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Wednesday, 12 February 1986
Page: 187


Senator CHIPP (Leader of the Australian Democrats)(3.55) —The Senate is debating a matter of urgency raised by the Liberal-National Party Opposition which states:

That, in the opinion of the Senate, the following is a matter of urgency:

The need for the Government to pass on to Australian motorists, farmers and other consumers the full benefit of the drop in world oil prices.

Three of the most fascinating years of my parliamentary career were spent as Minister for Customs for which in those days one responsibility was the initiating and administering of an indigenous oil policy for Australia. I have sympathy with anyone such as the present Minister in a different portfolio who has that responsibility because of the difficulties and complexities in such a policy. The Australian Democrats agree with the Opposition that it is now time for the Australian Government to abandon the infamous import parity pricing formula devised by the Fraser Government and continued with only minor modifications by the Hawke Labor Government.

It is clear that over the past decade the Liberal Party and the National Party and subsequently the Labor Party have conspired to rip off Australian motorists, farmers and other consumers by a sleight-of-hand method of hidden taxing. They have done so in their obsession to exploit to the maximum a source of revenue in spite of the inflationary effects of pursuing that policy. The Liberal Party and the National Party are responsible for import parity pricing. They introduced it and they have ruthlessly and mercilessly maintained it, to the detriment of the motorist, farmer and industry. They put forward as a rationale, with which the Democrats agree, that to encourage oil exploration in Australia a basis of import parity should be maintained for newly discovered oil, so that if anybody found oil he should be able to get a world price, otherwise no explorer would bother to find it. There was however no rationale, moral, economic or otherwise, to maintain import parity pricing for old oil, but they did, and they did it, let us face it, for one reason. It was a convenient, hidden, painless way of extracting revenue from the motorist and farmer. Now the Liberal Party and the National Party unashamedly and hypocritically argue that the full benefit of the drop in oil prices ought to be passed on to Australian consumers. Apart from political point scoring, in a desperate attempt to win votes at any cost, what do they really mean by passing on the full benefit? I listened carefully to Senator Durack and, lucid as he always is and was today, I am still no wiser on that point.


Senator Durack —Seven cents a litre.


Senator CHIPP —Senator Durack says that the full benefit would be 7c a litre. Every reasonable source says that the price drop would not be 7c; it would be closer to 11c a litre. Again, our information differs. The world price of oil has collapsed. There is no doubt about that. There has been a dramatic fall but, strangely, in recent days it has been followed by increases in oil prices.

To understand the effect on Australian retail prices of oil, let us look at the situation. Last week the world price of oil fell to $US15 per barrel. If that cost of $15 per barrel were applied to the Australian price of oil the Australian Government would lose $1.9 billion in revenue in a full year. That is what we are talking about in wanting to give the motorist the full benefit. We are talking about a diminution in revenue to the Government at that rate of about $2 billion a year. Just a week later the price has gone up $2 to $US17. At that rate the Government would lose around $1.4 billion in revenue. But there are so many wild cards in this scramble. If oil producers such as Mexico, Iran, Iraq or even Saudi Arabia opened the cocks, let the oil flow-all desperate for revenue-and started a real price war, the price of oil would plummet to below $US10 a barrel. Let us assume that happens. Would the Liberal and National parties favour the full price cuts without compensation being passed to the consumer? That would mean a diminution in one year's Budget of over $3 billion. Is the Liberal Party saying that if it were in office it would have an increased deficit blowout of $3 billion without any compensatory measures? Mr Howard's last Budgets did produce a massive deficit blowout but one must assume that this was not Liberal Party policy, merely bad economic management.

The Australian Democrats will support the motion put by the Opposition, but with reluctance for two reasons. The first is that, although we want to abandon import parity pricing, and we have enunciated this, we still do not know what `full benefit' means in the context used in the motion. Secondly, we do not believe that even the Liberals are advocating an immediate $2 billion diminution in revenue, demanding that the tax cuts of $1.2 billion this year and $3 billion in the next financial year should go ahead but not allowing the Government any room to manoeuvre with alternative revenue raising exercises such as increasing excise. I plead with the next speaker or two from the Opposition side to state their position.

We know that the Opposition wants a full remission of the drop in petrol prices. It has said that; that is fair. We know it wants the full tax cuts; someone said that today. The Opposition still wants tax cuts of $1.2 billion this year and and $3 billion next year. But what attitude does it take about the deficit? Will the Opposition say: `No, the Liberals and the Nationals will not under any circumstances countenance consideration of increased excise to compensate that to reduce the Budget deficit'? Is that what the Opposition will say? The Senate is entitled to know.

Opponents of this tactic, that is, the introduction of a compensatory increase in excise, could argue that it is robbing the motorist on the one hand to feed him on the other. To some extent this is true but at least the Government would be doing it out in the open and would not be using surreptitious means to hit the motorists and raise revenue. The Democrats believe that, if a government is to raise revenue from people, it should not do it in a sneaky way, such as the hidden way of manipulating revenue for government by relying on import parity pricing. That is what the Liberal Party did during its years in office.

If the Government decides to allow the motorist to get some benefit from the drop in oil prices and if the Government, after a careful look at the economy, persuades the Democrats that some compensatory increase in petrol price must be levied, I give an undertaking that we will look at such a proposition with care and responsibility. I presume the Liberals would do likewise and that therefore we can read that qualification into the Opposition's definition of the words `full benefit'. I ask: Would it benefit average Australians if petrol prices fell dramatically, say by 11c a litre, but higher interest rates were immediately imposed which increased their mortgage repayments?

I believe that large Budget deficits can stimulate an economy; that has been Democrats' policy, as enunciated by Senator Siddons, Senator Mason and others, since our formation. It can stimulate an economy and create employment. But a Budget deficit suddenly blowing out by billions of dollars could be very dangerous at a time when our dollar is under pressure. How would speculators react today if the Government said: `We will take the action today of passing on to the motorist a reduction of 11c a litre in the price of petrol, which will result in a blow out to the deficit of an additional $2 billion and we will take no compensatory action'?


Senator Archer —I can tell you; the dollar would reach its proper value.


Senator CHIPP —I do not know what proper value Senator Archer has in mind when he says that but, if he is fair dinkum, I think he would acknowledge that speculators, who have no great love for this country per se, would immediately react, would sell dollars and the dollar would plummet further. If the government of the day wanted to maintain the level of the dollar, it would be forced to raise interest rates massively.


Senator Chaney —That is what it has done already.


Senator CHIPP —That is what it has done already; of course it is. I am not denying that. Surely that is enough proof to the Opposition that, if the Budget deficit blows out by another $2 billion or $3 billion, this Government, whether it would be right or wrong-I am not canvassing that in this debate-would certainly be forced to hike interest rates further. Certainly, it would lead the Government to deregulate the ceiling on interest rates for housing loans. Under that scenario, of course, the Liberal Party would win the next election. Maybe that is what this debate today is about.

I ask the Liberal Party to explain in this debate how one can finance an increased deficit of $2 billion a year other than by increasing interest rates or printing money. If anyone from the Liberal Party has the answer to that-any of the smart-alicks who interrupt and interject-I would be pleased to hear it. Opposition senators have today advocated an increase in the deficit of $2 billion. Will they please tell the Democrats and the Australian people how they can finance that blowout other than by higher interest rates or by printing money? The Labor Government is faced with an awful predicament. Mr Keating got it right in 1979 when, as Opposition spokesman on resources and energy, he described the Fraser import parity formula as a tax by stealth, with a branch of the Taxation Office at every petrol pump. The problem is that as Treasurer he has changed his mind. He decided to take the revenue and abandon principles. As a result we are now locked into a budgetary situation in which the Government is overly dependent on oil revenue and is extracting it secretly.

The Democrats would have preferred that import pricing parity had never been introduced, except on new oil. We hoped that the Labor Government would remove it and opt for a source of revenue raising which is visible and not so dependent on the vagaries of international economies. The Government did not make the hard decision then. It must make it now. The situation is very dangerous. If the price of petrol continues to fall and sufficient revenue is lost, even abandoning the tax cuts may not save the Government from a massive economic crisis brought about by a deficit blowout.

Of course, consumers must benefit from a fall in oil prices and the Democrats will do everything they can to assist that. But the benefit must be sustainable. If our dollar drops to US50c and interest rates soar to 30 per cent, we will have the ingredients for economic disaster rather than any real benefit. We need a new formula for determining petrol prices. The formula should result in lower petrol prices for Australians. However, we will not let a mischievous Opposition destroy the Australian economy in a desperate grab for power and votes.

Following the first oil crisis in 1973, there was a massive increase in interest in alternative fuels such as ethanol, methanol and fuels from cassava. I know that the Opposition has chided the Democrats, ever since our formation, for what it calls our peculiar idea of getting fuel from alternative sources.


Senator Chaney —We put research funds into alternative fuels.


Senator CHIPP —Senator Chaney should look at how much research funds his Government put into it. It would not have run a Sunday school picnic. His Government deliberately and wilfully avoided real research into alternative fuels through the whole tenure of its office.


Senator Chaney —Nonsense.


Senator CHIPP —If Senator Chaney wants to maintain that record, let him explain to me why Australia is not doing any such research at the moment despite 30-odd years of Liberal government whereas tiny New Zealand now has a methanol plant operating which produces one-third of New Zealand's petroleum needs.


Senator Chaney —At what cost?


Senator Archer —At four times the cost of oil.


Senator CHIPP —Opposition senators can never be satisfied, can they? Their first position is: We are doing more than New Zealand. I am telling them that New Zealand is producing one-third of its petroleum needs from methanol and we are producing nothing. In California cars running on methanol now use about one million gallons a year. In 1979 that one state legislature set aside $10m to investigate alternative fuels, including the production of 500 cars specially engineered for methanol fuel. The Bank of America has converted 10 per cent of all its corporate vehicles to methanol.

I plead with the Government and the Opposition to adopt a bipartisan policy for massive research into alternative fuels. By world standards-even the standards of less developed countries such as Brazil-Australia is behaving in an unsophisticated way. This is the kind of far reaching and long term policy that might assist the petroleum and fuel needs of Australia rather than the petty party politicking that has been going on today.