Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

by leave—I move Democrat amendments (1), (2) and (3) on sheet 4799 revised 1:

(1)    Clause 43-5, page 16 (lines 31 and 32), omit paragraph (3)(b).

(2)    Clause 43-5, page 17 (lines 1 to 3), omit paragraphs (3)(c) and (d), substitute:

             (c)    for a taxable fuel other than biodiesel used off-road, a grant under the Energy Grants (Cleaner Fuels) Scheme Act 2004;

             (d)    for biodiesel used off-road, fifty percent of any grant under the Energy Grants (Cleaner Fuels) Scheme Act 2004;

             (e)    a benefit under the Product Stewardship (Oil) Act 2000.

(3)    Clause 110-5, page 51 (after line 16), after the definition of Australia insert:

biodiesel used off-road means biodiesel that would have been entitled to an off-road credit in respect of the fuel, assuming:

             (a)    that you disregarded subsection 51(2) and sections 52 and 55A of the Energy Grants (Credits) Scheme Act 2003; and

             (b)    that references in Part 4 of that Act to:

                   (i)    “purchase or import into Australia” were instead references to “acquire or manufacture in, or import into, Australia”; and

                  (ii)    “off-road diesel fuel” were instead a reference to “off-road biodiesel fuel”.

The purpose of these amendments is to give biofuels a chance of survival. What this bill does, as I said in my speech on the second reading, is increase the cost of biodiesel comparative to diesel. I will hopefully illustrate this by talking about some figures. I realise this is difficult for people to follow in a debate; however, the Democrats have circulated a number of tables, as did the many submissions to the inquiry which pointed out that as a result of this legislation, depending on a whole range of factors, biodiesel would be severely disadvantaged. So I will use figures to illustrate why it is I am moving these amendments and the effect of them in dollar terms.

For instance, for off-road use there is a biodiesel which is known as B49—a 49 per cent biodiesel, 51 per cent diesel mix. Assuming that the diesel cost was $1.50 a litre and the biodiesel cost was $1.20—and they are roughly today’s prices as I understand it, give or take a few cents—the cost from 1 July 2006 would be 85c a litre for the B49 blend and 97.8c a litre for diesel. So, at the present time, the biodiesel blend has an advantage on the market. In 2007, that changes. Making the same assumptions of cost of $1.50 per litre for diesel and $1.20 for biodiesel, that then shifts to being a cost of $1.03 per litre for the B49 blend compared with the cost of diesel remaining the same—that is, 97.8c per litre. That gives biodiesel a disadvantage because it has now become more expensive than diesel.

My amendment would change that and would mean that, instead of biodiesel costing $1.03 per litre in 2007, the cost would be 85c a litre and it would maintain its comparative advantage. It is a very small advantage, and, of course, it differs depending on the gate price of both diesel and biodiesel but, generally speaking, on an average cost such as I have given by way of example that would be the outcome. So my aim is to say, ‘Let’s look at the impact of these changes and see what that is.’

Time and time again, in submissions and tables that were submitted, with a whole range of assumptions, it was demonstrated to the committee that biodiesel would become more expensive as a result of these changes. One of the reasons for that is that the standard for diesel has been set at 100 per cent diesel or up to five per cent biodiesel, and that gives that very low percentage blend an advantage over all other blends of biodiesel. So, whether it is 49 per cent, 100 per cent or 20 per cent, they are all disadvantaged because they are not now of that standard which receives the benefit.

I just gave the example for off-road use. For on-road use, the figures are slightly different. In 2006, the cost of a B20 blend for on-road use—and I gather this is a fairly typical blend which is made available for trucking—would cost 97.6c a litre, compared with $1.028 a litre for diesel. So biodiesel has the advantage. In 2007, for on-road use that cost for B20 shifts to $1.023 a litre and diesel remains at $1.028 a litre. With our amendment, that cost would be adjusted so that B20 would remain at 98c a litre, giving biodiesel the ongoing slight advantage over diesel.

If this amendment is not agreed to then, as has been said in my speech in the second reading debate and by Senator Joyce, Senator Milne and others in this place, what we are looking at is the government’s supposed support for biodiesel disappearing out of the door. We were told by all of the biofuel industry that their industry was likely to lose 99 per cent of its market. They would become non-viable under this legislation. It is complicated and very difficult to work out what these figures actually mean. As I said in my speech in the second reading debate, even the tax office was not able to tell the industry up to a week ahead of our inquiry what the actual situation was. I would have to be honest here and say that we think we know what we are talking about with the figures that I am expressing, the tables that we have and what we have looked at in terms of our amendment. But we are not absolutely sure, because Treasury is not able to confirm these figures one way or the other.

I ask the minister at this point in time, with regard to the tables that were submitted with the submissions that came in to our inquiry: were they wrong; if they were wrong, in what way were they wrong; and how it is that the industry so misunderstood the intention of this bill? Or is it the intention of this bill that biodiesel will be disadvantaged? After all that the Prime Minister has said about the need for a biofuel industry in this country and a 350-megalitre target—which is a paltry target, as I have already indicated; other countries have gone way beyond this amount—is this really the intention of the bill? Are we talking here about disadvantaging an industry which the Prime Minister said was important?

I know that it is important. I think that other people on the crossbench understand it to be important. But what does the government think? Is it not important now? Are we happy for the industry to just collapse? Do we not care about clean air? Do we not care about the fuel which might be spilled in the Great Barrier Reef that would be petrofuel and therefore damaging to the environment when it could have been biodiesel, which breaks down in such environments and would not be harmful in the way that petrodiesel would be? Do we not care about that? Do we not care that, slowly, mining companies have been taking up 100 per cent biodiesel and using it in their underground mines because it is much safer for the mine workers? Does neither the government nor the opposition, I would say, care that that is the situation?

I ask the minister: can you disabuse this end of the chamber? Are we wrong in saying that petrodiesel will have an advantage, if not next year or even this year—from 1 July in certain circumstances for on- or off-road B5, B20 and B100? Can you assure this place that next year or the year after or this year, from 1 July, biodiesel is not going to be disadvantaged vis-a-vis diesel? Obviously, it is going to be disadvantaged in terms of the benefits that flow from rebates and so on, but what is its position relative to diesel? That is I think what we need to know. Minister, I would be obliged if you could answer that question.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

On your first question, out until 2010 biodiesel does enjoy an advantage over petrodiesel, to use that term. The differences between the prices that you have mentioned in the tables that you have from 2006 and 2007 are because at this point in time biodiesel—B49 in particular but also B20—is enjoying an unintended subsidy from the tax system. This is in relation to the B49 off-road example, where there is excise being claimed off. It comes back again to the definition of ‘diesel’ which you mentioned before.

You mentioned in your presentation a five per cent threshold. There is no percentage mentioned in the diesel standard. It relates to the description of diesel, although five per cent is probably about the mark of where the threshold and impact on the description of diesel comes in. Again, this comes back to one of the key arguments in relation to this whole piece of legislation and its impacts. There has been an unintended subsidy, through the development of B49, that that particular product has enjoyed because of the capacity to claim a tax rebate for that 49 per cent of diesel where excise has not been paid.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I would ask the minister to address my question. I understand the point that was made, although it is my understanding that it was indeed intended. This subsidy, as you describe it, was intended because we wanted to get the biofuels industry off the ground. At the present time it is nowhere in this country. It is just starting to develop. We have the possibility of even moving to about one million litres of biofuel production in this country. That is still a very small amount compared to what happens in other countries and the great potential in this country.

I ask the minister to focus on one question. In terms of the cost and the impact of this legislation, from 1 July this year and from 1 July next year and maybe the year after that, can you assure the Senate, given all of the givens that we have already seen in terms of the price and the effects of the various mechanisms in this bill, that biodiesel will not become more expensive than diesel in all of those permutations? If there is some that will not become more expensive, can you tell the chamber that? Can you tell us which mix of assumptions—whether it is on or off road; whether it is B49 or B20 or something else—will continue to have the current advantage that it has in terms of price over diesel?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

As I said, there is the current capacity to claim the rebate on, for example, B49. That varies, depending on the grade of diesel that we are talking about, whether it is B5, B10, B20 or B49. If we take B100, B20 and B49, in terms of excise and grants, I can tell you that out to 2010 biodiesel will enjoy an advantage over fossil diesel. In terms of overall price, I cannot make any commitment in relation to that any more than you can, because, Senator Allison, as you quite rightly said in your speech in the second reading debate, the end price of those two products is determined by their inputs. But in terms of grants, taxes or things of that nature, out to 2010, biodiesel in B100, B20 or B49 form will enjoy a tax advantage over fossil diesel.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I hear the sentiments that this was an unintended consequence. It reminds me of the analogy: how many people have unintended children, but, once you have them, they are there and you love them and deal with them. We have an industry and, whether people think it is unintended or not—and we could have the argument all night on the semantics of the case—it is the case that this industry exists and that people have invested in this industry. It is the case that it could have been stopped with a regulatory instrument; it is the case that it was not stopped with a regulatory instrument, so people are under the strong understanding that it is there for the long haul.

I also hear the statement about the advantage, but the main use of this biodiesel is in farming, forestry, fishing and mining. The diesel that they now buy from the major oil companies is completely on par with that, in that they will both be virtually tax-free. That is not a stimulus package for a biorenewable fuel industry. That is basically saying that, with your payment of capital, you have to compete with an established market that is immensely bigger than yours.

Looking to the forgone revenue—and this comes from the industry—the current biodiesel industry is very much in its infancy and it is currently producing 70 million litres per year. Just thinking about 70 million litres per year, if the cost is 38c a litre—the unintended double-dipping, as I have said; and I disagree and think it is a production subsidy—that is about $26,600,000. We are talking about an amount of money that is hardly huge. We will sink an industry for the sake of $26,600,000. In the scope of a trillion dollar economy, this is hardly a reasonable outcome for a government with a surplus of about $13 billion. That is hardly going to break the bank, is it?

The cost that is forgone will be returned to the Australian government and people tenfold by the economic growth and security in the towns from which this industry will be drawn from. They are the small regional towns that we have always tried to engender the growth of. We have always sat back and thought: what is a mechanism that can actually engender some growth out here? What can we possibly do that is unique to this area and can engender growth in this area? We have developed one by mistake—biodiesel—are now we are going to stop it. Environment is one of the biggest winners. This is a measure that can actually deal with the issues of climate, increasing greenhouse emissions and the uncertainty about our future in the post global warming situation.

The other thing is that, when we go back to the five per cent biodiesel, it plays directly into the oil companies’ hands. Biodiesel has an extremely good correlation in its blending capacity. Dare I say that it is even better than ethanol, in that there is no differentiation. On 100 per cent biodiesel you can run an efficient engine. That is something that has an incredible outcome as far as greenhouse issues go. As these people put it:

The crux of the situation is that the government covertly, through the drafting of this very complicated and misleading legislation, has taken away the incentive for biodiesel. It will become uneconomic for the large diesel-use industries and will consequently force the production to large metropolitan facilities in our industrial areas, which will enhance a centralist policy to government.

This has come to me from National Party people who obviously believe in the concept and the enhancement of decentralisation. They continue:

The legislation is going to penalise small-time biodiesel and ethanol producers by favouring producers who supply standard fuels—that is, small blends for big oil against groups with communities looking to set up their own production and distribution. This proposed legislation is so destructive it is unbelievable that it has not received more attention. But it is so complex and hard to decipher that I understand and sympathise with these people who are trying to work through it.

And that has been the case. I do not know how many times we have had people going back and forth, in and out of offices, trying to get to the crux of what is actually going to go on, but I think we have got to it now.

I ask the minister: does the government have any envisaged plan to deal with this and to say, ‘Okay, we’ve made a mistake. The mistake has been there for three years. Now we are going to put in place an incentive plan’—apart from what we are dealing with now—‘that is actually going to deal with this issue, that is going to keep this industry going’? Are we going to have another grant or another subsidy—call it what you want; call it a pink labrador if you like—or something that keeps that industry and the benefits of the development of this industry going? Is there anything in the pipeline in that regard?

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I will not keep the committee but I rise to support the amendments proposed by Senator Allison. Like other senators in this chamber, I have had extensive correspondence from people involved in the alternative fuels—from the biofuels industry, in particular. They cannot believe what the government is doing. What they are saying is that the effect of the government’s action is to strengthen the hand of the entrenched big corporate players in the fuel industry to the absolute detriment of small business entrepreneurs. They point out that, if this goes ahead, people who have invested in these new technologies will lose confidence in government commitments and it will encourage them to locate their technology and other plans offshore.

That is exactly what has happened by the government abandoning the mandatory renewable energy target. We are seeing innovative technologies that deal with a whole range of issues, create jobs in rural Australia and deal with environmental issues all going offshore. There is simply no justification for what the government are doing. It is clear, by the government’s failure to be able to answer Senator Allison directly, that they either do not want to say it or they do not understand it. But what they are effectively doing is destroying this new industry. They are destroying this biodiesel segment of the fuel market, and that is disgraceful. It is a case of the Prime Minister saying one thing and doing another—which of course we are accustomed to seeing happen in this place. This is a big end of town, petrodiesel, petro-initiative at the expense of alternative fuels, and I will be supporting Senator Allison in putting that right.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I will, firstly, clarify one point in relation to comments I made to Senator Allison in relation to the effective taxation treatment of biodiesel. The figures that I gave you, Senator Allison, were for on-road use in relation to the advantage in respect of support.

Senator Joyce, I understand your perspective in relation to the comments that you made in relation to the original intended purpose; however, it is quite clear that it never was intended as a stimulus package. There is no question about that. That is quite clear.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

What was it intended for?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

If you go back to the explanatory memorandum, you will see that the Energy Grants (Cleaner Fuels) Scheme Bill 2004 provided for a grant to:

... offset the excise and customs duty payable on biodiesel from 18 September 2003 and continue the current effective excise rate of zero for 100% biodiesel until 30 June 2008.

That was from the explanatory memorandum to the bill.

In relation to another comment you made, Senator Joyce, I note that there are some in the industry who might believe that this is something that has been snuck up on them, but there was a discussion paper put out on fuel tax credit reform in May 2005. So this information has been out there for some time. While there may have been some issues in relation to the specifics, particularly in relation to blends, I do not think that it is correct to say that it is something that has been snuck up on the industry. It is something that has been there for some considerable period of time.

In relation to your question about a specific plan from the government, I refer you to the biodiesel action plan that the government has released. It is quite evident to me that there remains within the government ranks considerable interest in this as an industry and as a future industry. I think that is something that you might consider as part of this process.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Can the parliamentary secretary indicate if any biodiesel manufacturers have said to the government that this is okay and their industry will survive, or benefit or in some way be able to continue finding markets for their product? Given that there was not a single biofuel producer able to say that to the committee, I wonder whether a group that did not bother to make submissions told the minister that this was the case.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I am not aware of anything and nobody has spoken directly to me. So I cannot give you any indication one way or the other with respect to that.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I ask the parliamentary secretary whether he has looked at the submissions and read them and whether he has looked at the report of the committee inquiring into this bill.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Yes, I have read the report, I have had discussions within the industry and I have read quite a few of the submissions. I have also availed myself of quite considerable and lengthy briefings from Treasury so that I could get a reasonable understanding of what is intended by the legislation and also the other peripherals that work around the legislation.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Parliamentary Secretary, I think in answer to my question, you said—to paraphrase it—that there would be no disadvantage to biodiesel producers until 2010. We understand that it is 2111 when the excise starts to kick in effect, but is it not the case that the Energy Grants (Credits) Scheme also reduces from 2007 to the point where the advantage to biodiesel starts to diminish after next year? Assuming that the gate price was $1.25 for biodiesel, which is one of the examples that was given to the committee in the tables provided, and the comparative gate price of diesel was $1.32, what happens under your legislation is that diesel gets a fuel tax credit of, effectively, 18c a litre—a 38c excise credit minus 20c for the road user charge—so the final price of diesel on 1 July would be $1.14.

I think I was midway through asking a question of the minister on the figures which, as I have said many times, are very complex and I understand the difficulty in understanding them. At the present time, diesel with a gate price of, say, $1.32—which I gather might not be today’s price but has been the price in recent times—from 1 July will enjoy a fuel tax credit of 38c less the 20c road user charge. That would result in a final price of $1.13. This is for on-road use of diesel. If we then talk about biodiesel by comparison, on 1 July with a gate price which I also understand to be fairly typical of $1.25, it will have a fuel tax credit of zero because the cleaner fuel grant has offset the fuel tax credit. It also gets an Energy Grants (Credits) Scheme rebate of 14.8c a litre. Can the minister confirm that to begin with? Is that scenario correct?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I understand that to be so.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Okay. Is it also the case that in the subsequent year, in 2007, that the Energy Grants (Credits) Scheme rebate reduces from 14.8c a litre to 11c a litre? In the following year it reduces to 74c a litre; in the one after that to 37c a litre; and in the year after that—that is, by 2010—it is zero. Can the minister confirm that this is correct?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Not 74c but 7.4c—

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Yes, I beg your pardon, 7.4c.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

and 3.7c. Those are the figures that I have.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

The minister said that there is no disadvantage for biodiesel before 2010 under this measure. But is it not the case that, given those figures that you have just confirmed, two years down the track—not four years down the track—there will be a disadvantage to biodiesel in that example that I have provided?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

No, I would not concede that at all. In fact, there remains an advantage to biodiesel because the energy grant does not apply to fossil diesel. So while the advantage may be reducing, the advantage remains; but, going back to the point that I have made a couple of times already, that impact has nothing to do with, nor is determined by, this piece of legislation.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I am just trying to clarify something. If this gets passage, afterwards, if it was B49, for instance, you will get a grant for the biodiesel component—the component made out of tallow or canola or whatever. For every litre of that you get a production grant but for every litre of ordinary diesel you do not get a grant. So what will be the situation after this? Will you be getting 38c a litre for every litre of the 49 per cent of the biodiesel? Am I right there?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I am not sure that I understand exactly what you are after, Senator Joyce, but to produce biodiesel would attract an excise of 38.14c. The cleaner fuels grant would attract a rebate of 38.14c, which would net that out. Diesel does not attract anything in its production. It has an excise levied on it and, according to a range of programs, that excise is rebated depending on its use, whether for on-road or off-road or marine use.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

For the biodiesel, where it is 49 per cent organic and 51 per cent hydrocarbonate, your production grant now is for the litre mixed, that is 38.14c for the litre mixed. Is that the case now?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

No, Senator Joyce. The production grant is for the litre produced of biodiesel. The biodiesel attracts the grant and so that is totally independent of any blending or mixture process that would follow on. The manufacturer of the biodiesel would produce biodiesel and then claim back the cleaner fuel grant.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

So on B5—the standard diesel—will there be allocated a production grant for the five per cent in standard diesel afterwards?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

No. It goes back to the definition of diesel and the standard for diesel. The description of diesel and the standard have a range of parameters; I am not fully aware of what all of those are, but there is a standard for diesel. My understanding is that B5 fits within that standard. The producer of the biodiesel would receive a grant for the production of the biodiesel. It would then be blended with the mineral diesel and, because it fits the definition of diesel under the standard, the full volume of the final product would attract an excise rebate according to its use. If it was used off road it would attract the full diesel fuel rebate for off-road use; if it was used on road it would attract the full diesel fuel rebate less the road user charge.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

So afterwards, would the following be the case? Let us give it a number so it paints a picture for us. Let us talk about 100 litres of diesel. Five litres of that will collect the production grant. That is mixed with 95 litres of mineral diesel, which obviously will not have collected the grant. So you have a production grant on the five litres. When they sell that mixed product are they still going to be able to claim the full tax rebate?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Yes, that is correct.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

Therefore, even after this case—if it was an anomaly before—they are still getting a form of double dipping?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

In a pure sense you might like to put it that way, but it conforms with the definition or the standard for diesel. That is the criteria under which this is recognised. There is not a percentage mentioned in the standard. It is determined on the characteristics of the product within the standard.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

The point I am getting at—and everybody is obviously flummoxed as to where on earth I am heading—is this: the real issue is the terminology, that is, what you call standard diesel. Standard diesel is a completely interlocking product—it does exactly the same whether it is five per cent mineral diesel or 100 per cent organic diesel. You do not have to change any of the components of the engine. If we were to say that standard diesel could be up to 49 per cent organic diesel then, following the rule of what is happening with five per cent organic diesel, we would be back in the exact situation which we are now legislating against. The issue is just what has determined the standard. I suggest there has been some strong lobbying by the major oil companies to determine what that standard is. In essence, they are still getting a form of double dipping.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

No, Senator Joyce, that is not correct. The definition of diesel goes back to the Fuel Quality Standards Act 2000. To claim that there might have been some particular arrangements or lobbying to deal with this is not reasonable and fair seeing as that act is nearly six years old. It is an Australian standard for diesel that is described as part of that act. If you look at, for example, B20 as a blended fuel, there is not a standard to describe that anywhere in the world. We are talking about a recognised legislated standard. It is not in fact the fuel companies that are double dipping, because they are not producing the biodiesel; I think there is an opportunity, again, for the biofuels industry to take advantage of that margin that might exist under the standard.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

On the same matter: Parliamentary Secretary, are you saying that the price of biodiesel and diesel will be set by the market and what will change are the margins on biodiesel, say, B5, B10 or B20 levels? Will they all have an advantage over diesel after this legislation comes in? Is that the point you are making?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

No, that is not the point I am making. I am saying that there is a certain proportion or margin of biodiesel in the quality standard for diesel fuel below which the diesel as a product will retain the characteristics of diesel under the standard. About five per cent biodiesel is the figure being used, under which the fuel would still remain within the standard for diesel. The standard is what is being used as the descriptor under the act. There is, I suppose, a capacity for a fuel of up to five per cent biodiesel to retain both the advantage of the cleaner fuel grants scheme but also be able to claim a 100 per cent diesel fuel rebate with the product being recognised as diesel. That avoids the situation of having to have calculations for very small percentages or quantities of biodiesel within the diesel mix.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

Where does that leave B10 and B20 blends?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

As I have said to Senator Joyce, there are no percentages in the Fuel Quality Standards Act. The product that is sold as diesel needs to meet the standards described within the act. Five per cent is a figure that is being used as about the place where that volume of biodiesel blended with mineral diesel still meets the standard for diesel under the Fuel Quality Standards Act 2000. If you were to go to a B10 blend or a B20 blend, those products would not meet that standard.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

Is the parliamentary secretary aware that Gull are actually marketing a B20 blend which they claim does meet the standard?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

No, I am not aware of that. The advice that I have had is that it does not and that there is not a standard anywhere internationally for a B20 blend. That is my advice.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I seek leave to table a table which I was referring to earlier. I would like to get the parliamentary secretary’s advice on this. It shows the effects of this legislation on on-road biodiesel.

Leave granted.

While we are waiting for the parliamentary secretary to look at that table, I wonder whether he can advise on what impact he believes this legislation will have on the oil recycling industry.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I am aware of some concerns within the oil recycling industry about this legislation. I personally have not had any conversations with representatives, although I do know that some of my colleagues have. I do not have any specific advice that I can give you in relation to that.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I ask the parliamentary secretary how satisfactory that is. He has no advice as to the impact of this legislation on waste oil recyclers. As I said in my speech in the second reading debate, they now collect 200 million litres of waste oil around the country, often in the remotest parts of Australia, from mining companies and farms across the board. This has increased as a result of the product stewardship for oil system, which has allowed waste oil recyclers grants for setting up collection sites, with stainless steel drums, as I understand. They made a very strong representation to the committee, saying that this would seriously diminish their chance of being able to market either the cleaned up or the re-refined oil. Surely the parliamentary secretary has an obligation to investigate those concerns and to give the Senate some answer as to whether they are warranted or not and whether we should be worried about them. If the parliamentary secretary did not consult with the waste oil sector, perhaps he can get some advice as to who did and what the results of that discussion might have been.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

The advice that I have is as follows. Waste oil recyclers make fuel and accordingly have been licensed as excise manufacturers since the late 1990s. Their principal output is about 200 million litres a year of burner fuel, used to heat greenhouses, kilns and the like. This is clearly liquid fuel capable of being used in an internal combustion system, so they need to stay within the excise system, in accordance with the government’s fuel tax policy decisions, as announced by the Prime Minister and the Treasurer at various times. Similarly, for the purpose of users of their products receiving relief from the incidence of excise, the products should be treated for the fuel tax credits in the same manner as competing conventional products. Users of recycled products for burner fuel uses will be eligible for the two-year transitional arrangements where they qualify. Not to do so would be inconsistent with the Treasurer’s announcement of 16 June 2004 that the government would introduce a new business credit system. This system will replace all existing rebates and subsidies.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

With respect, I think we have all read that. It does not seem to satisfy the waste oil producers, who, as you would understand, need to travel long distances to collect this oil. Their margins are very narrow. The rate at which they can sell the re-refined or cleaned-up oil is at the present time only slightly cheaper than, as you call it, conventional petrodiesel. What is to stop what they say will happen—that is, because diesel is effectively 18c a litre cheaper than it was, what is to stop greenhouses and other users from proceeding with diesel instead of recycled waste oil?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I think the key point there is that they retain access to the transitional arrangements. The government has said that it will be monitoring the effect of those transitional arrangements over that two-year period.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

What we have established is that, if there was double dipping before, then there will still be double dipping afterwards—that is, if we want to call it double dipping. It was called the production grant. We have already confirmed that, because even the people in this room are referring to it as the production grant. If there was double dipping before, there will be double dipping afterwards. You are only allowed to have double dipping afterwards if five per cent of your fuel is a biorenewable component and the other 95 per cent is mineral based. So what was there before will be there afterwards.

We have it thrown up by Treasury that it is going to cost $1½ billion. If all the biodiesel that can be produced—and I think there is a limit on how much can be produced—is to be consumed in B5, or five per cent biodiesel, that means that the scenario of this huge loss from B49 will still be there, only this time it will be covered up because it will be under the standard diesel. There is the same potential loss either way. What was there before will be there afterwards, only in a smaller portion. But, if it happens in the larger total amount, the net result is the same. All that is really going to change is who is getting the benefit of this.

I would like to ask about a second issue because I am curious—and I understand if you take this on notice as I appreciate how difficult this issue is. How much biodiesel is currently being produced? I have been told 70 million litres, someone has said 40 million and someone else has said 10 million. If it is 10 million or 40 million litres at 38c a litre, we are really only looking at around a $16 million loss to the government. It is hardly quantum mechanics.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Joyce, the key thing to remember in all of this is that ostensibly people who buy B5 will be buying diesel. It is regarded as diesel under the standard, so they will be purchasing it as diesel. There will be no labelling requirements. It meets the standards for diesel and therefore will be classified as diesel.

In respect of your question on the volume of biodiesel that is produced, given that there are no licensing requirements for biodiesel the government is not able to determine exactly what volumes are being produced. There are a number of figures in the market at this time.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

One of the major considerations in the preamble to this bill came from the Treasury department, which said what a huge cost this will be if we do not close the loophole—the production grant—because it was there to stimulate the biorenewable fuel industry, which it is doing. Seeing as we have the advisers sitting in the chamber, I ask: how did they make this decision if they do not actually know how much biodiesel is being produced?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

It is not so much a matter of that; it is a matter of removing an unintended consequence of the existing legislation that is being exploited by the industry. At the moment there is the capacity to claim a tax credit where tax has not been paid. It is a matter of closing that loophole, not determining a return from what the proposal might be.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

The parliamentary secretary has now had a few minutes to presumably get some advice from his advisers on the table that I tabled. Could he look at that table. I asked him about the situation for biodiesel for on-road use, which is in the third and fourth columns of the table, and described the reducing Energy Grants (Credits) Scheme rebate. The minister confirmed that the rebate reduces to zero by 2010 and by the amounts I quoted, but he disputed the final price in those years for biodiesel on road. Minister, can you indicate whether that is correct, having seen this, and indicate where we have gone wrong in calculating those figures?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

That is not exactly what I said. I said that I could not predict what the prices might be for either of the products in that period, because I cannot predict what the input costs are going to be for either of those products. If you want to make a direct comparison based on a baseline figure that might be the number today, that is a different matter. But there are differentials in a whole range of inputs, whether it be the cost of oil, whether it be the cost of grain or whether it be the cost of production of biodiesel or the cost of production of diesel—they are all variables which, if you have a crystal ball better than mine, you might be able to see. That was the point that I was making. I was not questioning a baseline figure as such. I was saying that the differentials between the inputs obviously vary. They have varied considerably over the last three or four years, given the base price of oil, to start with, on one side of the equation. Although I have made some inquiries I have not actually had the information passed back to me yet on the cost of inputs for biodiesel, say, through the cost of grain. I think we are talking at slightly cross-purposes.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I do understand that. There are some assumptions made in the years out because, it is true, we do not know what the gate price is. The assumption is that the gate price for biodiesel will be relative to diesel. That may produce some inaccuracies and you may have a better idea than I do about the likely relativities of the increase in biodiesel and diesel over the coming years. Nonetheless, if we can agree to assume that the gate price remains the same—and I agree that is unlikely, but we are interested in the relativities, not in the actual price—and if we can agree that those assumptions can be used to look at the question of whether biodiesel becomes more expensive than diesel, can you confirm that those figures are correct?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I cannot agree to the fact that the relativities may work out through time. I say that for this reason: if you go to the figures for on-road use of diesel, for example, in July 2000 it was 64c, in September 2003 it was 67c, in June 2004 it was 75c and in July 2006 it was $1.13. I do not see that the relativities can in fact be moved out over time. It also ignores the fact that there may be advances—for example, in the critical mass or volumes of biodiesel being produced or with new plants and equipment coming online—that might reduce the production costs. As far as I am aware, there are new plants being produced.

To compare that with the progression for biodiesel, if you look at the July 2000 price threshold of biodiesel before GST, you will see it is 64c. I note that it is the same price as diesel. In September 2003 it was 85c, in June 2004 it was 97c and in July 2006 it was $1.28. So the progressions are different. I would not accept that you can extrapolate the progressions in the manner that I think you are looking to in your examples.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

One of our problems in understanding what the impact of this legislation will be is that there was no modelling offered to assist us in that respect. We did ask Treasury when they appeared before us in the committee inquiry and they clearly stated that this was a policy decision—therefore a decision of ministers, presumably—and that no modelling had been done. All we can do is take the currently best advice we have in terms of what the price is for diesel and biodiesel now and then extrapolate that over the next few years. There are some givens: the amount of the rebate and the energy credit scheme rebate. We know that the fuel tax credit is zero for biodiesel and 18c a litre for diesel. And we roughly know, as I said, the gate price at the present time. Why was no modelling done so that we could better understand what the impact is likely to be? You have just produced two tables that show the trends, and that has at least given us some clue, although I would warn against going back to 1985, given that we have had a huge peak in oil.

Can the minister also comment on what we were told during the hearing by people who made submissions that effectively biodiesel will continue to track oil because it is now a globalised commodity. The feedstocks are pretty much the same around the world in terms of price and so is the product. Just like oil, it is likely that biodiesel is increasing as a share of the total market—it is hardly even on the Richter scale here in Australia but in other countries that is certainly the case. I think it is reasonable for us to have assumed that the prices will not get too disparate over the next five or six years. Why did you conclude otherwise—that this was not possible to model—if in fact you did? Why was there not a range of options modelled so that we would have some idea of the impact under various scenarios?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I think we need to go back to the initial premise, as I mentioned to Senator Joyce a moment ago. The basis for this legislation was not about impact on the biofuel industry; it was about remedying a loophole that existed that allowed companies to claim an excise rebate when they had not paid excise. That is the basis for it.

The issues relating to support for the biofuels industry are dealt with through other mechanisms and are not impacted by this piece of legislation. With all of the numbers that we have been talking about, the cleaner fuels grant and the energy grants are not impacted by this piece of legislation at all. The only impact from this legislation is the removal of the capacity to claim an excise rebate where excise has not been paid, for example, on a B49 blend of diesel. None of the other elements of this which might go to government policy and supporting or development of a biofuels industry are impacted by this piece of legislation. This legislation purely and simply deals with the closure of a loophole that exists that allows companies to claim an excise rebate in circumstances where they have not paid excise.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I think we need to push this point. We do not know how much biodiesel is being produced at the moment—we do not have that information. However, we do know where it is being produced; it is being produced in myriad places, including a lot of regional towns. We know that if all the biodiesel that is currently going to cause the problem of revenue being forgone ends up as part of standard diesel, being five per cent biodiesel, the revenue position to the Treasury will be exactly the same. Whatever was forgone in the past, it will be exactly the same amount that is forgone in the future. It is just that it is going to be done under standard diesel as opposed to biodiesel. The five per cent of biodiesel that is in standard diesel will have collected the production grant and will also collect the full excise from the end consumer. If that is the case, what is the Treasury argument about the hole that we are trying to cover up with this legislation?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I do not accept the premise Senator Joyce makes that the vast majority of production will go into a blend that meets the standard. I think that is a relatively long bow to draw. He might like to draw it, I will not. On that particular point, we will have to agree that we are on different paths.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

The minister describes the cleaner fuel grant, as I understand it, as a loophole. How is it that as recently as the 2003-04 budget and the subsequent legislation which put in place the Energy Grants Credits Scheme—that decreasing benefit to biodiesel—that loophole was not discovered given its size and prominence? Clearly the minister disputes this, but this was a great announcement at the time as a way of allowing excise to be introduced by 2011 while making sure that biodiesel was not disadvantaged. How come this loophole was not discovered at the time when the payments were very clear? I certainly understood them, I am sure Senator Joyce did. How come this has suddenly become a loophole, when it was not two or three years ago?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I did not say that the cleaner fuels grants scheme was a loophole.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

What was the loophole?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

The loophole is in the claiming of excise on a biodiesel blend that has not had excise paid on it for the full value. If you were to buy 100 per cent mineral diesel, you would pay excise on it at the full volume and claim that back. If you were to use a biodiesel blend of B49, you would be paying excise on the mineral diesel component of 51 per cent. But, under the tax legislation, there was a capacity to describe it as diesel and therefore claim a full fuel diesel rebate of whatever the rebate value was at the time on the full volume of the litre of diesel. Therefore, you are claiming 49 per cent of that excise value on the biodiesel value, which had already had a cleaner fuel grant payment and which effectively left it tax free. That is where the loophole is. It is not in the cleaner fuels grant; it is in the taxation treatment. That became apparent to the government about 18 months ago, just after biodiesel came into the tax system.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Can the minister explain then how that works for 100 per cent biodiesel?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

One hundred per cent biodiesel is charged excise and then claims the cleaner fuels grant scheme, which effectively wipes the excise value out. It is excise free.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

That is my understanding of it too, but now if you compare 100 per cent biodiesel with diesel, for diesel there is a fuel tax credit, which is 18c a litre, compared with a biodiesel Energy Grants Credit Scheme rebate, which is only 14.8c a litre, and that 14.8c a litre progressively decreases to zero by 2010. That is precisely the problem: diesel goes on getting 18c a litre, but the Energy Grants Credit Scheme is an ever-decreasing amount. That is what gives biodiesel the great disadvantage.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I think this is where we start getting into the complexities of the issue. There is no situation, for either on-road or off-road use, where biodiesel is at a disadvantage to mineral diesel.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I want to go back to the cost of this, because it is very important that we know what the costing of this proposed amendment is. We have certainly worked out at this point in time that it is not going to change how much it costs the Treasury. We have proven that, because we know that in the future, under standard diesel that has a five per cent biorenewable component, they will be getting both the production grant and claiming the full excise. And we know it is going to change who gets it, because now the person who gets it is going to be the major producer proximate to the oil company or the oil company itself that produces it. We do not know how much is being produced, yet we have come up with the fact that it is going to cost $1.5 billion in so many years time—we do not know how; we just plucked that figure out of the air and put it in the preamble here. Seeing as we know the eventual cost is going to be nil, no difference, and we know that all that is going to change is who produces the biodiesel, can the Treasury give any estimation whatsoever of what is the current cost of supporting this new biorenewable fuel industry in biodiesel?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I apologise, but I am going to have to ask Senator Joyce to go through that last piece again, unfortunately, because I was grabbing some advice on some figures from my advisers. I apologise, but could you succinctly run through that last bit again for me?

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I understand it is a complicated issue, but it is very important because we are about to vote on one issue on the premise that it is going to cost too much. Yet no-one is able to determine what the cost is. In fact, no-one is able to even tell us the premise for working out how they came up with the cost. It sounds like this cost—the $1.5 billion—was just plucked out of thin air. Ten billion dollars is a better figure; we could have said that. But if we are to get rid of this so-called production grant so you cannot claim the rebate if you have got the production grant, and if we do it on the current amount of biodiesel that is being produced, has anybody got any idea what income is being forgone on that? What is going to be the saving because of that? Has anybody in the whole of Canberra got the foggiest about what amount of money we are talking about?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Joyce, it goes back to a couple of the points that we have discussed already. It relates to where the blends might go, what might happen pending this decision and on the future of the industry. It depends on what you also acknowledge is a range of estimates of projected industry production. In that respect, it is very difficult to put some numbers on it. But I go back to the original premise that I put to you previously, that this is about applying tax law to a good policy framework. It is about closing a loophole that created an unintended consequence when taxation started to apply to biodiesel, so that there is an even treatment of these products across the board. It is not about creating a tax saving or a measure in some form, although I am advised that—on Treasury calculations of one billion litres, based on the figures that were given to the inquiry—the cost to the forward estimates out to 2015 would be something of the order of $1.2 billion.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

Okay, so the result before and the result after are potentially exactly the same, with regard to revenue forgone. The cost we are basing it on is an estimate based on something that was picked up at an estimates committee and the Treasury has just run with that, so there are no real forensics in the cost of this. There has been no real discerning of how much this is costing at current levels. Nothing has been put on the table about what it is costing at current levels. The only thing that clause 43-5 on page 16, lines 31 to 32, is going to change is who is producing the biodiesel.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Joyce, I think we have already agreed that you are going to places that I am not prepared to go to in relation to forward projections. You might forgive me, but I have read the report and spoken to some who were on the committee, attended the hearings and participated in the preparation of the report. That report has been prepared on the basis of the evidence that was given, and the committee was prepared to take that evidence as part of the preparation of its report. So I think it is reasonable, given the committee was looking to do that, that Treasury has made some calculations based on evidence that was given to the committee. In the same context, I think it is fair enough that those two things be taken in parallel. If the committee is prepared to take on face value the evidence that was given to it, I think it is fair enough that Treasury might consider doing the same thing.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

Even if that is the case, and even if there is that obscure number of one billion litres—and just because it is there I do not know whether it is correct; I have reports, made since that time, that raise very strong doubts that we are ever going to produce one billion litres in the form that they are talking about, but let us grant them that and say we will—then if we use this phrase, ‘We’re closing a loophole’, then what we have proven here tonight is that we have not. It is still there, it is just that now if that billion litres becomes part of the five per cent component of the standard diesel then we have proven here tonight that the loophole—if we want to call it that, and it is not; it is a production subsidy to engender an industry, drive regional economies and give some hope back into some of these areas that have been left behind that has come about and that we can see prospering at the moment—is not closed. It was there before, and it will be there after. It is just the form of where that proportion of biodiesel goes. It now goes into the fuel that is 95 per cent diesel and five per cent biodiesel. So what is the purpose of clause 43-5, page 16, lines 31 to 32?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Joyce, you might like to question the evidence of the committee, and obviously you have had some other advice. This is evidence that industry gave the committee, and it is the basis of the calculation that has been done. You might have had some other advice that you might prefer to follow, but the committee has accepted the advice that has been put before it. That is the basis on which the calculation has been done.

In respect of your further comments, I think we agree that we are in different planes on this issue. You obviously have a perspective; the government view does not concur with that, and I expect it will be the subject of some further conversations. We certainly reject the premise that it was an incentive or anything of that nature. Those mechanisms are delivered through other processes, and I have already described them several times. This is about the taxation treatment of fuel—diesel and biodiesel—and the incentive mechanisms that the government might want to put in place are dealt with through other processes, such as the cleaner fuels grants scheme, the energy grants and so forth. There are very clear distinctions, given that none of those mechanisms are impacted on at all by this legislation.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

The minister talked earlier about on-road use of diesel and we worked through the figures. I wonder if we can do the same thing for off-road diesel and biodiesel, assuming 100 per cent biodiesel so we do not get mixed up in excise questions. For off-road use, let us say for the sake of argument that 100 per cent biodiesel has a selling price of $1.40, or $1.27 excluding GST. There is no Energy Grants Credit Scheme rebate, because it is off-road use. Can you confirm that? There are no other adjustments, so the selling price would be $1.27 for that biodiesel if it started its life at $1.40. If we look at diesel in exactly the same circumstances, if the selling price was $1.40, or $1.27 excluding GST, for off-road use diesel would receive a fuel tax credit of 38c a litre. Is that correct?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Yes, that is correct.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

By my reckoning, this would result in biodiesel having a selling price of $1.27 and petrodiesel having a selling price of 89c. Minister, if you can confirm that, doesn’t that absolutely demonstrate the disadvantage to biodiesel in your proposal? Doesn’t that mean that farmers and miners and anyone else off road would have rocks in their head to be buying biodiesel when, all other things being equal, there is such a huge disadvantage to biodiesel for off-road use?

As I tried to point out earlier, there is a disadvantage for biodiesel on road. We do not have the benefit of modelling to show this, but even using current prices and projecting them out demonstrates that this is absolutely the case. But nothing could be more clear than the situation for off-road use and how this bill so significantly disadvantages it. It does not have the Energy Grants Credit Scheme; it does not have the excise that you talked about earlier—the so-called loophole. I do not think it is a loophole, but that is not a factor. This is a pure and simple case of diesel getting the fuel tax credit of 38c a litre and biodiesel not getting any sort of rebate or credit. Therefore, it is going to be so much more expensive than diesel.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Effectively, what you are talking about is the difference in the price of the product.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I am talking about the different treatment of the products.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator, biodiesel does not attract any excise, so therefore it cannot claim any excise back—that is the point. Mineral diesel attracts an excise and then gets a credit under the off-road scheme. Biodiesel does not attract excise, so it is net at price. What you are describing is effectively the cost price difference between two different products. That is not part of the impact of this bill. What I might say, though, is that if you are looking to promote a more environmentally friendly use and going to a B100 fuel for use in equipment, what the loophole does is give an advantage to a blended product. It gives an advantage of 18c to B49. There is clearly an unintended advantage given to a product as part of this process that even distorts the biofuels market.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Minister, I am referring to the diesel which is made available to off-road users at the present time which attracts no excise. It will still get a 38c a litre fuel tax credit. We are talking here about the users—and there are many of them—who currently use diesel without paying excise on it. That is the comparison I am trying to draw. I believe that the users are farmers—the department might be able to confirm that. But there are some users at the present time who do not pay excise on diesel and yet receive a fuel tax credit of 38c a litre. Is that not the case?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Allison, that is not correct. The only reason that it nets out to having no excise is because it has received a diesel fuel rebate. That is the difference. It does attract excise, and that excise is rebated through the Diesel Fuel Rebate Scheme, and so it nets out. What you are talking about are two products that have different prices. You are seeing the differential of those net prices in the end figures that you are talking about.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

I ask the minister to check with his advisers on that. As I understand it, there are many off-road users that are excise free. Is that not correct, or are we talking now about the users who will be excise free under this bill?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Allison, they are excise free by virtue of the diesel fuel rebate. That is what makes them excise free.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Precisely, Minister: they are excise free because they get the rebate. But then they get a tax credit on top of that for off-road use.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator, that is not my advice.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

It might have been useful to have explained that to the biofuel industry, because it is certainly their understanding that there is a double jeopardy situation in place, particularly for farmers—who might even be assisting in producing biodiesel. The industry believes that they are hugely disadvantaged by this legislation because diesel will become so much cheaper for off-road use than biodiesel. So I would be interested if you were able to confirm once more that diesel for off-road use, where no excise is paid by virtue of the—

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Diesel fuel rebate?

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Yes.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I know what you mean.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

You know what I mean. It is hard to get across all of the names of the rebates, credits and so on. But you can confirm that a fuel tax credit does not apply in the case of off-road use, where excise has been paid for diesel and there is an offsetting credit for it as well.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

My advice is that the fuel tax credit replaces the diesel fuel rebate. So they are effectively one and the same.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Just to reiterate, it is probably useful to come back to the effect of my amendments, because the minister says there is no disadvantage with off road. That will be a great relief to a lot of biodiesel producers and users—and that remains to be seen, because they are certainly not persuaded to that thus far.

I will just explain what the Democrat amendments will do. They will remove the energy grants credits rebate, which applies in ever-decreasing amounts over time. From 1 July it will be 14.8c a litre, then it will decrease to 11c, then to 7c, then 3.7c and then zero. We think a fair thing to do—and this seems to remove the objection that the ALP had to what was called ‘double-dipping’, although it is not clear what ‘double-dipping’ or ‘loopholes’ actually mean; the use of that language has not been helpful—is remove the Energy Grants (Credits) Scheme and replace it with exactly what diesel has. Diesel will be receiving 18c a litre—that is, the 38c a litre excise credit less the road user charge.

So we say: apply the same scheme to both diesel and biodiesel. That seems to us to be the fair thing. That way you have a level playing field. That way the cleaner fuel grant—and I dispute the minister’s claim that this was not intended as a way of assisting the industry to develop, given its fledging status at the present time in comparison with oil companies, which, of course, have had around 100 years to build up their refineries, trucks, systems, markets and so on—will go over time after 2011, as was the proposal in the 2003-04 budget period.

Let us leave the clean fuel grant there. What that does is reduce the gate price. At this stage, biofuels are much more expensive to manufacture than it is to buy and refine oil. At the present time the gate price is about $1.63 and, if you take away the 38c a litre cleaner fuel grant, you get a price which is starting to be comparable with diesel. So let us leave the cleaner fuel grant in place and apply the fuel tax credit as is being applied to diesel. That way we would maintain the relativities.

For instance, where the gate price for diesel is $1.32, and you take off the fuel tax credit, you get $1.13. In the case of biodiesel, under our amendments, if the gate price was $1.25, which at the present time is roughly comparable, then you would get a fuel tax credit of 18c and the final price would be $1.07, thus maintaining the relative price advantage, which I think we would all have to agree is necessary for this fledgling industry. So you would get a final price of $1.07, giving biofuels an advantage of some 6c a litre. It is not a lot, but that 6c a litre is necessary in order to encourage investment in this area. That way we start to displace some of the imported fossil fuel—oil—that comes mostly from offshore producers these days, as we start to build up an industry in this country.

As I said in my speech on the second reading, Germany, which now produces about six million litres of biofuel, did not impose an excise on its biofuels for 20 years. It would be fair to say that our biofuel industry has really only been going for the last five years, if that, and it was only recently that the Prime Minister said we should achieve a target of 350 megalitres. The Prime Minister also put together a package to assist with grants for setting up infrastructure and plants that would produce biodiesel in order to assist this industry to get a foothold.

The Democrat amendments would maintain the status quo, get rid of what might be ‘double-dipping’ or a ‘loophole’ or whatever you might call it, and take away the current 14.8c a litre and give biodiesel the fuel tax credit that is currently going to diesel. It is a simple proposal. As I said, it keeps the current relativities in order. It allows the biofuel industry to grow in the way that was planned only two years ago. I think that what struck the members of the committee was that a lot of decisions about investment were made two years ago, in 2004, when the government put through the legislation. It was certainty for the industry, but suddenly it has been declared that there is this big loophole and we have to give huge excise cuts for diesel, and the next thing we know biodiesel is going out the door.

Minister, I urge you to again consider this. We must do the modelling. We must understand what the impact of this is. You have rejected the idea that biodiesel will lose relativity in terms of a small benefit over time. You have rejected that, but you have not been able to tell us why or how. You have not done the modelling that demonstrates that your position can be relied on. Certainly the industry does not believe it. We do not believe it. I do not believe it. We have listened to the advice, pored over the figures and looked at the legislation. It is complex and difficult to understand. But, at the end of the day, even though this has been around for a while, I think we finally twigged to what the problem is. The problem is the preferential treatment that is being given to diesel. I suggest that the government are going to live to regret it if they do not look seriously at this amendment and at the very least take this legislation back and say: ‘All right, we don’t know what the impact is going to be. We haven’t done the modelling. Let’s have another look at it. Let’s actually consult with the biofuels industry.’

Minister, you said you had consulted, but I am told and we were told at the hearings that the biofuels industry did not get a look-in on this consultation with whoever it was—I do not know. Maybe it was the oil industry rather than the biofuels industry. Maybe you can explain that. But they are not happy. You said yourself that there was not a single submission or letter sent to you saying: ‘We’re delighted with what you’ve done. We really think that the biofuels industry will grow in leaps and bounds and become a viable force in this country.’ You have not been able to demonstrate that. You keep talking about loopholes, but we are not convinced. We think that it is important. If we are going to have a level playing field then let us have one. If we are going to have excise imposed on biofuels—fine. I think the industry has accepted that and they are gearing up towards it. But there is not going to be anybody who is going to take advantage of the situation in 2011, when excise starts to be imposed. They will be gone long ago. They told us that 99 per cent of what they produce will be non-viable under this arrangement. So forget about the excise starting in 2011 and going through to reaching half of that of petrodiesel by 2015. There actually will not be any revenue to be garnered by the government from this proposal.

As I said, the industry was taken aback by the fact that the government decided to impose excise when it did, in 2011. Fortunately, we had that put back three years; otherwise, it would have been next year or the year after that it was being imposed, which would have been far too soon. I think it is pretty clear that the industry needs volume in order to be able to pay excise and still be competitive with diesel. Those volumes are not going to be reached with this legislation. There is going to be a downturn in development. We have had letters from the ANZ bank. In fact, the ANZ bank wrote to the Prime Minister saying: ‘We’re not prepared to back any investment in this industry. It’s got no future. There’s no way we can fund projects which are not going to be viable.’

If you are not listening to that message, Minister, and if the government is not listening to that message then you should withdraw this bill and think about it a bit more so that it is quite clear to everybody what the implications are. Do the modelling and tell us what it means. Tell us what happens with various rates of gate price for diesel and biodiesel. Tell us what happens for farmers. Tell us if it is not now in their interests to start producing biofuel, because that is what the committee was told. They cannot be wrong, Minister, and you have not been able to demonstrate how they are wrong. We have shown you figures and given you tables. You have not been able to demonstrate what is wrong with those tables except to say, ‘We don’t know what’s going to happen in the next few years.’

It is not good enough, because this is an important industry and your government said it was important. You said it was important enough to provide grants. You said it was important enough to encourage organisations and investors into this field. Minister, they are frankly very disappointed with what has happened. You have not been able to demonstrate that their reason for disappointment is ill-founded.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

This whole issue started with the biodiesel industry when we were lobbied by small farming groups coming into the office and saying: ‘We’ve got a major concern that this industry is going to go over. We have an investment in it personally and our towns have an investment in it as well. Socially, obviously, the community has an investment in it.’ Right from the start it was obscurum per obscurius. The Senate inquiry had to come down with a finding that there were things that needed to change in this bill because it just did not have the information. The Treasury’s submission to it was light, to say the least, and the position that you would have to come up with after that Senate inquiry is: ‘We need to look at this a bit closer. We need to deal with this with a bit more critical intent.’

Even tonight the mystery tour goes on. We have now found that, if people want to call it a loophole, it is going to exist at the end, it existed before it and it will exist after. Nothing has changed. There are only two things that are going to change with this—that is, who is producing the biodiesel and where they are producing it. They are the only two things that are going to change. Who is going to be producing it is large-scale producers. Where they are going to be producing it is right next door to the major refining plant. I do not know what their corporate nature or otherwise will be, but that is what will happen. The only result that I can gather out of that is that the developing bio-renewable diesel industry that has actually gained legs, is growing in regional towns and is broadening the economic base of those towns will collapse. That is what we know will happen.

Being a person who is from a regional area, being the senator in this chamber who is the furthest from the coast, being from an area that is involved with grain and being from an area where we have just finished putting in a wheat crop right now, and knowing our diesel requirements, this was a great industry. Finally, there was something that could actually pick those small towns up, and without a huge amount of capital investment it could have a strong connection into that whole community environment. There was a bit of a sense of hope with it. It was just a little glimmer of something that actually might work. They knew that in the long term it had to become viable, like everything else, but they just were not prepared for the lights to be turned off halfway through the show. That is what has happened. Halfway through the show—click—it is all over. The only justification people can give is: ‘We never intended that baby to grow; we never intended to have that child, and therefore we are going to shut it off now.’ That is just unfair.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

Have an abortion.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

Yes. What has to happen at the very least is to have some consideration of the farming communities who have made a financial investment in this industry. They need to be given some sort of position in this whole debate and be given some sort of sense of, ‘We know we could have changed that with a regulatory instrument a couple of years ago and saved you the trouble of developing that industry, and that would have avoided the whole problem. We had the power as the government to change that with a regulatory instrument years ago. We chose not to. You got halfway up on your feet, you went to your bank manager, you borrowed a heap of money, you mortgaged your place, you committed yourself to this process and you spent a couple of years of your life doing it, but we know that it was a bit of our mistake’—that is, the government, and I am part of the government—‘We made a bit of a blue on this one. What we’ve got to do is fix it up, so we’re going to go hand-in-hand with this piece of legislation that we’re about to vote on.’

We should say, ‘We know we’ve made a blue, but what we’re going to do is have some sort of program that’s going to get you from here to over there, to a couple of years down the track, to deal with this issue.’ It would be something that you could take to your bank manager and then say: ‘Stop ringing me up. I’ve got a solution here. I’ve got something that can fix it.’ But we do not have that. We have to think about those people when we are dealing with this legislation. You have to have a bit of a think about it. If you do not, it might be green curry and a can of beer after you leave here and everything is fine, but it will not be fine for those people.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

The discussion this evening has certainly been very interesting. We have managed to extract a little bit more information that makes a bit more sense of the Fuel Tax Bill 2006. As I said in my speech in the second reading debate, the issues that most concerned all members of the committee were the lack of information and the lack of time in which to consider the complexity of these bills.

I have a lot of sympathy with the issues raised by Senator Allison and in the evidence that we received from the biofuels industry, particularly in the evidence that we had about a lack of policy coordination and consistency. We have heard about it tonight in the concerns that people have about the biofuels industry. I will briefly quote from the report:

The Biofuels Taskforce, for example, represents the development of positive policies for new ethanol and biodiesel industry growth, while Fuel Tax Bill 2006 represents a clear example of impediments being put in place that will undermine the achievement of those policy objectives.

So there is no doubt that there is a lot of policy confusion in this chamber and certainly a lot of confusion out there.

I want to put on the record Labor’s position on the Democrat amendments. The evidence that we have heard both tonight and during the inquiry into the bills clarifies the issues for us very clearly. The current definition of on-road diesel under the Energy Grants (Credits) Scheme has led to what we have heard tonight called an ‘unintended consequence’, an ‘unintended advantage’ or a ‘loophole’, whereby tax-free biodiesel has been able to attract a credit when blended with diesel. Although biodiesel is specifically excluded from the definition of off-road diesel, the definition does allow blends of diesel and biodiesel consisting primarily of diesel to be treated as off-road diesel. We understand and accept that that definition is intended to allow biodiesel blends sold as diesel to qualify for an off-road credit. But biodiesels and diesel blends of up to 49 per cent biodiesel have emerged in the market as a result of this definition in the current legislation, and that is being exploited by some biodiesel producers. We accept the argument from the minister that that is the case. So this loophole effectively allows tax-free biodiesel to be entitled to an off-road credit at the same rate as diesel. Labor accepts that the fuel tax bills will rectify that anomaly.

Under the proposed Democrat amendments, the unintended advantage of the current legislation would in fact be extended because unblended biodiesel would be entitled to a full fuel tax credit—an effective subsidy equal to 19c per litre. After July 2006, biodiesel will remain effectively excise free for off-road use as well as enjoying a lower effective tax rate for on-road use. So, importantly, biodiesel or diesel blends that meet the diesel standard will continue to receive the same fuel tax credit treatment as diesel.

I will go through the Democrat amendments one by one. Labor believes that amendment (1), relating to clause 43-5, will have the effect of the subsidy under the energy grants scheme for on-road use being taken into account for calculating the fuel tax credit. We believe that if you do not pay fuel tax then you should not receive a fuel tax credit. Amendment (2), relating to paragraphs (3)(c) and (3)(d), actually amends the act to allow biodiesel and other taxable fuels to be taken into account in the calculation of the fuel tax credit. We understand that this actually increases the biodiesel subsidy. We accept the figures from Treasury. Labor sought clarification of the cost from Treasury and was advised that, over the forward estimates, that represents over $1 billion. We accept that that is the case. In amendment (3), the clause is purely definitional and, of course, it was dealt with in the excise bills that we dealt with last week. So, on the basis of that and the consideration of the debate, Labor is not in a position to support the Democrat amendments, while being very sympathetic to the issues raised by the biofuels industry.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

It is really disappointing that the Labor Party cannot see its way to supporting these amendments. I wonder whether we could not all share in the advice that Treasury has provided to the ALP to make it so confident that this will not damage the biofuels industry. Perhaps that advice can be forwarded to us.

I want to pick up on the point that I raised earlier about the waste oil recycling. Parliamentary Secretary, I do not think you were able to answer some of the questions I raised. I came across part of the submission from the Australian Oil Recyclers Association. I will read this to you and get your response. They say in their submission:

Since 2004 Oil recyclers reported to the Treasury and ATO via individual written submissions... and oil recycler members of the Oil Stewardship Advisory Council advising that the removal of the $0.07557 excise on new burner fuel would make recycled product less competitive in the long term, not the relatively short time of three years on a reducing basis—

as was said to be the case by Treasury. The submission goes on to say:

What is worrisome, is that some members have reported the loss of recycled oil sales to customers who will change to burner fuel gas which does not attract excise because they do not want to finance the cost of the $0.38143 while they wait for a Tax Credit on their BAS.

Of course, gas does not attract that excise, as I said. So there are two reasons that the waste oil recyclers will be disadvantaged and be likely to lose markets for those 200 million litres. Are you now able to give us some advice on the removal of the $0.07557 excise on new burner fuel and how that will affect the waste oil industry? Could you also advise whether you consulted with that sector? We know that you did not consult with the biofuels sector, but did you consult with that sector?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

There are two things. The issue in relation to carrying the cost through to the new arrangements is the reason that their customers have been included in the transitional arrangements. I know I have covered that before. I refer you to a budget announcement by Senator Ian Campbell of $30.1 million to promote oil recycling over the next three years. It is to assist oil recyclers to adjust to the federal government’s fuel excise reform.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

The parliamentary secretary might explain what that $30 million will do. If it is just to promote recycling, that is not the problem. What we need to do is promote a market for the recycled product; otherwise, we are going to have containers right around the country with millions of litres of recycled oil sitting around waiting for someone to buy them. A two-year transition might be okay for those two years, but what happens after that? There will still be the competition from gas for this recycled oil. If gas does not attract an excise, gas is going to look pretty attractive to those burners of recycled oil for some of the uses that you mentioned earlier today—for greenhouse and the like. What is that $30.1 million going to be spent on? If it is just promoting more recycling, all we are going to do is add to the stockpile—which, as I said, we will have trouble finding a market for.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

According to the information that I have here, eligible recyclers will receive 0.7557c per litre from 1 July 2006 to 30 June 2007; 5c per litre from 1 July 2007 to 30 June 2008; and 2.5c per litre from 1 July 2008 to 2009. As I said, the funding is $30.1 million over three years—$15.1 million in 2006-07, $10 million in 2007-08 and $5 million in 2008-09. So it will be going to the recyclers.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I have to admit that, after hearing Labor’s position—and obviously you have locked yourself in there—I am disappointed. You have let me off the hook, because now the bill is going to go through. Apart from the theatrics of crossing the floor, the pressure is off me. The bill will go through, it will go to the lower house and it will happen. Unfortunately, the nightmare has just begun for those people who have their houses on the line over this piece of legislation. For those people in the poorest electorates in our nation, the nightmare has just started. Maybe in your next caucus meeting you should have a think about who the afflicted is here and who you went in to bat for—which side of the debate you went in to bat for tonight. It is a shame. It goes to show that a little talking goes a long way.

I wonder what suggestions you might come up with for regional Australia. Do have any other suggestions for regional Australia? Is there something else out there that you might want to enlighten us on regarding how we take these people forward? All I can say is that, when they start ringing up tomorrow, I will tell them about clause 43.5, page 16, lines 31 to 32 and that, apparently, we were closing a loophole. We were closing a loophole that, if it existed before, exists now—it is still there—and the people who were going to be the benefactors of a biorenewable fuel industry are not going to be regional Australians; they will be the major oil companies.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I want to pick up the point that Senator Allison made about the recyclers and reiterate the concerns that we had about recycled oil. Again, it is a matter of poor policy coordination when we have the Product Stewardship for Oil program and programs that are being promoted under the Environment and Heritage portfolio on the one hand, and the issues and the impact of the bill on the other hand which we see as generating very serious future problems for the environment. I do urge that you take up Senator Allison’s point and consider that impact further.

Senator Joyce has left the chamber, but I did want to make the point too that if he were really so concerned I think he would have done us all a favour if he had supported the second reading amendment that I moved which would have looked at a 2009 review. It was a bit disingenuous, I think, Minister, to suggest that the amendment did not actually fit within the debate on this bill. The merit of a 2009 review to assess the progress of the biofuels industry in this country stands, in my view. The government had no reason for opposing the amendment and it could certainly have given us all a bit of hope that we would not be abandoning the industry too much in the future.

Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

The question is that the Democrats’ amendments be agreed to.

Question negatived.

Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

by leave—I just went to the bathroom and missed the vote. I record my vote for the ayes to the Democrats’ amendment.

Bill agreed to.

FUEL TAX (CONSEQUENTIAL AND TRANSITIONAL PROVISIONS) BILL 2006

Bill—by leave—taken as a whole.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

by leave—I move opposition amendments (1), (2) and (3) on sheet 4959:

(1)     Schedule 3, item 12A, page 19 (lines 8 to 11), omit paragraphs (1)(a) and (b).

(2)     Schedule 3, heading to Part 4A, page 19 (lines 2 and 3), omit “arising between 1 July 2006 and 30 June 2008”.

(3)     Schedule 3, item 12A, page 19 (lines 4 and 5), omit “between 1 July 2006 and 30 June 2008”.

The purpose of the amendments standing in my name is to extend the transitional period of the arrangements that have been put in place. Given the time we have spent debating the major bill, I leave it there.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

As I mentioned in my speech in the second reading debate on this issue, I am concerned at the position of the fishing industry in particular as a result of the removal of the ability to immediately have claimed back the excise which is payable on the fuel. As the current situation now stands the fuel companies claim the excise back on behalf of the fishermen and so the fishermen only pay the price of the fuel and do not pay the excise at all. With this new arrangement under the bill, fishermen will now have to bring forward their payments effectively for three months. That will involve them in a cash flow problem, which I elaborated upon in my speech.

This bill contains a lot of good issues and very positive actions to help with fuel excise, and the transitional arrangements for two years, whilst not perfect, will ameliorate the impact on the fishing industry in that two-year period. But the Labor Party report in the committee, as I understand it, suggested that if these things were appropriate for two years then why not leave them in place permanently. As I indicated in my speech in the second reading debate, I am attracted to that proposition.

The fishing industry is undergoing fairly significant difficulties at the moment for a wide range of reasons, among them the price of fuel which, I repeat, the government has not caused and can do little about. No government around the world has much ability to do anything about that. There are difficulties with imported product and with the Representative Areas Program in the Great Barrier Reef. The Queensland Seafood Industry Association is in financial difficulties and is actually being propped up by the government at the present time. So the voice of the fishermen is very hard to hear because they are not organised and they do not have the money to pay staff to continue that work. The Australian Seafood Industry Council went into voluntary receivership just a week ago, I understand, which means that at national level now there is not a single voice speaking for the fishing industry. This has made it very difficult.

Again, as I said in my speech in the second reading debate, I always thought that the better way to deal with this—and it is an approach I pursued when I was minister for fisheries—is that we should have asked the fishermen to calculate what the cost to them would have been of this bringing forward of three months of the payment. I thought that in most cases it would not have been a large amount of money. If the fishermen could establish what it would cost them then I thought it would be well within the bounds of government finances to send every fisherman a cheque for that amount, and life could have moved on and they would have been able to come into the system without any financial cost to them. Unfortunately, that suggestion was not followed up. I still think it is the best suggestion and I ask the minister to indicate whether, if it was able to be established that there was a cost, the government might look at that some time down the track.

For the moment, the more immediate refund of the excise will be of some help. Those big fishing operations which have clerical staff, big boats and big turnovers will be able to handle this very easily because they have the staff to put in the claims as the fuel is purchased and they will get the money back relatively quickly. In some cases they may get the excise back before they have to pay it if they can get credit terms. But it is going to make it very difficult for the smaller fishermen. Very often the sole office support for the smaller fishermen is in the wife, who, as well as running the home and perhaps having a job herself, has to fill in the forms and post them to the tax office. I understand that for some reason the forms have to be on paper; they cannot be lodged electronically. I fail to understand why the tax office cannot accept them electronically, but they have to be on paper. The refund is made between four and 14 days. Again, in this day and age I cannot understand why the tax office could not refund electronically on the spot if the fishermen could get the claims in. I ask the minister representing the Treasurer in the chamber to get the tax office to consider whether this could be done electronically and whether the payments could be made almost instantaneously. In this day and age it should not be beyond the tax office to do that.

The proposal put by the government will help a little in that two-year period. But then what happens at the end of the two-year period? We are going to be facing the same sort of situation. That is why to a degree I am attracted by the Labor Party amendment. I am conscious, though, that this bill is principally bringing good news to rural and regional Australians—indeed to all Australians but I am particularly interested in rural and regional Australians. As an alternative to the Labor Party amendment, my proposal is to seek from the Treasurer an undertaking that, prior to 31 December 2007—that is 18 months away and six months before the two-year transitional period comes to an end—the government will conduct an investigation into the impact that the removal in a few days time of the early payment provision has had on fishermen. I would like the Treasurer to indicate that he would be prepared to have, within 18 months, an investigation into what affect that has had on fishermen. I would like the Treasurer to commit as well to reporting the results of that investigation or assessment to parliament before, say, 31 March 2008—still three months before the completion of this transitional arrangement.

If the assessment by the Treasurer shows that there has been a real impact or that there is some way we could better ameliorate the impact—perhaps going back to getting fishermen to establish what exactly it is going to cost them and the government making a decision in 18 months time to pay out the fishermen that amount—then that could be proposed when the results of the assessment are tabled in parliament. Minister, as an in alternative to the Labor Party amendment, would it be possible to get some form of undertaking from the Treasurer along the lines I have mentioned? If we can do that it will ameliorate some of the harsher impacts—fishermen will not be quite as well off as they are now—of the bringing forward by three months of the payment of excise. It will allow the matter to be looked at and if the fishing industry can make the case in 18 months time, when they can better understand the impact of the new arrangements, then it is something that could be reported on. If the Treasurer were able to give a commitment to not only make the assessment but also report to the parliament on the results of that assessment then I would be to a degree satisfied by that and it would enable me to proceed with this legislation at the earliest possible time.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I want to comment on the suggestion made by Senator Macdonald. He has made a good case for fishermen and those regional producers who still consider that they will be affected by the transitional arrangements. The suggestion that we might ask the Treasurer to look at the particular impacts for that industry really does not resolve the concerns of those who gave evidence at the inquiry. Certainly, the representative of the National Farmers Federation was very concerned about the lack of flexibility for claiming fuel credits. We heard very strong evidence from the Australian Chamber of Commerce and Industry as well about the range of people who might be affected and their concerns about their cash flow and compliance costs going up—but not as much as they will at the end of the two years. They did not think it was a vast improvement.

Finally, the concerns that were expressed by the National Farmers Federation are the subject of the additional information that was tabled today—the letter from Minister Dutton—seeking an amendment to the report on the bill from the Senate Economics Legislation Committee. I refer to the e-grant system. During the committee inquiry we understood that that would be extended throughout the transition period. That seemed to be the evidence that we were provided with by Treasury, but we have been advised through this letter from the minister that that in fact is not the case. So those people do not have the option of the e-grant system and they will have to submit a paper invoice to get their rebates through. I am not confident that withdrawing the transition amendment will actually achieve what we need to do for those people.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I hope that the parliamentary secretary in the chamber, or his adviser, will be able to indicate in his response to Senator Stephens why these things cannot be done electronically. It is simply mind-boggling in this day and age to think that the Australian Taxation Office cannot deal with this electronically. They have a huge staff. They do a pretty good job, even if it is a job that most of us do not like interacting with. As Australians we do not like to pay tax, but we all do. It does seem incredible that with all the resources of the tax office they cannot do this sort of thing electronically. It is not as if there is a great evidentiary process to go through. You pay the price of fuel. We know what the price is. You can establish that you have paid the price and you can establish the excise you have paid. It should be a very simple matter of getting it back.

Senator Stephens highlights the fact that my concern has been directed more to the impact on fishermen, although I have to say that a lot of farmers in my area have contacted me personally. I have been a bit surprised that, particularly on our side of politics, more concern has not been raised about this. I am told that some of the representative farming organisations are quite satisfied with what is happening. Whilst my specific request to the minister is to give me an undertaking in relation to fishermen, I would hope that at the time of the assessment, in 18 months, the Treasurer might also look at this more widely. I am not asking for an undertaking on this, because I have not thought it through carefully enough. It may be that the assessment or the investigation that I am asking the Treasurer to commit to might go that bit wider to see the impact on other people who will in the next two years benefit to a degree from this transitional arrangement.

I have particular confidence in the Treasurer. I think Australia is indeed a very lucky country in that we have for the last 10 years been able to rely on the expertise of Peter Costello to get the country to where it is. What he has done with the economy generally has really surpassed anything that any of his fellow treasurers in the advanced nations around the world have done. I suspect he is probably getting on to being one of the most experienced of treasurers in the Western world as well. That all shows in the work that he has done and in the very fine touch he has had on the economy of our country. So I have confidence in Mr Costello to seriously look at these issues.

This particular bill puts in place arrangements that came up two years ago, as I mentioned in my speech in the second reading debate, which are really not the Treasurer’s responsibility. As I understand it, they are more the responsibility of another minister dealing with the energy white paper. If the investigation in relation to fishermen which I am seeking an undertaking on does show some trends, I am confident that the Treasurer will get his officers or whoever is doing the investigation to look a little bit wider. If there are problems that we can correct then I am confident that the Treasurer will do it.

We are a government that over the last 10 years have bent over backwards to try to put Australia on the right path. None of the decisions the government make are ever intended to be deliberately nasty, if I can say it in that way, to taxpayers or anyone else. We want to try to do what is right. Sometimes anomalies do creep in. In this instance, the Labor Party amendment is on the right track—which is why I am attracted to the principle—but I think we can overcome that and move on with the bill and the other legislation we have to deal with tonight if I can get an undertaking from the Treasurer to have a look at it.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I have one final issue to raise with the parliamentary secretary. In his response to the discussion, could he indicate whether consideration has been given to the committee recommendation that during the transition period the government re-examine the effect of the legislation on manufacturers who use hydrocarbons for non-fuel manufacturing processes, with a view to minimising and offsetting any adverse effects. The committee heard quite substantial evidence from industries and manufacturers who currently pay no excise because their use of hydrocarbons is excise exempt. For them, the introduction of the fuel tax legislation will definitely entail some extra costs, so I wonder if the parliamentary secretary could just clarify what the government’s attitude is to the arrangements for them during the transition period.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

The government will not be supporting the Labor amendment. We have already announced a two-year transition period to help businesses align their practices so as to claim their fuel tax credits via their business activity statements. I am very pleased that Senator Macdonald has acknowledged a fact that has rarely been acknowledged during the debate on these bills tonight—that is, that there is a lot of good news in this legislation. These bills lower compliance costs and cut $1.5 billion in fuel tax from eligible businesses and individuals across the country. So it is a significant benefit to business in Australia. These bills expand fuel tax relief from approximately 185,000 to an estimated more than one million claimants.

Maintaining the transitional arrangements for all of these claimants on an ongoing basis would be unsustainable as it would require permanently maintaining two separate sets of claim arrangements. However, the government will continue to monitor the effect of fuel tax reform on business during the transition period to ensure that there are no unintended consequences or impacts of the policy on industry. In response to Senator Stephens’s comments, the use of the transitional arrangements will be closely monitored to assess uptake by all claimants and compliance costs. Treasury will further consult with users of fuel during the transition process.

To demonstrate the fact that we will continue to monitor, and specifically in response to the comments and requests of Senator Macdonald, I can inform the Senate that the Treasurer has agreed on behalf of the government to have examined at least six months prior to the end of the transitional period on 30 June 2008 the impact of the removal of early payment provisions for fishermen from that date. The results of the examination will be reported to the parliament before 31 March 2008.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I thank the minister for that and I appreciate his and the Treasurer’s commitment to do that examination. I think that will alleviate a lot of the concerns I and the fishing industry have. I wonder, as a matter of curiosity—and I do not want to prolong this—is he able to indicate why the form has to be on paper and why it takes four to 14 days to get back? I heard the minister say—and I heard it said before—that the Taxation Office is not able to run two parallel systems. But, gee whiz, in this day and age computers mean that you can press one button or another button—

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

It is operating now!

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

As Senator Stephens rightly says, it is operating now. I am grateful to the minister for his commitment but it is a matter of curiosity that the tax office is in that parlous a state that it must use ‘snail mail’, as I think it is called. Even people of my vintage are able to operate a computer—reasonably well, I might say. Surely the tax office could. Is there some problem with the funding of the tax office?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Senator Macdonald, the answer to your question is essentially a logistical issue of building a new element to the system to fit this transitional arrangement as part of the process. My advice is that the average time for payments is in the order of six days, even using snail mail. It is essentially a logistical cost analysis of establishing and building a new system to operate during this transitional process for a relatively small number of people. It is considered to be more cost effective to operate it using what might be known as more traditional means.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I want to speak briefly. I hope that the listening audience and the senators realise the impact of the statement that has just come from the parliamentary secretary. As a member of the committee that drew some attention to these sorts of issues, I think the fact that the government is going to monitor the progress and any likely adverse impact on the industries involved is good. I think it will encourage further investment to continue the good work that the biofuel industry has been carrying out, given what it has achieved to date. I congratulate the parliamentary secretary and I congratulate the Treasurer because this really is a good outcome. We have a transitional period and, during that transitional period, the situation will be monitored and any adverse effects will be taken into account, so I think we close with a good outcome.

Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

The question is that the amendments moved by Senator Stephens be agreed to.

Question negatived.

Bill agreed to.

Bills reported without amendment; reports adopted.