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Thursday, 25 September 2008
Page: 5632


Senator FIELDING (Leader of the Family First Party) (12:26 PM) —The Excise Tariff Amendment (Condensate) Bill 2008 seeks to increase the tax on the production of a type of light crude oil called condensate. Condensate is a by-product of natural gas extraction and the tax will apply to condensate produced in the North West Shelf venture and onshore areas. Condensate from the North West Shelf has been exempt from excise, but the government reckons it can collect another $2.5 billion over five years with this new tax. Oil production in other areas is already taxed by the federal government using the petroleum resource rent tax. This seems like an issue that is far removed from the lives of ordinary Australians. Isn’t this just a big tax on big oil and gas companies? Don’t big oil and gas companies make enough money already? But there are some concerns that this tax hike will hit everyday Australians, with the arrival of higher prices. There are also a number of questions raised about maintaining and encouraging investment in the North West Shelf project.

The tax exemption for condensate dates back to 1977, when it was granted to encourage investment in the North West Shelf project. Woodside manages the North West Shelf venture on behalf of a number of multinational companies. They are: BP, Chevron, BHP Billiton, Japan Australia LNG and Shell. The government argues that not taxing condensate in the North West Shelf is distorting investment, because the government has taxed it elsewhere using the petroleum resource rent tax. Woodside argues that the North West Shelf venture faces heavier tax—by paying a combination of royalties and excise—than that under the petroleum resource rent tax, which applies to everyone else. It does seem odd that the petroleum resource rent tax is not applied consistently, and this should be something considered by the Henry review to make sure that taxes are fairly applied.

Critics of the new tax have argued that it undermines investor confidence, that the industry should have been consulted and, most importantly, that petrol and natural gas prices will rise. They are all important claims that should be considered. Does the new tax undermine investor confidence and is it unreasonable for the government to change its tax arrangements? Some witnesses to the Senate inquiry said that investor confidence was undermined by governments changing agreements or understandings and establishing new requirements for investors. It was argued that the perception would end up being that Australia has an uncertain policy framework for long-term investment decisions. But Family First understands that tax arrangements are never set in stone. Every year ordinary Australians face changes in tax arrangements when the budget is announced.

There are also complaints from the industry about a lack of consultation, but I take the government’s point that it is common practice not to consult with industry when there is going to be a change in excise, partly because people may try to profit from that knowledge. As part of these claims about investor confidence and consultation, there was also debate about whether it was reasonable for the industry to expect condensate tax exemptions to continue indefinitely. Did the North West Shelf project think it had a permanent exemption from the tax on condensate? The Treasurer’s office informs me that the project wrote to the federal government in 1999 to seek an indefinite exemption which suggests it did not think the exemption was indefinite.

There has also been concern over whether taxing condensate from the North West Shelf Venture will increase petrol and gas prices in Australia. Petrol prices in Australia are set from a Singapore benchmark, Singapore Mogas 95 unleaded, so there will not be a rise in petrol prices for Australia as a result of this tax. The price paid for any condensate processed for use as petrol in Australia is set by the international price, no matter what the level of Australian tax. Concerns have been raised in the media in Western Australia that taxing condensate may lead to Woodside passing on these costs by increasing the price of natural gas for domestic users. The West Australian newspaper reported on 28 August this year:

… Woodside Petroleum chief executive Don Voelte said the North-West Shelf partners would increase the price of gas for WA customers to recoup the excise imposed on light crude oil, known as condensate …

That threat was reported the same time Woodside was announcing a 67 per cent increase in annual profit. The industry is getting very high energy prices on the international market and is profitable, which greatly weakens the argument that it needs to pass on the cost of the new excise. The government argues it is unlikely Western Australia’s natural gas prices would increase. The Senate committee heard contracts for the supply of natural gas are very long contracts. Eve Howell, the Chief Executive Officer of North West Shelf Venture, told the Senate committee inquiry:

What I can say is that our current domestic contracts are in place and will be honoured. We in general have no ability to pass on this additional impost. However, this will be one of a number of factors that are currently impacting domestic gas prices, including the supply-demand balance.

The government also argues that in 2001 the top rate of excise on crude oil was reduced but natural gas prices did not drop so there is no direct relationship between the changes in that tax on oil and changes in price of natural gas. Also, natural gas prices for residential use are also capped by the Western Australian government. There are claims and counterclaims about whether industry needs to pass on the extra costs of the tax to the consumer, but international oil prices remain high and the Senate committee noted Woodside Petroleum’s 52 per cent increase in prices in the second quarter to June 2008 and the share price that increased 47 per cent to the end of June this year.

Debate on this bill is all about getting the right balance: the right to maintain investment in the North West Shelf but also to share the benefits of those resources with the Australian community. The industry has had 30 years to establish itself. It seems reasonable to help distribute some of the financial benefits of Australia’s natural resources to the broader Australian community. Family First is inclined to support the bill.