducing government revenue and being potentially dangerous or damaging to motor vehicles. I believe all members would have been surprised to find out the lengths that individuals have gone to, not only to avoid paying proper excise but also to be part of a practice of chemical substitution to petrol to lower the cost and, of course, increase profits. Industry sources have also expressed alarm at this substitution racket in an AAP article on 8 May this year:

Liberty Oil Chief Executive Officer, Mark Kevin, said his company had been subject to death threats for demanding government action against the widespread practice of diluting petrol and diesels with low-octane hydrocarbons, toluol and toluene and naphtha.

`There has been a lot of action taken by the government and the tax office over the past two years and that has narrowed it down. Last year we put a figure of about $400 million that was lost in excise that was not collected on the rort that was going on over the last year', Mr Kevin told a Senate inquiry into legislation to block the excise rorts.

`We have estimated that at any one time there is probably about $50 million being avoided through one rort or another.'

He said the substitution could cause engine problems and probably endanger public health. He estimates the cost to his own small independent company of competing with diluted products was between $5 million and $7 million in 1998. The company has discovered two months ago that petrol was being mixed with naphtha and sold at service stations in Sydney and Melbourne.

There is some evidence to suggest that the federal government could have moved quicker on this issue. The member for Wills, who usually has his finger on the pulse on these particular issues, is quoted in the Age of 10 March as saying:

The issue of paint thinner solvent being used to dilute diesel fuel was first brought to Senator Kemp's attention by the Liberty Oil company 18 months ago.

The member for Wills stated, `I have a letter dated June 26, 1998 to Senator Kemp which enclosed a copy of the letter sent to the Minister for Justice and Customs outlining their concern over significant tax excise avoidance within the industry.'

Also to continue the quote by the member for Wills:

In the letter the company warned the government that up to $300 million in fuel excise revenue was being jeopardised by the fraudulent behaviour of some petrol station owners.

Speaking during the second reading debate last evening, the member for Wills highlighted further weaknesses in the government's approach to this issue. He spoke of the massive amount of money that has been lost to the government through excise evasion and stated:

It has cost at least $100 million—the tax office admits to $100 million but the figure is probably much higher—through the branding of unleaded fuel as `solvent' and then a further $10 million, once again as admitted by the tax office, through the toluene scandal. All in all, this legislation represents a clear example that the government had failed and had dropped the ball on fuel substitution.

The member for Wills referred also, in the same speech, to the lack of activity by the government in regard to fuel excise. He said:

Since 12 July last year when the tax office took over control of fuel substitution from Customs, we find that only a total of 42 sites have been tested. Of those 42 testings, a total of eight instances of fuel substitution was discovered. So it is still going on—

this is right up to recent times—

that is some 20 per cent incidence of fuel substitution. But compare that meagre number of 42 sites tested with the actions of Customs when they were responsible for this in the previous year. Their annual report for 1998-99 reported that they had visited 551 test sites, and they found 52 positive instances of fuel substitution. So, once again, Customs detected a very serious level of fuel substitution, but instead of the government acting on that, once it found out there was this kind of problem, it reduced the number of tests, so that Tax has only tested 42 sites since 12 July last year—a 90 per cent reduction in the level of testing.

It hardly seems that the government has taken this issue seriously, despite the issue being brought to its attention.

People participating in these activities have not only short-changed their customers but avoided their responsibilities to the community by avoiding or deliberately lowering, by unfair means, their tax obligations. This bill attempts to close the legal loopholes now available to the unscrupulous by using a generic, catch-all definition of petroleum product. Another advantage of the bill's clauses is to make it much easier to prosecute offenders and much harder for offenders to hide behind legal niceties in their attempts to avoid prosecution.

The blending or substitution of chemicals in petrol is an absolute disgrace, and must be stopped as a matter of urgency. To that extent, I am sure the opposition welcomes this legislation before the House. The substitution has been by the use of a chemical called toluene, which is basically for use as a paint solvent, to avoid excise charges. Earlier this year, it became evident that some operators in the petroleum industry were increasing the levels of toluene in fuels. It appears that large quantities of this product, imported under the chemical classification, were in fact being diverted to a fuel use and therefore avoiding customs duty. Press reports indicate that over 20 million litres of toluene had been imported into Australia since November, which is more than its main legitimate user, the paint industry, had used in a year.

It has been clearly established that this mixture of petrol and toluene is most dangerous to the safety of drivers. It is also likely to cause great harm to the engines of the vehicles whose owners are unsuspecting users of the mixture. It has been alleged that some independent tanker owners have been adding huge amounts of toluene to their petrol load and thus are able to almost double their number of deliveries to clients. Of course, there are some cut-price service stations that are alleged to be doing their own adding of toluene to their storage tanks, charging the full price for the petrol but making more money because of the use of this cheap, but dangerous, additive.

I am aware that even within my own electorate of Greenway there have been unfounded rumours, which have been directed at particular retail outlets, that have claimed mixed petrol was being sold to vehicle owners. I find it quite obnoxious that persons in Australia would stoop to such horrendous levels of deception to make a dishonest dollar at the expense of unsuspecting motorists. It costs a great deal of money today to own and maintain a vehicle. What the average Australian—in fact every Australian—does not need is parasites in the petrol industry ripping them off. This petrol mix is likely to cause great damage to the engines of their precious motor vehicles. This is a scam that is being perpetrated upon the unsuspecting motorists of our nation by evasion of excise payments. The substitution or addition of large quantities of paint solvent to petroleum products is unacceptable, and motorists should be able to believe that they are actually receiving what they expect to be getting from the petrol pump.

Previous legislative charges introduced in 1997 to overcome this fuel substitution racket have only had limited success in bringing prosecutions for evasion of duty. In March the government announced that it would amend the Customs Tariff Act 1995 to make imported toluene and related substances subject to customs duty. Sectors that use these substances for non-fuel purposes, such as the paint industry, would receive rebates on customs duty paid. But the Australian Paint Manufacturers Federation and the Australian Institute of Petroleum have expressed concern about this proposal. The Australian Paint Manufacturers Federation said the rebate scheme would leave companies with cash shortfalls and result in price increases. The federation's executive director, Mr Michael Hambrook, said that not only would the paint and ink industries be affected but also others, including dry cleaners, would be affected. So this is an issue: in solving one problem, the government has to be very careful it is not creating problems for people in other industries.

Prosecuting offenders has been a problem to date. The Customs 1998-99 annual report noted that `establishing proof of offences under the Fuel (Penalty Surcharges) Administration Act 1997 has proven to be more difficult than expected'. To address this problem, the bill proposes to eliminate the need to prove an ownership trail on the fuel back to the original suppliers. It also enables evidentiary certificates to be admissible in court in providing certain elements required to prosecute an offence. The honest people in the industry, and that is the majority, will be watching the passage of this legislation with great interest.

Of even more interest to the honest industry people will be the successful prosecution of offenders and the elimination of such practices. Our motorists—who are at the end of the chain and whose vehicles suffer from the behaviour of the unscrupulous persons that are avoiding excise and adding dangerous chemicals to increase their profits—will also be watching with great interest just how this bill is acted upon by the government once it obtains the authority to act. I, like all those interested, will be expecting vigorous action and successful prosecutions. These dangerous and appalling tactics must be eliminated so that motorists are protected from these greedy and unscrupulous manipulators.