Craig Emerson (Rankin, Australian Labor Party) Share this | Hansard source

The Petroleum Retail Legislation Repeal Bill 2006 repeals two pieces of legislation that were enacted more than 25 years ago: the Petroleum Retail Marketing Franchise Act 1980, otherwise known as the franchise act; and the Petroleum Retail Marketing Sites Act 1980, otherwise known as the sites act. The truth of the matter is that, over that 25-year period, there have been such profound changes in the petroleum marketing industry that the two pieces of legislation enacted all those years ago now cover less than 50 per cent of the industry by volume. So it is timely that the government review this legislation and remove it from the statute books, conditional upon the implementation of an Oilcode, which is an agreed set of arrangements between players in the industry, that has finally been brokered by the government.

Such repeal legislation has been contemplated by this government many times, but sadly it has not been able to get that Oilcode development—which would provide for greater transparency and a more even playing field for all participants in the industry—until this time. Labor supports the repeal of this very old legislation and the implementation of an Oilcode. Obviously, Labor also strongly supports the second reading amendment, which is a very wide-ranging amendment, that has been moved by the member for Hunter. That amendment covers alternative fuels, greater competition in the industry—greater competition is always welcome—and fiscal arrangements that the government might contemplate to implement an alternative fuels policy.

The sites act is so old that it restricts the number of retail sites that prescribed oil companies—namely, BP, Caltex, Mobil and Shell—can directly own and operate in Australia. The franchise act sets out minimum terms and conditions for franchise agreements between the oil majors and the franchisees. One of the profound changes that has occurred over that 25-year period is the market entry of large independent retail chains and, even more recently, the supermarket retailers. The Oilcode that has now been brokered introduces, among other things, a nationally consistent approach to terminal gate pricing, which provides for greater transparency in the wholesaling of petrol to independents and other players by the major oil companies. It also establishes a more efficient dispute resolution system, to provide the industry with a more cost-effective alternative to taking disputes to court.

The current arrangements, as provided for in this legislation, do not constrain importers and supermarkets, which gives them a competitive edge. That is why I say that the legislation does even up the playing field and provides for a slightly more competitive environment. To that extent, it is a good move. The explanatory memorandum to this bill argues that consumers will benefit from these arrangements. It says in the impact analysis that the change has the potential to affect the structure of the retail petroleum industry and may also directly have an impact on consumers. It goes on to say:

... the ongoing use of inefficient business models by some in the industry may be to the detriment of consumers to whom the higher overhead costs are passed on through the price of petrol.

The impact statement associated with the explanatory memorandum argues that one of the benefits of this legislation is to improve the prospects of consumers—that is, to help contain the upward pressure on petrol prices in Australia. There certainly has been intense upward pressure on petrol prices in this country, and indeed all around the world. It is well known that the major source of that upward pressure has been very large increases in world oil prices. I have had the opportunity to examine the IMF world economic outlook. It provides for a very sombre forecast in relation to world oil prices. It is worth quoting:

Will the shock in fact persist? From a historical perspective, about one-half of the 1973–74 oil price shock proved enduring, while the 1979–81 shock was eventually completely reversed. While any long-run oil price forecast is subject to enormous uncertainty, both market expectations and an assessment of medium-term oil market fundamentals suggest that a considerable proportion of the recent shock will be permanent in nature ...

So the International Monetary Fund is forecasting that a reasonable proportion of the oil price shock of the last few years is likely to be permanent. That is a very disturbing forecast. We know in economics that the basic laws of supply and demand are such that, when the demand is so strong, it will, through higher prices, elicit extra production. But the IMF is indicating that, in its view, that lift in production will not be sufficient to remove this big spike in oil prices; therefore, much of the lift in oil prices will persist.

This takes me to an outlook for particular countries in the same report—it is interesting reading—that says Saudi Arabia, unsurprisingly, has 22 per cent of known oil reserves, Iran has 11 per cent and Iraq has almost 10 per cent, possessing the third largest oil reserves in the world. I am not sure that that is widely understood. It is sometimes claimed that Iraq is floating on a sea of oil and yet, despite possessing around 10 per cent of the world’s oil reserves, it contributes only 2½ per cent of world oil production.

The reason I raise this is that, while I have said in the past, and I acknowledge it tonight, that the main reason for high petrol prices in Australia is high world oil prices, one of the key reasons for high world oil prices is the invasion of a country that possesses 10 per cent of the world’s oil reserves. When the Howard government says it cannot do anything about high world prices, it should at least take responsibility for the effect of the attack on Iraq, and the ongoing war in Iraq, on oil prices in this country and the rest of the world. The coalition of the willing attacked Iraq against the expressed wishes of the United Nations and, as a direct consequence of that attack, world oil prices started their upward march. Commentators at that time were arguing that one of the benefits of attacking Iraq would in fact be a reduction in world oil prices. Some were so bold as to predict that world oil prices would fall to $US20 a barrel. They are now more than $US70 a barrel. Such was the folly of creating enormous instability in Iraq, which has flowed into the rest of the Middle East.

In January 2003, Iraq was producing more than 2½ million barrels of oil per day—2.549 million barrels a day. The average for 2005 was 1.878 million barrels a day and the average for the first five months of this year is 1.823 million barrels a day. So there has been a substantial cut in oil production in Iraq, which was already low as a result of UN sanctions and the oil for food program. Far from releasing huge amounts of oil onto the world market and depressing the price of oil, the attack on Iraq has had precisely the opposite effect and the Australian government was right up there in the coalition of the willing.

A paper by Gal Luft called Reconstructing Iraq: bringing Iraq’s economy back online, points to some of the realities. The Energy Information Administration of the Department of Energy in the United States suggests that Iraq has more than 112 billion barrels of proven oil reserves—which is, as I have pointed out, one-tenth of the world’s total. Other petroleum analysts, however, believe the country’s reserves might be twice as high as that. Of all oil-producing countries, Iraq is perhaps the least explored. There are only 2,300 wells in Iraq. Compare that with one million oil wells in Texas alone. Only 10 per cent of Iraq has been explored. You can see that one of the reasons the coalition of the willing was so eager to attack Iraq was that it is a country that is floating on a sea of oil and these foolish people believed that, as a result of that attack, they could get their hands on the oil and drop the world oil price. Instead, a terror premium is now attached to the international price of oil such that, far from being $US20 a barrel, it is well over $US70 a barrel. This government has to take its share of responsibility for very high world oil prices that are affecting the household budgets of everyday Australians.

It is reported that since April 2003, which is when the major hostilities finished in Iraq, insurgents have hit oil targets more than 220 times. So the insurgents are absolutely determined to ensure that Iraq does not get oil into the international market. Iraq today is considered the riskiest destination for foreign investment of any of the world’s emerging oil markets. Iraq gives a new definition to the notion of sovereign risk. Who would invest in oil exploration and production in Iraq when every day it is heading closer and closer to civil war?

There are tragic human consequences of the attack on Iraq and the insurgency that has followed. At least 1,000 people are dying every month in Iraq and it was only the other day, at last, that the Prime Minister admitted that perhaps things were not going all that well in Iraq. So many people have lost their lives from this foolish attack on Iraq and it is getting no better but rather descending towards chaos and civil war. The government cannot get off the hook and say, ‘It’s just the world oil price and we have had no influence on that.’ They have. This government has contributed to a terror premium on the price of oil which has flowed into the household budgets of people all around the world, including those in Australia.

What can be done now about higher petrol prices? Certainly, the outlook in Iraq is not very good. As I have indicated, the International Monetary Fund is very concerned about the prospects for world oil prices, figuring that, by and large, higher oil prices will persist. The room for the Australian government to manoeuvre, in terms of providing genuine relief to Australian motorists, has now been limited by its ineptitude over the last five or six years. The Australian economy now is smashing up against capacity constraints, with domestic demand outstripping the economy’s capacity to supply that demand. As a result of these constraints on the capacity to supply Australian domestic demand, there is now pressure on prices and on interest rates.

In its most recent monetary policy statement, the Reserve Bank pointed out that, even after having had the third interest rate rise since the 2004 election, it expects the underlying inflation rate—not the headline inflation rate, which includes bananas—to be sitting right at the top of the Reserve Bank’s range of two per cent to three per cent per annum. That is, the Reserve Bank expects the underlying inflation rate for the next two years to be three per cent per annum. That leaves the Reserve Bank virtually no room to manoeuvre. Having no room to manoeuvre is not a good situation to be in, when Australia has already suffered three interest rate rises since the election of 2004, when the government promised to keep interest rates at record lows—which it has not done in a most blatant way. In fact, the last seven interest rate changes have been upwards. If the government were to keep interest rates at record lows, it would have to go back well before the 2004 election to come anywhere near to keeping that promise. Instead, it promised that it would keep interest rates at record lows—and, since then, there have been three interest rate rises.

That means that this government’s room to manoeuvre in providing relief for motorists through the budget is very limited. The Reserve Bank’s language in its statement on monetary policy issued on 4 August and its observation that inflation in any event will be at least at three per cent per annum, which is at the top of the acceptable range, mean that financial markets are now tipping—with a more than 90 per cent probability—a further interest rate rise before the end of this year. There is, in fact, the real prospect of a fifth interest rate rise since the election—since the day the Prime Minister issued his promise that interest rates would be kept at record lows.

Looking at the last budget, we can see that it was moderately expansionary. How do we know that? We know that because the OECD, so often cited by the government in support of its economic policies, says—this is in the country survey on page 37—‘The fiscal stance implied by the latest budget projections is moderately expansive.’ It then goes on to provide tables that prove that point.

In its statement on monetary policy, the Reserve Bank quite clearly shows that demand continues to be very strong. It is worried about the look for inflation. It is worried about the impact of high oil prices on inflation. It says that domestic demand is growing strongly again and that budget tax cuts and spending increases have fuelled consumption. Here, it is worth my pointing to a statement of the Reserve Bank that says:

... the recent tax cuts and other fiscal measures announced in the Australian Government Budget, are expected to support growth in household income and consumption in the second half of this year. Despite the expected growth in disposable income, the household debt-servicing ratio is likely to rise further in the period ahead, since household debt has been growing at an even faster pace than income.

Importantly, it goes on to say:

Together with the recent increases in interest rates, this is likely to boost households’ interest payments.

That is why there is so little room to manoeuvre in terms of budgetary policy. If the government provides offsetting income tax cuts, it runs the risk of further interest rate rises. Therefore, motorists are being stuck with the government’s incompetence, they are being stuck with the government’s failure to invest in the nation’s future by easing those capacity constraints and they are being stuck with a government that spends like a drunken sailor. Just in the last budget, the government spent an extra $20 billion on outlays and saved only $2 billion. That is why we have to do whatever we can to relieve the pressure on petrol prices and on inflation. But now the room to manoeuvre is quite limited.

The PRRT collects a lot of revenue, but, again, if some of that were rebated to people through lower income taxes, those risks that I have described would materialise. That is why at the very least we need to look at long-term solutions, as proposed by the member for Batman, including converting to gas to liquids. That is why I commend and fully support the second reading amendment moved by the member for Batman and condemn the government for its incompetence. (Time expired)

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