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

The Fuel Tax Bill 2006 and its cognate bill are very important bills. The Fuel Tax Bill 2006 is complex, but it is broadly about three things: moving business from the Energy Grants (Credits) Scheme onto the new Fuel Tax Credits Scheme, promoting changes to the way businesses that are exempt from excise claim back the tax paid on fuel and putting in place the legislative structures required to give effect to the phasing in of tax or excise on LPG, CNG—that is, compressed natural gas—and biofuels, including ethanol.

The opposition has expressed support for the broad structure of the new fuel tax regime, which provides for a single system of fuel tax and associated credits; a reduction in the incidence of fuel tax levied on taxable fuels; a staged introduction of a framework for the taxation of liquefied petroleum gas, liquefied natural gas and compressed natural gas from 1 July 2011; a staged introduction of excise on and a phasing out of domestic assistance for biodiesel and domestic ethanol; and the linking of fuel credits to environmental standards.

Under the fuel tax credit system, all taxable fuel acquired, manufactured or imported into Australia for use in off-road applications for business purposes will become tax free over time. There will be an effective tax-free status for fuel introduced over time for business off-road use. Petrol for off-road business use will also be eligible for a fuel tax credit from 1 July 2008. This is a major tax benefit to business fuel users in regional Australia.

For off-road usage the current Energy Grants (Credits) Scheme will be phased out from 1 July 2008 when a 50 per cent fuel tax credit will apply and 100 per cent for petrol for uses that the current grants scheme recognises. However, the new tax regime will gradually impose fuel tax for biodiesel, domestically produced ethanol, liquefied petroleum gas, compressed natural gas and liquefied natural gas. This will be phased in from 1 July 2011 to 1 July 2015, and this delay is essential for development of these sectors. Labor claims credit for advocating this staged introduction.

For on-road users, the current 20-tonne threshold is removed and vehicles over 4.5 tonnes will now only pay fuel tax at the level of a road-user charge and receive a fuel tax credit for other tax. The Energy Grants (Credits) Scheme will continue to provide grants for alternative fuels from 1 July 2006 until 30 June 2010 for vehicles over 4.5 tonnes. This is then phased out in five equal steps. Concessions, refunds and remissions currently delivered through the excise and customs system for the use of fuel other than fuel in an internal combustion engine will be replaced by fuel tax credits. Claiming of fuel tax credits for large claimants—over $3 million—and operators of on-road diesel vehicles will be conditional upon businesses meeting certain environmental criteria.

As the new fuel tax model was being developed, Labor called for a delay in the period before the excise would apply to gaseous fuels and ethanol and bodies. The government accepted this proposal by Labor, with an extension of the introduction of the excise from 2008 to 2011, and this was significant in Labor’s decision to support the broad framework. The question before the chamber today is not whether the broad fuel tax model is acceptable—this is a debate that has already occurred. The question is really whether the bill adequately gives effect to the intention behind this model, and I have to say that it manifestly does not in its current form.

As a member of the Senate Economics Legislation Committee that considered the bills I must say that the committee heard many concerns in its inquiry that many businesses will be introduced to paying fuel tax for the first time. The excise or customs duty is to be paid up front, and the associated credit is to be claimed by businesses via the business activity statement, BAS, in the same way as input tax credits are claimed for the GST. Labor has received strong representations from manufacturers in the areas of chemicals, plastics and paints, sponsored by ACCI. In addition, farmers would be adversely affected. Again, we heard evidence about this in the committee inquiry into the bills. In fact, on the public record Senator Fiona Nash has said:

The changes, if successful, would have severely impacted on the cash flow of broad-acre farmers who make up roughly 70 per cent of Australia’s 130,000 farming businesses, at a time when they could least afford it.

During the inquiry the manufacturers claimed that the new arrangements will potentially cause major cash flow problems for medium-sized producers. Currently these producers are effectively fuel tax free due to the remission certificates from excise and customs on fuel inputs. Now they must pay the fuel tax and get the credit when they lodge their BAS. Producers with turnover of $20 million must report monthly for GST purposes. Providing that the GST refunds are made quickly these producers will not face major delays. However, businesses with turnover from $2 million to $20 million report quarterly and thus face major delays between payment of the tax and the associated credit. Clearly, this measure would cause cash flow problems. In addition, the ATO has been slow in processing refunds when there has been an audit or review of the BAS, as identified by the ANAO.

So strong were the arguments against the model of receiving the fuel tax credit when BAS was lodged that Minister Dutton has had to announce the introduction of the two-year transitional arrangement which would permit the commercial users of the fuel to apply to the commissioner to have an early payment. It is not clear exactly when the commissioner needs to make the early payment. It would be helpful for the minister to clarify this. I presume that this means that the fuel tax credit will be paid as soon as an application is received for payment and the excise or customs duty has been paid. The proposed changes do appear to provide a measure of relief to those adversely affected by the new arrangements. However, the question can still be asked: if the government sees fit to provide for fuel tax credit to be brought forward now, why shouldn’t this be a permanent feature of the new regime? In two years time the same cash flows problems could persist. In fact, it was the recommendation of Labor senators who are members of the Economics Legislation Committee that it should occur and should remain a permanent arrangement. Labor is certainly predisposed to review the operation of this transitional model to determine whether or not the proposed transitional model should expire at all or become a permanent element of the fuel tax system.

The Fuel Sales Grants Scheme is being abolished in this bill. The scheme provides a grant for sales of gasoline or diesel up to three per cent per litre in non-metropolitan areas, including my own electorate of Hume and across regional New South Wales where I do most of my travelling. Higher petrol prices in regional and rural Australia will be the result if the Howard government goes ahead with its plan to abolish the Fuel Sales Grants Scheme—and, as I reported to the chamber, over the long weekend some places in New South Wales had petrol prices over $1.50 a litre. Led by the National Party, the abolition of the scheme from 1 July 2006 will increase the tax burden on petrol in rural and regional Australia. At this time of record fuel prices the government is withdrawing a scheme worth $257 million a year that was central to ensuring that, after the GST, prices of petrol in non-metropolitan areas would not rise more than in metropolitan areas. It may be the case that this scheme has not operated properly, but more evidence needs to be presented on this point and direct options for reform considered.

The government has said that the funding will be put into AusLink. Although it is true that the majority of AusLink funding goes to non-metropolitan areas, a large slice of it is also spent on major roads like the Pacific Highway. So a significant element of the funding has been removed from rural, regional and remote communities. This in itself is a concern, but what is worse is that the government is doing this by stealth, hoping that regional Australia will not notice. Certainly the Australian Labor Party has noticed.

On behalf of Labor, I move the second reading amendment standing in my name:

At the end of the motion add “and the Senate calls on the government to review in 2009 the proposal to introduce excise on biofuels in 2011, and consider whether or not there is a case for delaying the introduction of excise, depending on the progress made:

             (a)    by the industry in securing new investment in biofuel production in Australia;

             (b)    by the biofuels industry and the petrol retail industry in increasing market penetration of biofuels; and

             (c)    towards achieving the 350 million litre target in 2010”.

Labor is very concerned that government delays in legislating the regime may have adversely affected the industry’s ability to move forward more quickly with new investments, and that means a slower market penetration for E10 fuels. Industry says it needs a full five years to mature, and Labor suggests that a review of the proposed tax regime should be undertaken in 2009 to determine whether the industry needs more time. It should take into account the three points that are contained in the amendment.

We believe that ethanol is good for regional jobs and the environment and it can certainly help Australia become less reliant on imported fuels. Our increasing dependence on imported fuel and refined petrol is an issue that must be addressed in the future. With Labor’s plan to encourage the establishment of a gas to liquids industry, the promotion of ethanol will make Australia less vulnerable to the vagaries of the international market.

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

The Fuel Tax Bill 2006 and the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 are the clearest example yet of policy in a vacuum, with very little regard for the consequences on business, the environment, rural economies or jobs. The government has effectively cherry-picked from the recommendations of task forces, studies and inquiries and it has neither consulted with those most affected nor taken notice of their entreaties. The Democrats were pleased that the Chair of the Senate Economics Legislation Committee, your good self, Mr Acting Deputy President Brandis, reported on the problems associated with this bill and the need for resolution of those problems before it proceeded. Unless something has happened in the last few minutes, the government has not done that, and the bill may join the many to be pushed through regardless of the outcome. I hope this is not the case but it is looking likely.

The most significant of those problems was the fact that, in simple terms, the government is imposing a tax burden on biodiesel that would make it more expensive than diesel. This is a backflip of the highest order, reversing the agreements made with the Democrats in 1998 when massively cutting diesel excise threatened to wipe out the alternative fuels and oil-recycling industries and when mechanisms, some of them complex indeed, were put in place to stop that happening. It reverses decisions made even as recently as two years ago. Some time before that, the government announced that the same excise as is imposed on petrofuels would be applied to alternative fuels. Knowing that this, too, would spell the end of the fledgling alternative fuels industry, it had to again back down and agree to delay the introduction of the phase-in by three years until 2011 going through to 2015 and to halve the rate to avoid this disaster. I am pleased to say that we have for the third time done what Democrats do so well in this place, and that is to peel back the layers of complexity and find a fair solution. I will be moving amendments along those lines.

The government says this bill simplifies the fuel tax system, but what has become clear is that not even the government—the ministry and Treasury officials—fully understood the implications of the bill. I do not know if they do now, but certainly at the time we conducted this inquiry, Mr Acting Deputy President, it is fair to say that you and others on the committee made that conclusion. It is very complex because of the complexity of the current system and, as is usually the case, the policy outcomes dictate to some extent that complexity. I will recall them: grants, rebates, excise differentials and boundaries, all of which add to that complexity.

The new bill has its own complexities and variabilities. We had advice, for instance, from Biodiesel Australia, who listed some of the variations in assumptions and inputs into this whole question. There is the price consumers can buy diesel for, and that currently varies from $1.33 for very large trucking companies to $1.50 for small users in remote areas. There is the price biodiesel can be sold for, and that depends on a range of things—operating costs, feedstock costs and blending and transport costs—and at present bulk sales are occurring at as low as $1.05 ranging up to $1.20 in more remote areas. There is the year being considered, and this affects the comparison between fuels, as taxes and grants vary each year between 2006 and 2015. Without exception, the position gets worse for biodiesel each year, because grants are phased out and taxes are phased in. There are questions about whether the fuel is being used on or off road—different rebates apply, and the road user charge only applies of course to on-road use—and whether the blend meets diesel standards, which I will say more about in a moment.

The bill is either a result of carelessness by the government or, as is more likely, a sop to the very influential petroleum industry. Whatever way you look at it, it is a giant backflip on the part of the government and the Prime Minister, who have purported in the past to support biofuels—that is, the biodiesel and ethanol industry.

The officers from Treasury, facing the critics of this bill—and there were many—were able to provide no rationale for the changes, offering only that they are ‘policy decisions of government’. No modelling was done, no advice was sought from other departments and there was no explanation as to why this was necessary. No impact statement was done on the industry most affected. I do not know what goes on in coalition party room briefings on legislation, but this one slipped through, obviously, without questions being asked about the impact on the renewable fuel industry, on farmers or on rural communities.

Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

Senator Boswell interjecting—

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

Senator Boswell joins the debate now. I would have expected the National Party to have asked these questions, to represent the users amongst their own constituents, but apparently not. The Biodiesel Association of Australia questioned Treasury about the impact. They said:

The exact words that came from one of the parties I spoke to in Treasury were: ‘Our concerns are not the externalities of the fuels, only the simple costs of what comes in and out, and it is your responsibility—

referring to the Biodiesel Association of Australia—

to make sure that the politicians tell us to change it.’ It was that blunt.

I wonder whether that was what the cabinet and the party room were told, too, about this bill.

When the committee asked about the level of awareness and understanding in the industry about the impact of these changes, it was told that it was only a week ago that the complex system of grants and credit schemes was able to be explained to producers and other industry people, in part because the tax office had only just corrected the script on their telephone line that had been giving people the wrong information. The Biodiesel Association of Australia said:

Even the tax office has had trouble trying to understand this, and that meant that, when the bill was put forward a considerable time ago, people could not understand the calculation of what grant went where or how it was all applied. They are still trying to work it out themselves.

I will go through the main features of this bill in a moment, but it is worth pointing out, first of all, that Australia’s fuel taxes are amongst the lowest in the world. That is without this further cut to diesel excise. Australia is one of the few countries to have reduced excise on fossil transport fuels. As part of the A New Tax System proposed in 1998, the government wanted to reduced excise by $2 billion a year—a cut that was more than halved through negotiations with the Democrats. In March 2001 biannual indexation of excise on transport fuels was frozen at around 38c per litre. Access Economics estimated that revenue forgone from this freeze will be $1.85 billion in 2005-06.

The fuel taxation inquiry recommended that we reintroduce indexation, but that was rejected by this government. This fuel tax bill proposes reducing fuel taxes on diesel by a further $1.5 billion. On 1 July, all existing rebates and subsidies are to be replaced with a single system of fuel tax credits and reduced excise on diesel. Products such as solvents will for the first time be required to pay excise. Offset credit is claimable via the business activity statement. Excise foreshadowed in the 2003 budget will be imposed on alternative fuels from 1 July 2011 at a rate that is approximately half the equivalent rate of excise on petrofuels but is offset by tax credits that will be progressively phased out by 1 July 2015.

Commercial vehicles over 4.5 tonnes in metro areas will be entitled to credits for diesel, and around 20c of the 38.143c a litre in diesel excise will be declared a road user charge. Businesses claiming more than $3 million a year in fuel tax credits will be required to be members of the Greenhouse Challenge Plus program. This obliges them to measure their greenhouse gas emissions but not to act on those measurements. There is no actual abatement being mandated. Credits for vehicles of more than 4.5 tonnes will also depend on vehicles being no more than 10 years old. The Fuel Sales Grants Scheme, a 1c per litre grant provided to fuel retailers in non-metro areas and worth about $200 million a year, is to be phased out. From 1 July 2012, all off-road business users of certain fuels will be effectively excise free; likewise, all diesel used in electricity generation and burner fuels.

The Democrats strongly oppose this legislation because it is a clear backflip on the negotiated agreement under the ANTS package in 1999 and it reintroduces many of the problems that were overcome by that agreement. We negotiated major changes to that package—informed by an extensive inquiry by a references committee, I might point out. That inquiry was told that the $2 billion in cuts in petrodiesel would wipe out cleaner but still fledgling alternative and renewable fuel industries, compressed natural gas, liquefied natural gas, LPG and biofuels.

We supported the government’s objective of reducing transport costs in rural areas and for agriculture at a time when there was a serious decline in rural economies, but we negotiated to put in place a suite of measures to more than halve those cuts and to address the very significant problems drawn to our attention during that inquiry. The inquiry was also informed that the industry collected many millions of litres of used oil from mining companies, service stations and industry right around the country, including farmers—oil that would otherwise be dumped in landfill or worse—and that the industry removes contaminants for reuse or, better still, re-refines it to produce pure lubricating oil product, but that all of that would cease to be viable.

The Democrats put in place the Product Stewardship (Oil) Program, negotiated for recycling waste lubricating oils. That has been an enormously successful program that now collects 200 million litres of used waste oil a year. We negotiated to remove altogether the excise from rail, in recognition of the competitive advantage given to long-haul road transport in the diesel excise cuts and the fact that rail use charges were significantly higher than road use charges. We negotiated national standards for fuels that, for instance, progressively and massively reduced the sulfur content of diesel from around 1,500 parts per million to less than 50. We negotiated standards for vehicles emissions, bringing Australia into line with European standards over time and massively improving air quality.

The excise removal on diesel for remote power generation was reversed, and excise that was previously refunded to state governments was redirected to the very successful program to bring renewable energy to remote communities, including many Indigenous communities, often in combination with diesel. It appears that in this bill, although this did not receive much attention, that incentive will be removed as well. Through the Diesel Fuel Rebate Scheme off-road and the Diesel and Alternative Fuels Grants Scheme on-road, the Democrats negotiated limits on the diesel excise cuts to heavy interstate freight transport. In all of this the price relativity of alternative fuels was secured and grants were made for vehicle conversions.

The Treasurer apparently is not concerned about externalities, including jobs in regional areas and the economy of our country. He wants what he calls ‘a level playing field’. Well, you cannot have a level playing field when the petro industry has had over 100 years to establish its infrastructure: refining, storage, transport and retail distribution. He continues to resist the adoption of alternative fuels, except perhaps in Queensland, as if there were an endless supply of oil. And this government has let those oil companies get away with it.

In countries like Germany where biofuels have gained significant shares of the fuels market, biofuels have been allowed to develop in an excise-free environment for more than 20 years. Germany’s approach led to small, community based production happily coexisting with the larger producers, with an output now in excess of two billion litres per annum. This makes the Prime Minister’s target of 350 megalitres for biofuels look very paltry indeed. Sweden imposed excise on biodiesel in 1997 which halted development of the industry. Only recently, Sweden’s policy was reversed as part of a policy target of being completely fossil-fuel free by 2015.

The bill was most severely criticised for the effect it would have on biofuels. Producers argued that this bill represents the removal of government support for biofuels and the demise of the sector. While it is difficult to precisely calculate the impact, submitters said the following were some of the likely impacts. From 1 July, 100 per cent biodiesel and 49 per cent blends of biodiesel for both on and off road are likely to be more expensive than petrodiesel—13c a litre and 35c a litre respectively. By July 2010, for heavy on-road users that difference will be as high as 8c a litre. For off-road users—farmers, miners et cetera—100 per cent biodiesel will be 35c a litre more expensive than petrodiesel. Is this really the outcome that this government wants?

The bill effectively returns to the original intention of the government, using a complex interaction of road user charges, designation of five per cent biodiesel blends as the standard for highest credits and the treatment of the current Energy Grants Credits Scheme as an offset excise, and, in so doing, discriminates against rural off-road users of biodiesel in particular and against biofuel production in general.

Biodiesel and biodiesel blends are developing significant markets for their products that are now in jeopardy. Mr Mapstone of Gardner Smith said that the biodiesel industry had grown very quickly and could be producing over 800 million litres of biodiesel a year were it not for the changes proposed to start on 1 July. He said this growth had been possible because biodiesel has not had to rely on marketing the product through the four major oil companies, as is the case for ethanol, and was supported by the bans on blends of more than 10 per cent ethanol in petrol and the ongoing reluctance by government to mandate even that blend. This legislation, by designating five per cent biodiesel and 95 per cent diesel as the biodiesel standard, effectively extends to biodiesel the marketing barrier that existed for ethanol. Mr Mapstone explained:

With ethanol, you must align yourself with a large retail network. With biodiesel, we can make a product that is fit for purpose on spec and we can go direct to end users, whether they be road transport, off-road users, fishing fleets or the like. That is another reason why the industry is growing so quickly. It will stop very quickly as well, if it is not understood where this legislation will put us.

Biodiesel Australia concurred. They said:

The biodiesel industry in Australia has only just started. In the last 12 months, production has gone from virtually zero to 180,000 tonnes. I have a list of the projects which are currently planned. With the incentives offered by the government so far and the current tax position on excise, it will produce well over one billion litres of biodiesel per annum. Apart from the plants which are currently under construction, the proposed changes to the excise rulings and the way in which the rebate and producer grants are going to work will make 99 per cent of the biodiesel market unviable—

I repeat: 99 per cent of the biodiesel market will be unviable. They went on:

The way the biodiesel producer grant is applied will effectively offset the excise paid or payable, or liable, for the production of the fuel—that is how it is treated by the tax office.

…            …            …

... while biodiesel currently has a moderate advantage, as of next month biodiesel will suffer a price disadvantage. Definitely, in the case of on-road applications, there will be a price penalty of anywhere between 2c and 4c. In the case of off-road applications, that price penalty is around 38c, the full excise price.

Witness after witness brought this story forward: if this bill goes ahead, it is the end of the industry. The Democrats have been working very hard on this in the last few days, and I think we have come up with a solution to the problem. I will be putting amendments that will effectively establish that level playing field. The amendments will treat biodiesel in exactly the same way as diesel is being presented. They will maintain that very small price advantage that currently exists. The advantage is so small that it is barely feasible in a lot of markets. However, as I indicated, there are ways in which biodiesel has been able to penetrate the market, and no doubt this is being seen as a threat to the oil industry.

There are a range of complexities in this package. Transfield Holdings described the impact on small users of biodiesel. They say:

Small users typically obtain their fuel from service stations, which are mostly supplied by the major oil companies. They often have concerns about the quality of the fuel and are not normally as knowledgeable or equipped to trial fuels that might be considered ‘experimental’. Hence this group is most likely to be introduced to Biodiesel via a B5 blend—

that is, the blend that benefits the petro companies significantly—

which meets the ‘diesel standard’ and therefore raises no issues with vehicle warranties etc.

The combination of the low blend ratio and the smallness of this market, means that the Australian Biodiesel industry will struggle to achieve critical mass.

That was confirmed by each of the other submitters to our inquiry. It is clear that, under the changes scheduled to take effect from 1 July, the benefit to on-road biodiesel users reduces from the current 7c a litre to a disadvantage of 20c a litre. In the case of off-road biodiesel, the position changes from a 3c advantage to a 38c disadvantage, as I have already indicated. (Time expired)

Paul Calvert (President) Share this | Link to this | Hansard source

In the half a minute before question time starts, I take the opportunity to remind senators that it has been brought to my attention more than once in the last couple of days that there has been a failure to observe standing order 185. One of the things that we do in this place is to acknowledge the chair when we enter and leave this chamber. We do not pass between the chair and a senator who is speaking, and a senator, on entering the chamber, shall take his place and not stand in the passages. I remind honourable senators of that.