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Friday, 6 December 1985
Page: 3119


Senator DURACK(9.14) —The Senate has commenced debate on the Petroleum Revenue Bill and the Excise Tariff Amendment Bill (No. 2) which are clearly related to each other and are being dealt with cognately. I commenced my speech by making some general observations about the Government's policy in relation to the petroleum industry and, in particular, to its proposals for a resource rent tax regime to apply, although at present its policy is related only to Greenfields off-shore areas. There is, of course, an in-principle commitment to this form of taxation which the industry and we in the Opposition are concerned may be applied progressively by the Government not only to the petroleum industry but also perhaps to the whole of the mining industry.

The other worrying aspect of the Government's proposals for a resource rent tax is the fact that it is to take effect from 1 July 1984-and here we are at the end of 1985 and the Government still has not produced even a draft or exposure draft of legislation for such an important new tax. It seems as though that is not likely to be seen for some time. Yet the Government is proceeding to seek cash bids for new and highly prospective off-shore areas for exploration for oil and gas. There is not only no sign yet of a capital gains tax and how that will apply but no sign of the resource rent tax either. How anybody can make any sensible bids in that state of the law I do not know, but perhaps the Government will be able to tell us that in due course, though I very much doubt it.

This legislation is a dry drum, so to speak, for the Government's attachment to a resource rent form of taxation. Nevertheless, the Opposition will not oppose this measure because it could have some benefit for some producers or explorers. Its framework has been explained by the Minister for Resources and Energy (Senator Gareth Evans). It is called resource rent royalty legislation-RRR legislation rather than RRT-but its immediate purpose is to give full legislative effect to an agreement which has been entered into by the Western Australian Government West Australian Petroleum Pty Ltd-Wapet- which is the owner and operator of the Barrow Island oil field amongst others. It is classified as an on-shore operation. It is an island off Western Australia, but it is part of Western Australia so it is an on-shore oil field. In fact, it is a very old oil field and the purpose of this legislation is to encourage the company to continue producing oil from the field which is becoming quite depleted. It would not be economic for the company to proceed much longer with the extraction of the oil that is there, under the existing tax regime with the full effect of the crude oil levy by the Commonwealth and the royalty to the State.

The agreement was entered into on 25 June and took effect on 1 July this year. Legislation has been passed by the Western Australian Parliament and this legislation is required at Federal level because there has to be a new taxing regime. The existing crude oil levy arrangements have to be modified as do State royalties. That is the purpose of this legislation. It will have a beneficial effect in relation to Wapet, and it may have a beneficial effect in other special cases involving oil fields around Australia. It is for the companies concerned to consider whether they want to make use of it. The Opposition is not opposed to this legislation. I emphasise that that does not affect our opposition to and great concern about the proposed resources rent tax, as a sword of Damocles which hangs over the whole petroleum industry and ultimately, I fear, may hang over the mining industry as well. The real concern about that related to the proclivities of this Government in the tax field. If there were some other and more beneficial tax regime to be substituted, of course, neither the industry nor the Opposition would be quite so worried about it. The fact of this is seen as an additional or in effect, excess profits tax is the really worrying aspect of the resource rent tax proposals. I think that concern is well justified when one considers the extent to which this Government has created new imposts on the oil industry. For instance, in March 1983 when this Government was elected the situation in relation to taxing the oil or gas industry was that we had the old oil excise or the crude oil levy-we are dealing with this today in reapplying the levy-there were of course Federal and State royalities on production, the Federal excise and State franchise on petroleum products and some production licence arrangements.

Now in December 1985 and post-March 1983 we have the following tax regime relating to the industry: We have taxes on old, intermediate and new oil. Admittedly the intermediate oil tax is some alleviation for the industry, particularly in Bass Strait. However, there is now a new oil excise whereas previously there was no tax on what is classified as new oil until this Government came to power. There is now a proposed resource rent tax. There is now cash bonus bidding which has been introduced and which, in effect, is another tax impost on the industry. That may be with or without a resources rent tax, we will not know whether this is so until we see the full details of the lagislation. We have production licence arrangements such as Federal and State royalties on production. We have retention lease arrangements which involve a licence fee and a threat of higher premiums. Of course, we have an increased Federal excise on petroleum as well as the State franchise fees on petroleum profits. Incidentally in regard to the Federal excise, despite Mr Hawke's promises in 1983 that there would be a reduction of 3c a litre in the price of petrol in fact there has been an impost of more than 3c a litre on the consumer of petroleum products. We have had various threats from the Government about signature bonus payments and, as I have said, retention lease premiums. Of course, goodness knows what is in store in relation to production in the Timor Sea and even perhaps a hydrocarbons corporation.

That is the sad picture which emerges at the end of nearly three years of this Government's dealings with the vital petroleum industry. No wonder there is widespread concern in the industry because it does not know where it stands. The industry does not know what is in store for it next. This in an industry absolutely vital to Australia's future and which has an absolute priority for finding more oil in particular and gas as well. As I said we in the Opposition are very concerned. We have to see this legislation, although we are not opposing it, in the context of the attitude of this Government to this vital industry. I want to emphasise that the only reason we are going along with this legislation, as indeed Wapet itself has emphasised in discussions I have had with it, is that this is simply a tax on old oil. If it were a tax on any new oil that of course would be completely in breach of the incentives and encouragements given to the industry to explore for oil in recent years-most of which of course is now unfortunately under a cloud as a result of this Government's taxing policies.

There are a few comments I wish to make on the nature of this legislation. Despite the fact that the agreement was entered into between the Western Australian Government and Wapet in June this year, the legislation did not come into this place until fairly late in the session. Even after its introduction the Government had to move 41 amendments during the Committee stage in the House of Representatives. It did this, incidentally, without giving any notice to the Opposition at all. The amendments were simply bunged down on the table only during the Committee stage of the debate, not even at the beginning of the debate on the Bill. Although these amendments were minor, they indicated very inadequate preparation, poor drafting and a general lack of consultation and liaison with everyone concerned.

There are still anomalies in the present amendments and of particular concern is new clause 2A in the Schedule to the Petroleum Revenue Bill, which introduces a penalty by way of additional royalty under the agreement. It is not stated in the Bill, but this penalty appears to apply to cases where a producer is in breach of the agreement. We are concerned that the terms of that breach and the level of penalty are not stipulated, nor are there any consultative arrangements in place apparently, by which appeals may be made or further negotiations conducted. The Government has also introduced an amendment to remove the ability of a party to the agreement to terminate the agreement after seven days notice in writing. These are some of the confusing situations that still occur.

There is also the remaining concern that Wapet has about this matter. Wapet still has to sign the agreement and it really needs some guidance from the Federal Government before it goes about one particular situation. There is a difference between the agreement made between Wapet and the Western Australian Government and the model agreement which the Government says should apply to any special arrangements of this kind-and this applies to Wapet as much as any other interested oil producer who wants to take advantage, if such there be, of this legislation. There is a difference between the actual pioneer agreement between Wapet and the Western Australian Government and the scheduled agreement in this Bill. The Schedule details definitions of what is meant by `an arms length transaction', whereas the Wapet agreement with the Western Australian Government does not contain that sort of detail. In fact, it may well be and probably is a fact that on a literal interpretation of this Bill, this Federal legislation would not apply to the very Bill that has been the cause of all the legislation here and in Western Australia. I ask the Minister for Resources and Energy, Senator Gareth Evans to indicate whether the State agreement with Wapet will be regarded as valid in accordance with this Federal legislation. Also, there is another clause in this Bill which seems to limit the power of State Ministers to make decisions which are not in accordance with procedures approved by the Federal Minister and presumably that gives the Federal Government total power of veto over the States.

The arrangements between Western Australia and the Commonwealth are for a sharing of the revenue that is raised by this Bill and presumably there is agreement on that score between the Commonwealth and the State. That is not a matter on which I really want to comment except to say that the Commonwealth will be paying Western Australia about $20m this year in recognition of or compensation for loss of revenue to the State as a result of its giving up its royalties which it would have received had the old arrangements continued-that is assuming, of course, that Wapet continued in production. That seems to be a bit of a bonus for Western Australia and I suppose it is justified.

As I have said, this legislation applies only to Barrow Island at this stage. However, apparently discussions are being carried on with the respective State governments and the Federal Government about other potential candidates. Fortunately the industry itself will still be able to choose whether it will come under the umbrella of this legislation or whether it will carry on with the existing tax arrangements. There may be some inducement for some alleviation of the effect of the impost on old oil, particularly when oil fields are depleted.

I hope that the Federal Government does not seek to promote this legislation as a dry run, so to speak, for its resource rent tax before it exposes the RRT legislation. There is a desperate need for this Government to put down an exposure draft of its resource rent tax legislation. Is that too much to hope for particularly in view of the fact that the legislation will apply retrospectively to 1 July 1984-that is, 18 months ago. However, this Government has not been able to produce even an exposure draft of the legislation. If the Government seriously intends to go on with this alternative tax regime, is it not reasonable that everybody should know, and know soon, just what the exact details are? Major decisions are having to be made by people in the industry on matters which are absolutely vital to the future economic health of this nation. We are entitled to expect far better than that from this Government.