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Friday, 2 March 1984
Page: 334

Senator CHANEY (Leader of the Opposition)(3.03) —I suppose that this matter of public importance could more accurately have been worded by referring to the discredited former resource rent tax proposals of the Minister for Resources and Energy (Senator Walsh) because it is quite clear that the proposal he originally put forward has been severely deserted by the Government of which he is a member. He is left holding but one remnant of the garment that he held out to us in such attractive economic terms. The Opposition is concerned about the fact that the Government in this matter is giving rise to very great uncertainty. That is causing concern to an industry which is of great importance to Australia and an industry which affects the long term stability of our fuel supplies and our independence from that point of view. I do not know what aspect of the matter Senator Walsh will choose to address. But I hope that he will not try to argue that there has not been continuing uncertainty about the matter that he has in hand-the imposition of a resource rent tax.

Not very long ago he told Australia and the Parliament that he would impose a resource rent tax on coal and oil and that that tax would apply throughout the country and, of course, it would apply off-shore, where most of our oil resources are won. We now know that the Government has stepped back from the coal industry. Senator Walsh has indicated that he does not see that the Government could introduce the tax on-shore. He is now saying that he confidently expects a tax to be imposed from 1 July on off-shore oil and gas. But the certainty in all the public expressions which I have seen from the Minister does not seem to be shared by all of his colleagues. It certainly does not seem to be shared by the Premier of Western Australia. The other night, on one of the rare occasions when I was able to watch television, on the Australian Broadcasting Corporation news I saw Labor Premier Burke speaking to an audience of New York businessmen, obviously trying to say things that would please them. I quote from the transcript of Mr Burke's remarks:

My quite frank view is that the tax is unlikely to be imposed as from July 1st. Although the announcement of its application has been made, I am sure that it is with much less joy that the National Government embraces the concept than it embraced it from the Opposition Benches.

I sometimes wonder whether Senator Walsh, who has been handed this thorny task, looks at the present Treasurer, Mr Keating, and thinks of him as the now discredited shadow Minister for Minerals and Energy for having run so hard with the proposition which has proved so difficult, if not impossible, to implement. But Premier Burke, a Labor Premier who shares the views of Labor and non-Labor Premiers alike about this tax, namely that it is a tax which should not be imposed, was expressing, perhaps, no more than a pious hope. I hope that Senator Walsh will be able to enlighten the Senate a little more about just what are the Government's present intentions. I certainly do not expect him to give us the sort of specific information that he has been promising and which he has been unable to deliver so far, which would tell us just what effect this tax will have on the industry.

I do not know whether Premier Burke was acting as an agent for the Hawke Government when he set out to ease the fears of his audience. But I must say that, from the looks on people's faces as they were shown on the television screen, they did not look too reassured. The same lack of reassurance is evident on the faces of the people who are responsible for the oil industry in Australia . There is dual uncertainty-uncertainty in the Government and uncertainty in the industry. I think there is still uncertainty in the Government about just what to do. I was very taken by a comment from someone who met Senator Walsh while he was overseas recently. He said: 'There is no doubt about Senator Walsh. He knows that he wants to do something, but I do not think he knows what it is'. I suspect, from the sort of information which Senator Walsh has been putting out, that that is a fairly accurate summary. He knows what he wants to do. He wants to put in a more rational tax, something which is profit based. He wants to put in something which will not deter investment. But he does not really know what to do. The attempts he has made to explain the matter-I welcome the fact that the Minister has put out some discussion papers and invited public comment-have still left very great areas of uncertainty. The fact is that the Government has backed and filled. Senator Walsh has backed and filled. The minerals to which the tax is to apply and the locations to which it is to apply have varied and that, of course, is of great concern to the Opposition and to Australia.

The second area of uncertainty I mention is in the industry itself. I will refer to some of the recent statements which have been made by industry sources which make it very clear what is the attitude of the oil and gas industry to what the Government has been proposing. As recently as 3 February APEA-the Australian Petroleum Exploration Association Ltd-issued a detailed statement in which it put its view that the tax was one which should not be imposed. I quote in part from the Press article reporting that statement:

The Federal Government's proposed resources rent tax was already seriously affecting investment in petroleum exploration and development, the Australian Petroleum Exploration Association Ltd said yesterday.

The article continued:

Offshore drilling is expected to fall from 49 exploration wells last year to 32 this, . . . more offshore wells had been expected to be drilled in 1984, so the logical conclusion to be drawn from the 1984 survey was that the Government's proposal to apply the tax offshore initially was already causing investment caution.

Mr Orchison, on behalf of the Association, stated:

'Exploration programs are highly sensitive to changing circumstances such as the proposed resources rent tax-commitments to contractors at this stage are only 113 exploration wells'.

I do not want to go into all the figures which APEA has given. I know Senator Walsh is likely to point to the fact that quite a substantial number of wells have been drilled over recent years. However, I think Senator Walsh would also agree that over this current year and last year there has been a very significant decline in the amount of seismic work done. That of course is the forerunner to drilling. It is quite clear that there is a downturn in that area and it is quite clear that the industry is expecting a further downturn in drilling.

I have heard Senator Walsh in this place before saying that that is all very well but that that downturn is related to changing conditions in the oil industry world-wide. I do not wish to mask the fact that, since the world price of oil has stabilised and at times dropped in real terms and since demand has dropped and supply become readily available, of course interest in exploration has declined. That fact does not detract from the argument I am putting, rather it supplements and buttresses it. Of course it is in Australia's continuing national interest to maintain oil self-sufficiency. It does not matter what the immediate market conditions are. The fact is that Australia, with a current high degree of self-sufficiency, faces a significant decline in self-sufficiency. Australia faces the fact that this is not a particularly prospective area for oil exploration and that in the world there is always the risk of shortage because of the instability of many of the areas from which oil is taken. It must be in the national interest to maintain a high level of self-sufficiency. That means a high level of exploration.

If there are external economic factors working against the search for oil in Australia it ill becomes the Government to take steps that will buttress and further that trend. The more Senator Walsh points to external conditions as augmenting the decline in interest in exploration the more he argues against the sorts of changes that he is proposing, which clearly present a disincentive to the people engaged in this industry. I quote again from the APEA statement in which Mr Orchison, on behalf of the organisation, is reported as saying that he:

. . . believed the RRT was unsound and impractical. They feel there is little value in replacing the present tax arrangements for the petroleum exploration industry with a tax that is complex . . .

The present arrangements have encouraged exploration, so there is no point in giving away a system that works for one that may not work . . .

. . . .

The shelving of the Government's RRT plans is essential to sustain exploration effort.

I am sure Senator Walsh is familiar with many other statements of people in the industry. I will mention only one other statement, that of The Broken Hill Pty Co. Ltd, a major company with interests in this field. On a couple of occasions we have had spokesmen from that company pointing out that if there had been a resource rent tax when Jabiru was being considered BHP would have decided not to drill.

The Minister is entitled to say that he takes with a grain of salt the views of these people and that after all Senator Chaney is citing the views of people who will be affected by this tax. That is correct of course. I think it is abundantly clear that the people in this industry who are required to make investment decisions believe that the incentive for exploration will be diminished by what Senator Walsh is proposing. I think that is the reality faced by Senator Walsh and the Government. I do not believe there is any escaping that reality.

The problems of the tax have been perceived to be problems outside Australia. I have already mentioned that the Premier of Western Australia saw fit to deny the words of Senator Walsh and to suggest that in fact the tax would not be in place by 1 July. I draw the Minister's attention to the reference in Australian Business to the American mining magazine Engineering and Mining Journal which recently comprehensively reviewed the Australian mineral scene. It pointed out the anguish of the mining and exploration industries over resource tax initiatives by Canberra. I do not think there is any doubt that there is uncertainty. There has been continuing uncertainty in the mind of the Government and in the mind of the industry. It is the uncertainty in the minds of the people that make up this industry that is creating potential problems for Australia.

I believe that the premier and very heavy responsibility that Senator Walsh carries is to maintain an environment conducive to encouraging oil self- sufficiency in Australia. I do not believe that it is an easy task. I believe that in a government where there will be a very heavy scramble for revenue to enable it to meet the sorts of reductions in personal income tax that are no doubt needed as a pre-election sweetener the pressures on Senator Walsh and his Department will be heavy indeed. I think if he takes his duties seriously and in the national interest-I am sure he does-he will agree that one of his premier responsibilities, if not his premier responsibility, is to maintain a high exploration effort, thus maintaining the highest possible oil self-sufficiency in this country.

I have never accused the Minister of insincerity or of having a lack of a purely theoretical base for the propositions which he has advanced. I say that because I think he has tried to put the case in terms which are logical. He has talked of the need to lift non-profit related taxes because of their potentially deleterious effect. He has talked of imposing this new tax only above the ceiling which is required to bring about investment in this essential industry. I acknowledge that in that sense he has put forward arguments which take into account the sorts of concerns which I have expressed. I think it is now abundantly clear that there are very great problems with the theory he has put forward. Those problems arise both on a theoretical and a practical level.

I believe the first problem that the Minister cannot overcome is that relating to the ceiling point. The point at which the tax begins to apply is a judgment. Senator Walsh has to try to find a figure which is the figure at which people will be prepared to put money into this very risky industry. I think if a very careful analysis were done of the actual workings of companies it would be possible to divine that figure at a particular time. I ask Senator Walsh to concede that that calculation is a calculation of a moment. It is a calculation based on circumstances on a particular day in a particular month and in a particular year. The ceiling which he is pursuing is in fact a moving target. The sort of stable tax regime which he is recommending cannot meet the theoretical model for multiple projects and at the same time maintain the sort of stability he has talked about.

The second problem for Senator Walsh and the Government is that if they are going to go down the theoretical path outlined by Senator Walsh they have to base the cut-in point for the tax on the figure required to maintain investment rather than a particular revenue target. It seems quite clear from Senator Walsh 's recent statements that the Government has to tailor this tax with revenue targets in mind. Senator Walsh has begun to be quite explicit about that. Senator Walsh has said that we need to raise the same money out of old oil and that we need to raise additional money out of new oil, say an additional 10 per cent. Once he starts setting the threshold figures and the tax rates on the basis of some revenue target it seems to me that the theoretical attractiveness of this tax disappears because the threshold is being set not from the point of view of trying to make an inspired guess at the magic figure at which people will continue to invest but of making a rather more prosaic stab at the figure that will return 300, 400, 500, or whatever number, of hundreds of millions of dollars extra revenue is required.

Another problem for the Minister is that the figure is simply not going to be static and that varying conditions will prevail. The oil price situation of course is something which is very variable. There will be variable returns with this sort of resources rent tax approach of Senator Walsh. Again it is not a matter that will be of very great practical assistance to his Government. Of course the major obstacle and the obstacle which has already caused the Government and Senator Walsh to withdraw from a great deal of this area-that is, to withdraw as far as coal and on-shore oil is concerned-is that the model which he has constructed ignores the realities of the Federal system. On this occasion Senator Walsh cannot rail against Premier Bjelke-Petersen and say that it is all his and Premier Gray's fault and ascribe to them the demonic qualities that he likes to ascribe to non-Labor politicians because he faces the fact that his Labor colleagues from the States have the same low opinion of what he is trying to do as do the non-Labor Premiers around Australia.

We face the situation where the Government has made backdowns, where the Government has indicated that it will depart from the theoretical base that Senator Walsh outlined. The Government will have to pursue revenue targets and perhaps, most importantly, the economic logic that Senator Walsh sought to embrace will be totally absent from the fact that one will have one sort of tax regime on-shore and a different tax regime off-shore. That means, of course, that there will be a major distortion of the investment decisions which are made about oil exploration in Australia. I believe it is quite clear that it is not in the national interest for the Government to continue to pursue this mirage. I do not believe it is in the national interest, if the Government is to back down further, that that back down should be further postponed. I believe that the disquiet which is evident in the industry should be put to bed. If the honest reality is that this Government is determined to tax oil more, it ought to do so in a simpler manner which is more acceptable to the industry than to go through the hoops which Senator Walsh is at present trying to jump, to no good effect at all.

In what is a very limited time of debate on a very important subject, I simply close by saying to the Senate that I believe it is the primary task of Senator Walsh, his Department and his Government's activities in this area, that they maintain an exploration effort which will best possibly ensure Australia's self- sufficiency in liquid fuels. The Government cannot escape that primary obligation; it cannot escape that primary duty. The course which is being followed by Senator Walsh at the moment is not in the national interest because it cuts across that fundamental objective. I ask the Government to withdraw this proposal and to deal with the matter in a more sensible way which will avoid some of the problems which are currently being created.