David Johnston (WA, Liberal Party, Shadow Minister for Defence) Share this | Link to this | Hansard source

I want to commence my remarks on the Excise Legislation Amendment (Condensate) Bill 2008 and this tax, which is essentially one of the greatest assaults on the living standards of Western Australians I have ever seen in the history of Federation, by saying that it discloses all of the morality of carpetbaggers and burglars. That is what we are looking at here—carpetbaggers and burglars. This is a wacky government. It has got absolutely no idea of good public policy. Their first real act was to obliterate the exceptional circumstances regime for drought stricken farmers. That was their first contribution to public policy in this country.

Of course, we have seen today the luxury car tax. What a wonderful thing for a car industry that is on its knees through lack of confidence, a manufacturing industry that is going to be assailed by an emissions trading scheme, and here they are—the wisdom of Job!—implementing a luxury car tax. Then of course we see alcopops. I can tell you that the distillers are thinking this is the best thing since sliced bread. They are selling more raw spirits than ever before. What a wonderful contribution to our youth. Of course, we have got an emissions trading scheme green paper. How brilliant is this? The LNG industry is not included as an emissions intensive industry receiving permits. This is the one industry that Australia puts to the world to reduce global greenhouse gas, particularly in East Asia, and they are not included in the scheme. It is just unbelievable.

Of course, they then give road transport certificates, which I take no issue with, but they leave rail out. The most energy efficient, combustion efficient and emissions reduced area of transport in Australia and they do not give them a permit. Then of course we see them attack our uranium exports to India. In one fell swoop they would eliminate a whole year of Australian emissions by seeing the Indians produce electricity through fission. This is another wacky tax. This is an absolute smash and grab raid and I want to style it right here and now as the drive by shooting of the century. Here is an industry that has drawn in international players—we have investment from Japan, America and Australia—building what is Australia’s premier and biggest oil and gas project. It has paid billions of dollars in tax royalties since 1984. So what does this government do as one of their first acts? It thinks: ‘How can we get into the pocket of these people? How can we grab the money and run?’

Of course this $2.5 billion tax grab must be passed on. What business in the world could possibly tolerate a $2.5 billion assault on their bottom line? So the people of Western Australia, the mums and dads and their businesses, are going to have to pay this money to Canberra to fund Labor’s profligate, stupid, hopeless state governments in Victoria and New South Wales. That is what is happening. Look at what has gone on in New South Wales. The frolicking in the offices, ministers going to jail for all sorts of drug offences and goodness knows what. There is no water. They cannot build a desalinator. These two states cannot get themselves organised to do a damn thing in this country and this government is bailing them out with Western Australian money. That is what is happening. We are paying taxes in WA for these guys, for these incompetents.

We have already seen what the party brings to the table in terms of good governance. We saw it in Western Australia. We saw what happened after eight years of the Carpenter government. We ran an ad on television that said: ‘Think of three things the Labor government in Western Australia has achieved.’ Everybody thought, ‘Well, that’s a bit tough. What have they achieved?’ Do you think the Labor Party responded to that ad? Do you think they got the money together to put their ads on TV to say, ‘We’ve done good things’? They sat there like stunned mullets and did not respond to that ad—ipso facto they have done nothing in eight years. They have done nothing in the world’s best economy, with mineral prices and agricultural prices through the roof and they have done nothing—and they admit it.

May I predict: we will take the other viable marginal federal seat from Labor at the next federal election. We will take it because, when Kevin Rudd said, ‘We are going to put this tax on the pockets of Western Australians,’ what did the then Labor Premier do? He sided with Canberra and said to his constituents, ‘Pay up and shut up because we’re Labor, we know what we’re doing and we’re going to take your money.’ That is what he said.

What did that mean for the wonderful strategies of Labor in Western Australia? It is going to follow on federally, I can say. In Morley we had a 9.5 per cent swing. This was a blue ribbon Labor seat where they would strut around haggling over who was going to get the seat. There were parachutes landing every day with beautiful media stars who were going to be the new state gurus, but there was a 9.5 per cent swing to a fabulous Liberal candidate who nominated five minutes before the closing of nominations. That is how good this government in Perth was.

Eric Abetz (Tasmania, Liberal Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

What about Southern River?

David Johnston (WA, Liberal Party, Shadow Minister for Defence) Share this | Link to this | Hansard source

Southern River—fabulous. There was a five per cent swing to a very good hardworking candidate. Admittedly, he had some time to assert himself—he was out in the field for a lot longer. What about Mount Lawley? There was an 8.5 per cent swing. What about Wanneroo? There was a six per cent swing. I got up at four o’clock in the morning to run a polling booth there and the people came and said, ‘I don’t like that Kevin Rudd—he’s into us.’ They were dead right.

These burglars are into Western Australians. Let me tell you, if Kevin Rudd steps foot into Western Australia, he will hear all about it. He never goes there; he has not got the pluck to go there. He sneaks in and goes down to see Gerard Neecham’s Aboriginal college with no fanfare, just sneaks in during a state election campaign, because he knows he is on the nose. He is on the nose because, when he wants to tax Western Australians and one of our premiere and best corporate citizens in Woodside and all of their joint-venture partners, we know what is going on. We know he has his hand in our pocket and he is giving that money to New South Wales and Victoria because of their stupid, hopeless mismanagement. That is what he is doing.

In their dying weeks—and this is the wonder of Labor—they impose a condensate tax; they then get annihilated in an election because people wake up to what they are doing. Can I just say, these are the joys of a desperate Labor Party. One of their stars and champions was one Ian Taylor, a deputy premier from Kalgoorlie—where I spent time as a younger man. He was a very good governance man who worked hard for his constituents and he put a very plausible and acceptable face on Labor. His best friend in the world, John Bowler, stood as an Independent having been thrown out of the Labor Party in Kalgoorlie. Naturally, as you would, he put that relationship above politics and went up to help him. What did the Labor Party do? In the dying days of their campaign, they expelled one of their most respected sons. Let me tell you, the people of Western Australia expelled them very, very quickly. They rigged the boundaries to favour themselves and they still lost—an absolutely amazing event—all because people have woken up to Labor.

This condensate tax is one of the principal architects of Labor’s demise in Western Australia and the people are not going to forget it. I will welcome the federal election because I say: Hasluck, come on down and get on board. We are going to take Hasluck and we will have 12 of the 15 Western Australian seats because this tax is nothing more or less than a naked assault on the living standards of Western Australians.

It is one of the most arrogant things I have ever seen and it fits right in—it has a beautiful synergy—with the way that the Labor Party is currently dealing with pensioners. Here we are talking about pensioners, looking at their living standards, listening to them complain about the fact that they cannot make ends meet. You have the Prime Minister, the Treasurer and the deputy leader of the Labor Party all saying, ‘We could not live on the pension.’ In the height of all that, you have a Labor parliamentary secretary standing up in parliament and saying: ‘My wife’s serving of beef stroganoff is not big enough. I don’t care about pensioners who are buying dog food; I don’t care about pensioners who can’t make ends meet. I don’t care about any of that. My wife’s beef stroganoff is not big enough.’ This is what these guys bring to the game. It is disgraceful. They are out of touch and arrogant. Let them eat cake made from the ingredients garnered from Western Australia—they can afford it. I look forward to the next federal election or any election in Western Australia that has a Labor Party opponent because we are going to take them to the cleaners.

This government has a $22 billion surplus. It has a $40 billion infrastructure fund for unspecified projects. I heard Senator Milne say ‘The money has to come from somewhere if you want to raise pensions.’ Senator Milne, there is $40 million set aside by this government for no-name projects with no detail—for nothing. It is sitting in the ether in the forward estimates—$40 billion. They do not have a plan for this money, yet they want to take $2.5 billion from one entity.

Let us turn to the damage this does to our international reputation. This country’s reputation around the world as an exporter and as a destination for investment is second to none. We have stable government, we have good sovereign risk, we have good return on investment and our legislative frameworks are known and certain—until now. The message sent to the Chevrons, the Woodsides and the BHPs of this world is: ‘Watch out if you’re making a profit. If you have really done a good job in investment and bringing a project forward, we are going to reach into your pocket and rip it off you because you can afford it. We want to give it to New South Wales and Victoria, who have made a complete botch of everything, like we are going to. We’ve made a complete botch of everything, but you can afford it, so we’re going to take it from you.’

Sovereign risk is something that is very hard to get. A reputation in sovereign risk is very hard to accumulate. We are competing with Qatar, whose cost structures are a fraction of ours. You can get an environmental approval overnight in these places. And yet we are out there competing with them and we are investing billions of dollars. Gorgon is a $50 billion project; Woodside’s Browse is probably $25 to $35 billion, depending on what year you want to talk about the investment coming to fruition. We have provided, for 10 years, a certain stable environment where these projects have gone ahead and have been successful in the most trying and competitive of international circumstances.

They are extraordinarily capital intensive industries. The first thing they have to do is go out and drill these petroleum licences in deep water, 1,500 metres of water, and then they have to bring the produce—the gas or the oil—another 400 to 500 kilometres on to shore. And then, if it is gas, they need to compress it down to LNG, put it on a specially designed boat and then sell it into the world against the Middle East competition, against the Indonesians and against the South Americans. They have made a huge success of it. Charles Court got them going by saying, ‘We will take the gas and, if we don’t take it, we’ll pay you for what we don’t take.’ That was a very brave contract but it got them going.

Now this government comes along and says: ‘Yes, well, you’re very fat and happy. I don’t care if you’re investing about three-quarters, or 75 per cent, of your profits back into the development of further gas fields. We don’t care about that; we just want the money. Give us the money.’ That is the attitude of a man with a gun doing an armed robbery with violence. That is what we have got from Canberra: an armed robbery with violence. If you do not comply, you get the butt in the head. That is what is going on here.

Our reputation has gone down the drain because of this. Every single large project boardroom is saying: ‘What is happening in Australia? They have just ripped off the condensate tax with no warning, no notice. It has never happened before and now they are imposing an emissions trading scheme on us. I thought we were doing a good job. Why are we getting crucified?’ This is the question everybody around Australia who is involved in big investment and employing thousands of Australians is asking: ‘What have we done to deserve this? What have we done to deserve this very profligate, bad government?’

This is a drive-by shooting. It is an assault on one of the nation’s best assets and it is an assault on one of the nation’s most prospective industries. It is an industry that will carry us into the future. I quote the CEO of Woodside, who is the operating partner of the North West Shelf gas project, when he said about this:

Governments have a responsibility to consult with industry on major issues such as this. On this occasion there was no consultation on changes to arrangements that we considered to be binding,

This is not a loophole which is being closed or a free ride that has come to an end. This is a negotiated fiscal arrangement which formed the basis of Australia’s largest resource development.

And there it is; this is a negotiated arrangement which forms the basis of Australia’s largest resource development. In 2006 and 2007 the Commonwealth government raised $1.594 billion in resource rent tax from this project and is estimated to raise $1.84 billion in the current year rising to $3.74 billion in 2009-10. Is that not enough from one project? Is that not billions of dollars from one project? Is that not enough for this government? Royalties have been paid since production began in 1984. In the past 12 years, royalties paid to both the Commonwealth and Western Australian governments have realised $6.5 billion.

Here we have a government that without a word of warning, without a semblance of commercial courtesy and without respect for our sovereign risk issues, simply announces in the budget, ‘You’re hit for $2.5 billion.’ It is unprecedented in terms of bad public policy, bad governance and discourtesy. It is unprecedented. So, domestic users are going to be whacked because nobody could bear this. The retribution for the Rudd government will be felt in the seat of Cowan by ordinary people who rely on reticulated gas for their hot water, as well as in the seat of Swan and in the seat of Stirling.

I assure the Senate this—and you, Mr Acting Deputy President. The Prime Minister has not been seen in Western Australia; he dare not show his face. They know what is going on. The Prime Minister does not read our newspapers, he does not know the headlines that have pointed the finger at him for this tax on us. We have very long memories.

This is a government of focus groups. This is a government that talks in mantras, talks about ‘working families’ and, yet, admits at the same time working families have never been worse off than under the Prime Minister. That is a confession by the man himself. They have not been any better served and, in fact, are worse off. They are his words and admission. What is he doing about it? Wringing his hands and saying: ‘Pensioners? Oh, it is a terrible thing.’

Eric Abetz (Tasmania, Liberal Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

Inquiries.

David Johnston (WA, Liberal Party, Shadow Minister for Defence) Share this | Link to this | Hansard source

‘We will wait till an inquiry. They can just wait. They can just wait till next year for the inquiry. Make ends meet and wait until we’re ready to give you something in your pension.’ Infrastructure bottlenecks: another well-worked mantra through the focus groups. Little does anybody understand or know that the Commonwealth controls not one single infrastructure bottleneck. The states control the lot. The education revolution: this is a government of the most spun mantras I have ever heard. ‘We’ll keep grocery prices and fuel prices down.’ ‘We’ll end the blame game,’ and ‘We’ll bring cooperative federalism.’ Here is cooperative federalism working as it has never worked before: a drive-by shooting, a raid on the pockets of every Western Australian. We will not forget this.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

I rise to speak on the Excise Legislation Amendment (Condensate) Bill 2008 and Excise Tariff Amendment (Condensate) Bill 2008. It is just laughable to hear the opposition so stridently supporting corporate welfare. If I have this right, we gave this exemption as a subsidy to help an infant industry get up and running 30 years ago, and it is still going—so if you give a bit of support to an industry to get it up and running you can never take it away? What a load of rubbish! Are we always going to be handing out corporate welfare to industries that can well afford to support themselves? A profit of a billion dollars in six months was made by Woodside, the very company that we are now supposed to be continuing to subsidise—a billion dollars of profit in six months! Do not make me weep! At the same that we are talking about trying to get $30 a week extra for pensioners, Woodside have made a billion dollars of profit in six months. It does not match up to me. When are they going to wake up and smell the roses and realise that the community will not support that level of subsidy anymore? Look at what is happening in America at the moment. We have a financial crisis driven by greed—big corporates wanting more and more and more. The community over there is sick of it and the community over here is sick of it.

I just heard Senator Johnston talking about the swing to the Liberals at the recent Western Australian election. The Greens also did extremely well and received a big swing, which for me is a further indication that people are sick of corporate greed and the ‘me first’ approach and want to see some fairness back in the system. We have the big corporates, Woodside et al, saying, ‘We’ll pass it on to the consumer.’ I think consumers will see through that when they look at the profits these companies are making. ‘Oh, yeah, but we can’t afford this excise, so we’re going to make you pay.’ Why can’t they afford it? They made a billion dollars in six months. With the North West Shelf venture we are talking about BP, Chevron, Shell, BHP, Mitsubishi and Woodside. I do not think any of those companies are poor. In 2006 Woodside made record profits, and this year it has made a billion dollars in six months. Do not come to the Australian community and cry poor and say that this is going to hurt the consumers when you have been getting a subsidy, designed to get an infant industry up and running, inappropriately for 30 years—and now they want to keep it going? Let us keep them on the subsidy teat so they can make record profits again! Then, when the government talks about actually ending that subsidy, they cry poor and say, ‘You’re going to pay because we’re not going to take a cut in profits’—a level of profit they should not be earning because they have been getting a subsidy for years. How can we help other, new industries—for example, renewable energy industries—get up and running when we are still subsidising megacorporates? That subsidy was supposed to get them up and running and then end. How can we start supporting the fledgling, genuine, renewable energy industries to get up and running if we are still subsidising the megacorporate industries that are making record profits? It does not add up to me.

Woodside, at the same time they are crying poor, is behind Pluto, which is destroying the Burrup Peninsula and the world’s best rock art. Woodside prevented national heritage listing of its particular piece of the Burrup so that it could not get accused of destroying a national heritage site. Whether there is a national heritage listing on that area or not, it is still a natural heritage treasure—and Woodside is still moving and destroying that rock art. Here the coalition are, arguing to provide a subsidy to a company that is going in and destroying our national heritage. Woodside has for years been opposing recognition of the Burrup Peninsula and its internationally important rock art on the national heritage list. This is the very same company that, along with other companies, wants to go into the Kimberley. So now we are going to subsidise them to go into the Kimberley. I think they are big enough now to be able to survive on their own two feet without corporate welfare from the public purse. That has been going on for far too long. That money should be directed into genuinely helping the mums and dads and the pensioners of Australia. You cannot argue on the one hand for a rise in the pension and then on the other hand say, ‘Oh, we’re still going to support corporate subsidy and corporate welfare.’

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

You want to push up the price of gas for pensioners?

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

I will take that interjection. The point there is that Woodside should not be so greedy. Greed is what is driving and has driven the financial crisis they are facing in America. Finally people are waking up and realising that it is totally inappropriate to drive that greed. Greed, greed, greed. Well, people have had enough. They have absolutely had enough. Where do you get off arguing for corporate welfare and arguing for pensioners at the same time? It is always industry first, isn’t it? When it comes down to it, it is always industry first.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

It’s people first.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

It is not people first; it is industry first. That is the policy position being taken here, when you see a profit of a billion dollars in six months. In this day and age, in anybody’s language that is a significant amount of money. We do not need to be subsidising that anymore. They need to be paying their fair share. Everybody always understood it was to get an infant industry up and running. Now there are other things that Australia needs to be doing. We need to be getting behind a renewable energy industry and supporting that much more. We need to be genuinely supporting the mums and dads and the pensioners who are in need and getting away from this corporate handout to organisations that can well and truly stand on their own two feet.

I have not heard that BP, Chevron, Shell, BHP, Mitsubishi or Woodside are struggling at all. All we are doing is trying to prop up major companies instead of supporting families and pensioners. The opposition bring their bleeding heart in here and talk about pensioners—finally they have woken up to the fact that pensioners are doing it tough. They were in government for 11 years and did not manage to help them. Now all of a sudden they are in opposition and maybe they have time to actually look around at the people who are suffering in Australia. All pensioners in Australia, not just age pensioners, are suffering and, after 11 years, all of a sudden it has dawned on the opposition that these people are struggling. ‘But we’re not going to support any of the measures that actually raise some revenue because we don’t like tax either. We want to support big business and we want to support pensioners. Which one are we going to go for?’

Are we actually going to make sure that the corporates pay their fair share for the resources that they are making money out of so that Australia gets its fair share? This was a subsidy in the first place, so what they are arguing is that any support for infant industries has to stay forever and we are never going to take it from them. Once they become megabig, they are so big that we are going to keep supporting them anyway. It does not make sense to me.

It is about time that we started making sure that we have enough in our consolidated revenue that we can genuinely look after those in Australia that need it most. I do not think the likes of Woodside need that subsidy. It is corporate subsidy, it is corporate welfare and we do not need it anymore. We have got to get away from ‘big is better’ and ‘greed at all costs’ because it is bringing down the American financial institutions. The Americans are sick of it, and I will tell you what: Australians are certainly sick of it.

I also stood in a polling booth in the recent WA state election, and I have never had as many come and get Greens how-to-votes from me and say, ‘Things have got to change.’ So wake up and smell the roses. It is time to get the corporates off the corporate teat and start delivering for those that are genuinely doing it tough in this country.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

I rise in support of the Excise Tariff Amendment (Condensate) Bill 2008. The intention of the bill, as we all know, is to remove the exemption on the production of condensate from the crude oil excise.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

That is a disgrace! Aren’t you from Western Australia? You should have learned on 6 September.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Listen and you will learn, Senator Cormann. You will get some sense from a Western Australian senator, not the nonsense you lot have been talking about.

Gary Humphries (ACT, Liberal Party) Share this | Link to this | Hansard source

Order! The senator should be heard in silence.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Thank you, Mr Acting Deputy President, for that help. The intention of the bill, as I say, is to remove the exemption on the production of condensate from the crude oil excise, and the amendments will apply the crude oil excise regime to condensate produced at the North West Shelf gas project. Condensate, as we know, is a light crude oil extracted from natural gas. It is mainly used in the production of petrol and, as we are all aware, the price of petrol has gone through the roof in recent times and seems likely to stay high.

In 1977 condensate was made exempt from the crude oil excise. It was exempted, as was said earlier, to facilitate sunrise industry investment in the North West Shelf gas project and the Cooper Basin. At the time of the concession, the then Treasurer deliberately said, ‘This will assist the marketing of LPG and condensate from fields already discovered but not yet developed in the North West Shelf.’ Since that time the concession has been of great benefit and enormous help to the North West Shelf venture partners.

During recent Senate committee hearings the Australian Petroleum Production and Exploration Association were quick to point out that condensate ‘actually aids the economics of gas’ and, further:

… very few gas projects have proceeded without associated condensate production.

However, there is not one scintilla of evidence that the concession was to apply indefinitely—and, as many speakers have already said, neither should it apply until the end of time. Today the North West Shelf project is huge. It accounts for 48 per cent of Australia’s petroleum production and 54 per cent of our natural gas production. It results in sales of approximately $11 billion. Over the last five years, with the increase in world prices, the excise exemption has been worth almost $1.5 billion—a $1.5 billion windfall for the six multinational companies involved in the joint venture. Just for the record, who are these companies? They are BP Developments Australia Pty Ltd, Chevron Australia Pty Ltd, Japan Australia LNG Pty Ltd, Shell Development (Australia) Pty Ltd, BHP Petroleum (North West Shelf) Pty Ltd and Woodside Energy, who operate the project.

Much has been made of the possible impact of the condensate tax. I would like to look briefly at the long-term profitability of companies involved in the extraction of non-renewable resources such as oil and gas. BP Developments is part of the BP Australia group, which had a net profit after tax of $1 billion in 2006 and, in 2007, a net profit of $1.4 billion, representing a 40 per cent increase over the previous financial year. Chevron Australia is part of the Chevron Corporation. It had a net income in 2006 of $17 billion and its net income rose by nine per cent in 2007 to $18.6 billion. Chevron also experienced an 18 per cent increase in its share price over the last financial year.

Japan Australia LNG is a subsidiary of the Mitsubishi Corporation. Mitsubishi has not performed as well as the others, who concentrate almost exclusively on oil and gas production. That corporation, in its annual report, showed a drop in sales revenue of eight per cent in 2007 and a three per cent drop in gross profit. Consumer items such as cars clearly are not as profitable these days as other items that might be produced.

Shell Development (Australia) Pty Ltd is, of course, part of the Royal Dutch Shell group, and net income for the group rose 21 per cent from $26 billion in 2006 to $31 billion in 2007. The Royal Dutch share price has also risen over the last 12 months somewhat significantly. Woodside described 2006 as a record year. Their net profit after tax increased 29 per cent to $1.4 billion and revenue was up 39 per cent to $3.8 billion. In 2007 profits were of a similar margin. In addition, the share price for Woodside has increased 47 per cent in the last 12 months. BHP Petroleum, as a subsidiary of BHP Billiton, experienced a 25 per cent increase in its share price over the same period and was a significantly disproportionate contributor to earnings within the BHP Billiton group.

What is the net of that? Share prices of companies involved in the oil and gas extractive industries in the last two, three and four years have done extraordinarily well in what has been a somewhat depressed market price environment. In that context, both executives and management have been rewarded most handsomely. Resource companies are doing well in Australia and will continue to do well under this government. However, the point needs to be emphasised once again: these companies extract Australia’s non-renewable energy resources for profit, profit that is distributed to shareholders all around the world, and it is clear that the North West Shelf gas project is a mature and highly profitable investment. The project, by any stretch of the imagination, is no longer reliant on investment incentives for its ongoing success. It should be noted that the imposition of an excise on condensate will result in a reduction of royalties. Royalties are paid by these companies to the Western Australian government. That is because the excise payments are a deductible expense for calculating the offshore petroleum royalty. It should also be noted that the first 3.1 million barrels will incur no excise at all.

I think we should take it as read that that any company is loath to concede a tax concession, a tax rort or a tax subsidy without a fight, and that is what we have going on here now. Shareholders properly demand a return on their investment as well as a useful growth in capital price. However, the excise regime for the production of condensate will continue to remain the same as the regime applied to stabilised crude petroleum oil. Given their similarity, the interlocking relationships between the production exercises for the two and the synergies between the whole set of companies involved in the North West Shelf gas project, the two commodities should be taxed in a similar manner. That means there will be no excise on annual production of 3.1 million barrels or less; 10 per cent on annual production of 3.1 to 3.8 million barrels; 15 per cent on annual production of 3.8 to 4.4 million barrels; and 20 per cent on annual production of 4.5 to 5 million barrels.

The resources sector is clearly of immense importance to Australia’s future prosperity. Governments have a responsibility to ensure the ongoing health, sustainability and growth for the benefit of all Australians. But this government makes decisions not only to benefit ordinary Australians but also is extraordinarily mindful of the important role played by the private sector in our mutual and our joint prosperity. We do listen to industry requests for adjustments to tax arrangements. A case in point is the enormous Henry review of the tax system, which will specifically look at barriers to investment in large-scale downstream gas-processing projects, hurdles faced by remote gas developers and consideration of a future policy framework for new Sunrise extra investment in the gas sector. As you would expect, industry welcomed the inclusion of all of these issues in the Henry review after no attention and no action for the last 12 years.

There are significant challenges to developing oil and gas projects in northern and far western Australia. Many sites are remote from infrastructure and markets. The high costs of extraction also add to the capital intensive nature of these industries. But, over time, tax regimes change—and so they should change. This excise exemption is a historic anomaly and an anomaly no longer needed and it should be brought into line with the rest of the country. New gas projects, such as Gorgon and Browse Basin in my home state of Western Australia as well as Sunrise in the Northern Territory, are now in competition for investment dollars. It is time to even the playing field, and the current government has made the right decision to even the playing field. New resource ventures require large upfront capital investments in infrastructure to get off the ground. Ultimately, they bring revenue to government and benefits to all Australians. Governments of all persuasions recognise the need to assist new ventures in the early stages of development. However—and this is the key point—there is no need for long-term valuable resources to be directed to highly profitable ventures.

Much has been written about the likely impact of the excise on domestic petrol and gas prices. In fact, members opposite have sought to link the condensate tax to increases in Western Australian domestic gas prices. How silly. How illogical. How absurd. And it shows a lack of understanding by the alternative government, by the opposition, of global commodity markets. You do not know how they work. When one thinks about it, it defies logic considering that for 12 years they boasted of their mastery of the economy. Liquid petroleum gas is priced in Western Australia—as it is in the rest of Australia—by reference to a world price. As a further safeguard, natural gas supplied to householders in Western Australia is subject to the Energy Coordination Gas Tariff Regulations of the Western Australian state government—now a Liberal-National government. Just as the imposition of the crude oil excise does not increase petrol prices, the condensate tax will not increase gas prices because they are set internationally.

We were elected to implement the commitments we made last year to the Australian people on tax, on income support and child care to help those under financial pressure. This is going to be done, as we all know, principally through the budget process. The measures contained in this bill will increase the return to the Australian community for allowing private interests to extract non-renewable energy resources. The revenue raised will add to our ability to assist families and pensioners under pressure. It will assist in investment in our schools and hospitals.

It will also most critically close a tax loophole which has given an advantage to one group of private companies and their shareholders over all others. The absurdity and the illogicality of the position of the opposition is absolutely amazing. If we accepted their principal argument—that a tax concession, tax subsidy or tax reduction, once given, remains forever and for all time—there would not have been any change in this country in the last 30 years. All of the financial market change, tariff reductions and accessing of markets by new companies from overseas were commenced by the Whitlam government, continued under the Hawke and Keating governments and continued under the Howard government. What was it about? It was about incentive, it was about access and it was about change. Why did we want change for the last 40 years? To improve material living standards for ordinary Australians. That necessarily involves that some companies which received an initial start-up kick to invest billions of dollars in a worthwhile project, 30 years into the project—when they are turning 40 per cent annual growth in capital price and 40 per cent annual growth in return to shareholders—no longer need that subsidy. It is about worthwhile change to benefit all Australians.

As Senator Siewert properly said, for the last four days you have done nothing but try to wreck the budget process of the properly elected government in this country. You say two things: spend, spend, spend without merit and keep taxes that are in existence. What a load of rubbish. You cannot have it both ways. You cannot wreck the budget and deny tax revenue in the order of $1 billion or $2 billion over a four-year period in one bill and, at the same time, want to add outlays to the tune of many billions of dollars.

This bill is worthy of support. The government should be commended for bringing it in. Industry will adapt and change and all of the companies I mentioned will continue to grow. I commend the bill to the Senate.

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

It is quite clear there is a very large gulf of disagreement between the opposition and government on this issue, and my money for the moral right is on the side of the opposition. The proposed imposition of a $2.5 billion excise on condensate produced by the North West Shelf joint venture, if I may say so, is yet another example of the high-taxing policies of the Rudd government. Throughout their short history, so far we have seen a total commitment to higher taxes. Unfortunately, this huge increase in tax, which was imposed without consultation with the North West Shelf joint venture partners—which include Shell, BP, Chevron, MIMI and Woodside—will have some seriously adverse consequences, not only in WA where the increased tax will most likely be passed on to domestic and industrial consumers in the form of higher prices for electricity—

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

I have already explained that.

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

This will be done when contracts come up for renewal, Senator Bishop. Ordinary Western Australia families—mums, dads and the kids—will have to pay higher prices for goods in stores and suburban household electricity bills will be higher. Also, from a national perspective, this decision by the Rudd government has compromised Australia’s good reputation as a nation where sovereign risk is low. Whereas until now investors have considered that the word of the governments of Australia could be relied on and trusted when it came to agreements for large resource investments, following this decision—to unilaterally break an agreement without any prior consultation—this reputation for reliability will be in tatters. It is hard to escape the conclusion that this $2.5 billion tax on condensate produced on the Burrup Peninsula is an example of the fact that many of the Rudd government’s budget measures have not been thought through and will have serious, adverse impacts if passed.

Apart from putting up prices for ordinary families being an example of an unintended outcome, other budget measures having unintended outcomes include the axing of the Commercial Ready program, which provided finance for companies doing innovative research and its axing will mean that Australia loses products to other countries, and the axing of the Regional Partnerships program, which had so many unforeseen impacts on people living in rural Australia that the Rudd government was compelled to backtrack and to restore many of the projects it had planned to terminate. Imposing this $2.5 billion tax on condensate will, without doubt, have an impact on the people and the economy of Western Australia as Woodside has indicated to the stock exchange that the $2.5 billion in additional tax will have to be passed on to its consumers, including families, in Western Australia. This impact will be widespread because Western Australia has become heavily dependent on gas as a source of energy for both domestic electricity and many industrial users in Western Australia, including the large Alcoa bauxite refinery at Pinjarra, as well as mining and other industries in the Pilbara and eastern goldfields.

It seems extraordinary that the Rudd government should be surprised that Woodside has indicated to the stock exchange, as I said, that it will inevitably have to pass on the $2.5 billion additional tax to its customers. Western Australian consumers, most importantly ordinary families, will have to bear that cost increase. An extra $2.5 billion in costs is a large amount of money by anyone’s standard. One can only say that, in not comprehending that this would inevitably have to be passed on, the Rudd government has demonstrated its naivety in not understanding the fundamentals of running a large corporation. That the Rudd government appears to be so naive about the realities of finance in business must be a cause of great concern to those considering large capital investments in Australia.

The manner in which this decision was made, in secret, and then only communicated to the North West Shelf joint venture as a fait accompli in the budget, must also raise serious concerns about the attitude of the Rudd government in dealing with the interests of large resources companies. According to the Parliamentary Library, the North West Shelf oil and gas venture is Australia’s largest resources project and has involved some $20 billion in capital investment to April this year. Given this, surely it would have been reasonable to assume that consultations would have occurred between the Rudd government and the company when a major and fundamental change to the financial arrangements between the company and the government was under consideration.

This is particularly important when it is understood that the arrangements to exempt the company from condensate excise had been in place since the earliest negotiations about the project and that there had never been any suggestion that these arrangements would be subject to review or change, much less unilaterally terminated, as is proposed by the government. In fact, according to the briefing the Senate economics committee received from Treasury, there was no termination date placed on the arrangements for the exemption from condensate tax, so the North West Shelf joint venture was entitled to think that this was a permanent condition, especially since it had been in place for several decades. However, in spite of this, the joint venture was only informed of the decision to end the exemption for the condensate excise immediately prior to the budget, without any prior consultation or hint that the condensate exemption was to be terminated.

Senator Siewert spoke about Woodside’s greed. Unlike oil projects which are profitable after a relatively short period of time, gas projects have a long period before the enormous cost of setting them up is recovered and profit on capital is generated. Senators should understand that the joint venture has continued to expand the North West Shelf project at great expense over the years and only recently has commissioned two additional trains, as they are called, to increase production levels. As I said, total investment is now approaching $20 billion, and senators will appreciate that it takes a long time to recoup development costs of that kind. So it is hardly greed on the part of Woodside that it wants to be given a reasonable opportunity to recoup its investment.

Senator Cameron, in his speech last night, was dismissive of coalition concerns about sovereign risk. The reliability of agreements with governments is known as sovereign risk. Australia has had an excellent reputation as a nation where governments kept their word and, accordingly, Australia has been regarded as a reliable country to invest in, with low sovereign risk. By contrast, a Third World banana republic would undoubtedly have a high sovereign risk, and no respectable investors would want to chance their money in such a country. The fact that Australia was a nation of low sovereign risk, with a reliable legal system and political stability, has been an important, key competitive advantage in attracting large resource investments to this country. This has been the case even though in Australia costs have been higher than in some of the alternative countries where investment in similar gas projects could occur, such as Indonesia, Qatar and Nigeria.

We in Western Australia have taken a lot of care over the years to protect our reputation for being a state where sovereign risk was low, because the Western Australian economy, since the 1890s, has been driven by great mining booms and resource developments. In the 1890s and on into the 20th century, it was gold, particularly in Kalgoorlie, which drove the WA economy. Then, from the 1960s on, it was nickel and bauxite. Most significantly, in the present, the Pilbara iron ore industry and the oil and gas developments of the North West Shelf are the key driving force of both the Western Australian and the Australian economies. Senator Cameron appeared to not understand that these great investments in gas resource projects have not occurred in Western Australia by accident but have been differentially and preferentially made in Western Australia because Western Australia has a reputation as a safe place for international investment, where sovereign risk is low.

However, this decision by the Rudd government to terminate the longstanding exemption from paying excise on condensate by the North West Shelf joint venture without any consultation has cast a cloud over the previously impeccable reputation of Western Australia, and Australia as a nation where sovereign risk was low. That the Rudd government have done this is incomprehensible and underlines their lack of experience and understanding of the expectations of great international resources companies. The Labor Party seem to think that these resources companies are bound to Australia, that they cannot go elsewhere. The Rudd government has seemingly ignored the reality that other countries also have large gas reserves and that if costs in Australia, which are already high, are raised too much through the unilateral ending of agreed exemptions or other conditions we in Australia will lose our competitive advantage. As a result, international resources companies like Shell, Chevron, BP and Woodside, who are partners in the North West Shelf joint venture, may cease to undertake new developments in Australia and instead invest in new projects elsewhere—for example, in countries like Indonesia, Qatar and Nigeria—where costs are low and regulations almost non-existent but sovereign risk is high.

The last point I wish to make about this decision of the Rudd government is that condensate is a relatively greenhouse friendly source of energy. It seems to me somewhat curious that a government which is obsessed with greenhouse issues and the reduction of carbon emissions in Australia should be penalising a greenhouse friendly energy source in this matter. But perhaps I should not be so surprised, because it is becoming increasingly apparent that the decisions of the Rudd government are often poorly thought through, often do not take into account the consequences and frequently are no more than ideologically driven, symbolic gestures designed to make a short-term impact. In fact, the Rudd government is becoming very much a government of symbolism, not of substance. By contrast, when the Howard government came into office their first budget contained a number of outstanding initiatives, such as setting up the Natural Heritage Trust, which was to be funded with $1 billion from the sale of Telstra, which was another outstanding proposed initiative. So I suppose it is reasonable for us to ask here today: what has the Rudd government done in the 10 months it has been in office? Sure, this government has signed the Kyoto treaty—

John Faulkner (NSW, Australian Labor Party, Cabinet Secretary) Share this | Link to this | Hansard source

Senator Faulkner interjecting—

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

My pronunciation is being corrected from across the floor—it has apologised to the Indigenous people of Australia and it has set up literally hundreds of reviews, but there has been very little significant new policy announced. I must say the people of Australia are justified in wondering just what this government has been doing with its time and whether it really does have any new ideas. The May budget reflected the approach of poorly thought through, ideological based, symbolic gestures. And now to the list of such a poorly thought through measures we must add this condensate tax, which will disadvantage ordinary families in WA by increasing the cost of domestic electricity in our state.

In conclusion, in the interests of preserving Australia’s hard-earned reputation as a reliable nation of low sovereign risk where large capital investments in resource projects can be made with confidence and, most importantly, ensuring that families in WA are not burdened with higher electricity bills and increased prices for consumer goods, I call upon the Senate to reject this legislation.

Don Farrell (SA, Australian Labor Party) Share this | Link to this | Hansard source

I seek leave to incorporate two speeches, one by Senator Arbib and one by Senator Pratt.

Leave granted.

Mark Arbib (NSW, Australian Labor Party) Share this | Link to this | Hansard source

The incorporated speech read as follows—

I rise today to support the Excise Tariff Amendment (Condensate) Bill 2008 and the Excise Legislation Amendment (Condensate) Bill 2008.

We are currently living in uncertain and deeply worrying times: the snowballing credit crisis in the United States has shook the world economy to the core and no one knows how far this financial crisis will eventually go.

The financial collapse of companies such as—Bear Sterns Lehman brothers, Fannie Mae and Freddie Mac, and AIG the world’s largest Insurance company have added to the growing concerns about the strength of the US economy.

Last weeks $700 billion, US, economic rescue plan by the US Treasury to buy bad debt is an attempt to insulate and stabilise the United States economy from international stock markets.

The total rescue package now comes to around $1.3 trillion dollars.

A staggering amount in anyone’s currency!

There is one thing I agree with the new Opposition Leader, the Member for Wentworth.

As the new opposition leader recently said we are presently facing, the gravest economic crisis globally in any of our life times ...

In light of this turmoil on World markets it is vital that our economy and businesses have some sort of financial certainty from this Parliament.

It’s why the Australian government has taken such strong measures to insulate the Australian economy from the economic tsunami engulfing the world.

But it is not the only challenge-

At the same time as this—we are being forced to fight a war on inflation ...

A legacy left to us by the former Howard Government. The facts which are here for everyone to see:

• The highest inflation rate in 16 years
• 10 straight interest rate rises
• the second highest rates in the OECD

The Prime Minister and the Treasurer both understand this and had this uppermost in their minds when they framed May Budget.

We on this side of the Chamber understand that Australians are doing it tough, doing it tough on petrol rises, doing it tough on cost of living increases, doing it tough on interest rates.

That’s why the budget delivered by Wayne Swan contained massive spending cuts and a record $22 billion surplus to keep downward pressure on inflation and therefore downward pressure on interest rates.

I don’t consider myself an economic genius, but I did listen to my year 10 commerce teacher when he told me to build savings you need to increase revenue and to reduce spending.

And just as average households are forced to make these tough decisions, so too do governments.

In the May Budget not only did we see big cuts to bloated Howard government spending, we also saw new measures that sought to bolster the surplus. This is where this excise on condensate comes into play.

And it amazes me after years of worshiping the surplus how the Liberal Party have all of sudden forgotten the economic basics.

I remember the former Prime Minister John Howard saying in 2001:

“The last thing I will do is abandon the commitment I have with the Australian people to maintain a stable economy.

“A stable, growing economy is the source of wealth for all Australians.”

He goes on:

“And if any government undermines that, that government should be thrown out”

I remember our friend in the other place, the Member for Higgins, between writing memoirs saying:

“If you spend surpluses, you don’t have surpluses.”

“If you spend a surplus, what you’ve got is a deficit.” Mr President,

The Australian people remember that the Liberals preached economic responsibility but delivered something quite different.

They talk the talk but rarely deliver.

They ignored 20 warning from the Reserve Bank on their reckless spending Mr President... they also ignored similar warnings from the IMF regarding their “stimulatory” budgets.

And they have learnt nothing from their election loss.

Their former Opposition Leader Dr Nelson’s promise to cut 5 cents per litre to the fuel excise coupled with an increase to the single income pension, that conveniently overlooks 2.2 million other welfare recipients such as care givers, widowers or even veterans pension, together with their blocking of key government revenue raising measures will blow a hole in the budget surplus of at least $6.1 billion dollars each year.

That is a staggering 23% of the current budget surplus. So much for being economically responsible.

Even more staggering is that the new Opposition leader the member for Wentworth has continued down this economically irresponsible path.

The Liberals party’s childish opposition to government legislation in this chamber has shown what the Liberal Party truly values.

They value the interests of Porsche and Lamborghini drivers over the interests of working families.

They value tax breaks for multinational companies over services for working families.

And they value concessions for health insurance providers over $1200 tax breaks for working families.

Is it any one wonder that the Australian public rejected them and their conservative policies in last year’s election.

I think not...

In order to maintain a strong surplus it’s vital that Senators in this chamber pass these revenue measures to ensure that the economy continues to prosper into the future.

I would like, if you allow, to provide the Chamber some background regarding condensate and the details of this excise.

Condensate, as we are aware, is a light crude oil extracted from natural gas. Since 1977 a Crude Oil Excise exemption has applied to the sale of condensate.

Originally, this regime was designed to encourage, among other things, exploration and development of petroleum resources under the North West Shelf project.

This was an important measure at the time and the stakeholders of the North West Shelf project have benefited substantially from this tax incentive.

Treasury estimates place the worth of this concession at almost 2.7 billion from 2001-02 to 2010-11 —A substantial boost and a good leg up to the industry.

The profit derived from the companies that operate on the North West Shelf run in the tens of billions of dollars, therefore withdrawing this tax exemption would have little or no effect on the operations of these companies.

Further, the argument the Liberal Party members put forward that the implementation of these measures will have adverse impacts on future investment decisions are plain wrong and not based on any objective evidence or analysis.

As for the opposition’s claim that lifting the tax break will increase gas prices in the WA, this is also furphy perpetuated by the members on the other side of the chamber to help their friends in a multi-national reap even higher profits.

Domestic gas consumers in WA make up less than one per cent of Woodside’s revenue. Even the former leader of the opposition himself said and I quote:

“I’m advised in part it’s not likely to have any impact on domestic gas prices.” (August 19)

How many other companies in this country get this sort of tax break or financial benefit?

The Liberal Party have once again shown their true colours, backing in a massive multi national over working families.

Even more galling the same company benefited back in 2001 from a Howard Government tax cut worth $460m that were not passed on as lower prices to consumers.

Yet those opposite continue to argue for this measure to be stripped from the budget, undermining the mandate this Government was given to manage the economy responsibly, to combat inflation and to lead Australia into the future.

And they won’t say how they will pay for it or make up the difference. The black hole will stand and the effects will be severe.

Don’t worry, they say, it’s only a small budget hole. Mr President, $6.1 Billion is not a little hole, it is a reckless undermining of the entire budget.

It is irresponsible and reckless to ignore this reality and for the opposition to block this bill.

But Economic irresponsibility seems to be par for the course with this opposition.

The liberals opposite have repeatedly demonstrated where their political allegiances lies; consistently we see the opposition siding with big business over working families - blind profits over good policy, recklessness over responsible management of the Australian economy.

How many times have we seen it since the election?

They stood on the side of the liquor industry protecting massive corporate profits from ready to drink alcopops.

They stood on the side of a system of the big oil companies, blocking the Fuel Watch scheme that would help families by providing transparency to fuel pricing.

The Australian people were being offered an opportunity to easily access information so vital for consumer choice. What did the liberals say?

They would rather that information continue to be provided to the retailers, for their benefit not for motorists at the pump.

Now we see the same stance on this bill. A bit more profit for a few over the economic security of the many. The opposition has made its priorities clear once again.

The Senators on the opposite side of the chamber should do the economically right thing and pass this legislation to help ensure working families in Australia are able to prosper in these difficult economic times. If this bill is defeated it will be a win for corporate greed and Liberal Party ineptitude.

Louise Pratt (WA, Australian Labor Party) Share this | Link to this | Hansard source

The incorporated speech read as follows—

I rise to speak on behalf of the Excise Legislation Amendment (Condensate) Bill and the Excise Tariff Amendment (Condensate) Bill.

The proposed amendments will apply the Crude Oil Excise regime to condensate in the North West Shelf.

This regime is the same regime that already applies to petroleum fields discovered after the 18th of September 1975.

The imposition of Crude Oil Excise will not increase petrol or gas prices because those prices are set by international energy prices.

This measure increases the return to the Australian community for allowing private interests to extract non-renewable energy resources.

The current arrangements give a huge gift to North West Shelf companies.

These companies have profited well from the mining boom and this community-funded free kick is no longer appropriate.

The joint venture has enjoyed great benefits from this exemption, not only because condensate production from the North West Shelf area has risen but also because condensate is a premium product and its price has usually been more than bench mark crude oil prices, which have themselves increased rapidly in our region.

In the June half of this year alone, Woodside handed down a 67 per cent lift in net profit.

The condensate tax exemption has given the North West Shelf.

Venture partners $1.5 billion over the past five years alone.

The North West Shelf project is the only gas project to have benefited from the tax exemption for condensate.

Meanwhile other condensate production current and proposed projects are subject to the tax.

Given that the exemption was given originally to get the North West Shelf Project up and running 24 years ago, it can no longer be justified.

The project is now highly profitable and no longer reliant on investment incentives such as the exemption that this bill will remove.

It’s now time Australian tax payers in general, and Western Australian tax payers in particular, got some return on all the investment they have put in to this project in the form of this exemption and other support.

As Nigel Wilson pointed out in the Australian in May:.

One thing the chief executive of Woodside might like to remember when he notes existing taxation arrangements have underpinned more than $25 billion in investment in the shelf, is that it was domestic taxpayers, particularly in Western Australia, who took the price, transport and market risk for the shelf’s domestic gas, which allowed the huge project to justify the capital expenditure in LNG processing in the first place.

New gas projects such as Gorgon, Browse and Sunrise are struggling to get off the ground and it is time to even up the playing field for investment in gas projects.

Tax breaks for such new LNG projects may well be justified, which is why such measures will be examined as part of the Rudd Labor Government’s overall review of the tax system, currently underway.

The measure is a very important part of Labor’s budget surplus.

It has an estimated net revenue gain of $2.5 billion over the forward estimates period, partly offset by an increase in net outlays of $69.6 million over the same period.

Labor’s budget surplus designed to help fight inflation.

It will help Australia families by putting downward pressure on interest rates and on the cost of living.

The coalition believes it can win votes by sabotaging the surplus but they are wrong.

Voters will not thank them for undermining our efforts to fight inflation, to help reduce interests rates, and to lower the cost of living.

I am pleased to say that the measure will not impact on Western Australia offshore petroleum royalty revenue.

As part of this measure, the Australian Government will provide the Western Australian Government with ongoing compensation for the loss of shared Offshore Petroleum Royalty revenue resulting from imposing the Crude Oil Excise on condensate.

This arises because Crude Oil Excise payments are a deductible expense for calculating the Offshore Petroleum Royalty. An initial payment of $80 million will be paid to the WA in 2007-08, with payment in subsequent years adjusted to equal the impact of removing the condensate exemption on royalty payments to Western Australia,.

This is estimated to cost $406.6 million over the forward estimates period.

Woodside’s threat to raise prices in response to this measure is pure political grandstanding in an effort to avoid paying its fair share.

There is no justification for transferring the tax to consumers.

Condensate is not a gas—it is like crude oil—this measure is not a tax on natural gas a Passing on the tax could constitute a breach of trades practices laws and warrant investigation by the ACCC.

The ACCC is already examining whether Woodside and its North West Shelf Gas Venture partners are in breach of trade practices law by continuing to market gas jointly rather than by competing with each other, after customers complained that the arrangement could be forcing them to pay higher prices.

Domgas, an alliance of Western Australian gas customers, has argued to the ACCC that the market power exercised by North West Shelf partners, which make up 70 per cent of the West Australian Market, has constrained the supply of gas and resulted in rapid rises in gas prices.

Domgas Alliance represents gas customers including Alcoa, Alinta, the Dampier-Bunbury pipeline, Fortescue Metals, Newmont and the WA State Government owned energy utilities Horizon Power and Synergy.

Woodside’s implied threats of higher prices are simply not justified and should not be used by the Coalition to justify it’s stance on this measure.

In fact, I think Woodside needs to explain it’s windfall profits in the order of 100 million as a result of the WA gas crisis.

The usual contracted price is $2-3 per gigajoule. Gas sold outside the usual contracts has been sold at ten—and then at auction $16 per gigajoule.

The Senate Economics Committee, of which I am a member found no evidence to support Woodside’s claim that it would have to raise prices.

In fact, the claim made by Mr Voelte, Woodside’s chief executive, that prices would rise, directly contradicts the evidence given to the Senate Economics Committee by North West Shelf Executive, Eve Howell, who said, and I quote:

“What I can say is that our current domestic contracts are in place and will be honoured. We in general have no ability to pass on this additional impost.”.

Woodside’s claim is nothing more than political grandstanding in effort to avoid paying their fair share of excise—so much so that Brendan Nelson, the then leader of the Opposition took some time to swallow Woodside’s line.

On the 27W of August he told ABC radio that it beggared belief that Woodside would not pass on the tax to consumers.

Yet a week earlier, he was apparently happy to have his beliefs beggared when he said he had been advised that this bill was not likely to have an effect on prices.

So, either the former leader of the opposition is a fool by his own admission, a fool being someone who can easily be convinced of things that beggar belief, or there is evidence that contradicts Woodside’s claim that prices will rise.

The claim by the North West Shelf Venture companies that this important budget measure will undermine Australia’s sovereign risk standing is even more far fetched.

The joint venture company has complained that the Government’s decision to remove a tax exemption makes big- scale investment in Australia as risky as big-scale investment in Papua New Guinea.

But the fact is that taxation arrangements covering the North West Shelf have changed several times since the original taxation agreement covering the project was introduced.

As Nigel Wilson pointed out in the Australian in May, Woodside’s claims that it had no warning that this measure might be introduced are surprising, given that the major oil companies collectively spend seven figure sums keeping up to date with the Government’s likely approach on these issues, and given that Labor Senators such as former Resources Shadow Minister Joel Fitzgibbon have raised the issue numerous times at Estimate Committee hearings.

Shane Wright, economics editor of the Western Australian, gave a scathing response to the extraordinary claim that Australia’s sovereign risk standing would be effected by this measure on the 27th of July, which is worth quoting at some length. He said:

“Australia remains ranked among the most secure nations in which to invest by authorities such as the OECD, while PNG remains just above Iraq and Afghanistan. Again, you have to wonder where the joint venture would rank the Rudd Government compared with Hugo Chavez and his nationalisation campaign of Venezuela’s oil, cement and steel industries. There’s been no complaint from the joint ventures for tax changes over the past 30 years that have reduced their payable tax. So, the real argument is that you can make a change to a tax arrangement, as long as they’re better off for it.”

So much for the sovereign risk argument against this measure.

However, the absurdity of the claim hasn’t stopped Coalition senator’s such as Mathias Cormann from parroting it whenever they get the chance.

As Lenore Taylor aptly put it in the Australian, way back in May when this measure was first announced, and I quote:

“Some in the corporate world seem to be playing a very political game in trying to get rid of a decision they don’t really like.”.

It is my hope that the majority of Senator’s will take a leaf from Brendan Nelson’s book before Woodside convinced Western Australia’s Liberal Senators to convince him it was in all their interests to dance to the tune of big corporate interests.

It is the Coalition’s backflip on this issue and the antics that have resulted that beggar belief, not the merits of this bill.

I urge all Senators to put an end to this attempt to sabotage sound fiscal policy for no good purpose.

I urge them to support the measure.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

This Excise Legislation Amendment (Condensate) Bill 2008 is a lazy tax grab by a lazy government desperate for cash to fund its high-spending budget, and the people of Western Australia are being asked to pay the price, to pay the bill. After the election we were told for six to seven months: ‘We’ve got to fight inflation. The inflation genie is out of the bottle. We’ve got to cut spending. This is going to be a tough budget.’ What did we find out on budget night? Net spending went up by $15 billion. Of course, the Rudd government, now that they are so-called ‘economic conservatives’, were desperate to ensure that they could still show a bit of a surplus. So what did they do? They had to find some easy tax targets. Never mind the negative and disastrous flow-on consequences. Never mind that this will have a disastrous impact on the economy, families, pensioners and businesses in Western Australia. Never mind that this will have disastrous consequences for our sovereign risk profile. Never mind that this is not the right decision to ensure we attract investment in an industry that can help us address the challenges of global warming by exporting LNG to some of the Asia-Pacific markets. Never mind that this is the time, from both an economic and an environmental point of view, when we should be doing everything we can to attract investment that will help us to ensure our energy security, to continue to grow and to ensure economic prosperity into the future.

This is an ad hoc measure. As Senator Johnston said in his speech earlier today, it is a drive-by shooting. This is not a serious attempt to balance the need to provide an appropriate return to the community with the need to provide a competitive taxation framework for an important industry. This is an ad hoc measure from a government that had to look very quickly for $2½ billion and thought: ‘Oh, well, these are big oil and gas companies, so who is going to stand up for them? This is going to be easy politically for us to sell.’ It is the same way that they tried to sell a $3.2 billion tax take on so-called alcopops as a health measure even though they never talked to the health department about it. These are all tax measures driven out of Treasury—there is nothing else to it. If the government were serious about taking a strategic view, they would have asked the Henry review into the taxation system to consider this issue first and then come up with whatever taxation framework they considered appropriate. But, no, they put in this $2½ billion additional tax grab targeted at the North West Shelf project outside of any strategic considerations and are quite happy to take all of the negative public policy consequences that might come our way.

Let us talk about the sovereign risk profile and our attractiveness as an investment destination. The reality is this: we are in an environment where there is huge demand pressure for LNG, which we have in abundance but are not exploiting to our fullest potential. We need to attract investment but we are actually a high-cost investment destination compared to other investment destinations in the Asia-Pacific. We face technological geological challenges and compared to other potential investment destinations we are at a comparative disadvantage.

Our sovereign risk profile, our political stability and our highly skilled workforce were the competitive advantages that we were able to bring into play to attract the necessary investment and to increase gas production in Australia, which is quite frankly what we should be aiming for. The government does not worry about our sovereign risk profile and does not worry that gas projects of this nature are very capital intensive. The North West Shelf gas project is a $25 billion investment. Do you think if you put $25 billion on the table that you would not want some certainty in terms of your cost structures and in terms of the fiscal arrangements that you operate within? Do you think you would put $25 billion on the table if the government, at a whim, without even going through a proper process, can just throw all of that overboard?

For 30 years we had bipartisan commitment to giving a proper, stable fiscal framework to this very important project. It was the first such major project that we were able to get off the ground here in Australia. Sir Charles Court, the great former Premier of Western Australia; Malcolm Fraser, the then Prime Minister; and the project proponents sat down and came up with an arrangement that ensured that this project would get off the ground; it did and it was very successful. We should do more of this. To their credit the Hawke, Keating and Howard governments essentially went along with what was a very clear understanding on the fiscal arrangement that was in place to ensure that this project would get off the ground and continue to expand and continue to provide the significant export income, taxation revenue and benefits to our economy that it has.

How did the government go about this? When you make a major change like this and you want to ensure that any impact on our sovereign risk profile is minimised, don’t you think you would sit down with the stakeholders concerned and consult instead of saying: ‘This is what we are thinking: we do not think that you are paying enough. We think that we ought to revisit the exemption that was agreed to 30 years ago’? Don’t you think you would say: ‘Let’s sit down. How can we ensure that all parties to the arrangement can come up with the best possible way forward to ensure that it is a win-win’?

The government did not consult with anyone. Treasury did not even consult with the most expert Commonwealth department on this measure, the Department of Resources, Energy and Tourism. Quite frankly the government would have done very well to look at some of the evidence in Senate estimates. I refer very specifically to the evidence on 31 May 2005 by Mr Hartwell, head of the Resources Division in the Department of Resources, Energy and Tourism. If Treasury had had a close look at this, they would have actually been able to provide advice to the Treasurer that his argument that somehow this is closing a loophole or getting rid of a taxation advantage is actually nothing more than a furphy. It is absolutely dishonest spin.

The government went out there and tried to justify this measure by stating that somehow the North West Shelf gas project inappropriately benefited from a taxation advantage that was not available to anybody else. That is not true—it is absolutely incorrect. I asked Treasury whether they had done any modelling to substantiate that assertion put out there by the Treasurer. In order to benefit from a taxation advantage it has to be an advantage compared to somebody else, presumably, somebody who is faced with the same set of circumstances. Firstly, is there any offshore gas project other than the North West Shelf that is currently paying excise on condensate? You will find that there is not, because straight after the North West Shelf gas project got off the ground the then government, in 1987 I believe, introduced what was called a petroleum resource rent tax, which is a profit based tax. It is a system of secondary taxation that essentially allows major gas projects of this nature to make major deductions for exploration expenses and various other allowable deductions, which can be compounded forward et cetera.

Projects these days that would essentially start off something like the North West Shelf did 30 years ago will not pay any secondary taxation for at least five to 10 years—don’t take my word for it; that is the evidence from Senate estimates—because they will be able to deduct a whole heap of expenditure, which was never the circumstance for the North West Shelf project. During the inquiry we held, Treasury was actually trying to make the point that they were exempt from all secondary taxation. When I tested this and sent an email back afterwards and said, ‘This is not quite right. As I understand it, they have paid royalties and they have paid excise on everything other than condensate production from day one,’ in fact the response was, ‘Yes, they have.’

The latest information that came my way is that Woodside actually wrote to the Treasurer earlier this week and provided advice that under its calculations, the North West Shelf venture actually paid $8 billion more in tax than it would have if it had been subject to the PRRT arrangements. Where is the taxation advantage in that? Can somebody tell me where the taxation advantage is in this? Essentially, the Treasurer went out there trying to justify a $2.5 billion tax grab, which of course the businesses that are affected by it will try to pass on to their customers. That will, of course, put upward pressure on the price of gas and electricity, which will put pressure on families, pensioners and businesses in Western Australia. And it is all to fund the Rudd government’s big-spending, big-taxing budget.

I asked Treasury, ‘Did you actually model this to substantiate the assertion made by the Treasurer that this is a taxation advantage?’ They said, ‘No, we did not.’ They got lost in all sorts of arguments, and I might quote some of the exchanges, which would be quite amusing if it were not so serious. I read a quote to Treasury from Mr Don Voelte, who had said:

... this is not a loophole or a free ride which has come to an end. This is a negotiated fiscal arrangement which formed the basis of Australia’s largest resource development

Treasury officials told the committee:

Contrary to suggestions from industry we have not been able to find any statements or documents which suggest that the exemption was supposed to apply indefinitely.

So they have not been able to find evidence that it was, but they cannot rule it out either. Then, in evidence before the committee they said:

... the project has had an exemption from all secondary taxation at the Commonwealth level, not counting the royalty arrangement which is in place with the states. It has been exempt from crude oil excise for 30 years.

Wrong! And that was evidence provided by Treasury at our inquiry! If Treasury does not understand what is being proposed how can this Senate have any confidence in passing this bill? How can we have any confidence that this is a properly substantiated measure, properly thought through, having properly assessed all the flow-on consequences, in particular for the people and the businesses of Western Australia?

Then, again, the Treasury officials say:

The project that we are talking about has enjoyed for 30 years an exemption from the secondary taxation regime to which it was subject.

Wrong! I will just read, for the benefit of the Senate, specifically what the North West Shelf project has paid: ‘Petroleum royalties set at the rate of 10 per cent and 12½ per cent of the net wellhead value of production from each licence area; crude oil production excise associated with crude oil produced from each petroleum field.’ Crude oil production on the North West Shelf has not been excise exempt.

If you go back to the evidence on 31 May 2005 you will find that Mr Hartwell, when asked questions about this, told Senator O’Brien that if the North West Shelf project had been subject to PRRT instead of the excise and royalty regime to which it is subject then it was his opinion that the secondary taxation liability would have been about the same. When you have a senior expert Commonwealth official who makes that sort of assertion on 31 May 2005, and you are an incoming government that is considering introducing such a measure, and wanting to sell it on the basis that this is getting rid of a taxation advantage, wouldn’t you think that that government would ask the question: ‘Is that the case or is it not the case?’ Don’t you think that the Treasurer, wanting to go out and say, ‘We’re closing a loophole; we’re getting rid of a taxation advantage,’ would have asked his department: ‘Look, there was this answer on 31 May, 2005 from Mr Hartwell were he said this. Now, I want to say that; can you give me some evidence?’ In all of the inquiries—during Senate estimates and during the Senate inquiry—I have not had one answer where Treasury was able to substantiate the Treasurer’s assertion that the North West Shelf gas project benefited from a taxation advantage.

Even worse, today we find out that Woodside, which now has done the analysis, has actually written to the Treasurer and advised the Treasurer that, by their calculation, they have paid $8 billion more in secondary taxation than they would have under PRRT arrangements. I expect an answer from the government about this, because why should the people of Western Australia pay higher gas prices, higher electricity prices—it will have a serious negative impact on their economy—just so that the Rudd government can put another $2½ billion into its high-spending budget?

Let us just reflect on what happened on 6 September, because I was quite stunned. This measure was first announced on budget night and the next day I read in the West Australian a quote from Alan Carpenter, then Premier of Western Australia. Essentially, Alan Carpenter was an apologist for the Rudd government. Straightaway he said, ‘Yeah, no worries.’ The one thing the Rudd government thought about was how to buy off the state of Western Australia. They thought, ‘We’re going to make this change. It is going to have a flow-on impact on your budget, so we’ll have a couple of hundred million there to make sure that you’re not going to be worse off as a Labor state government.’ So what does Alan Carpenter say? ‘Sure; no worries! This should not have any impact on investment in the North West Shelf. We’re quite happy for the Rudd government to go ahead.’

I was flabbergasted. We have a great tradition in Western Australia of premiers standing up for our state. Premiers in Western Australia actually stand up to the government in Canberra, no matter which political persuasion. Ask Malcolm Fraser whether Sir Charles Court would have just waved him through. Ask John Howard whether Richard Court would have just waved him through. I think the answer would be no. And I think you will find, on 6 September, that was one of the reasons the decision of the people of Western Australia went the way it did.

Then Woodside came out and told people the bleeding obvious: ‘If we are going to be faced with this $2½ billion tax we will seek to pass it on.’ What did the then Premier of Western Australia, Alan Carpenter, do? He shot the messenger. He said, ‘This is outrageous. Woodside shouldn’t be allowed to do this; we should send them to this body and that body,’ instead of standing up to Canberra and telling Kevin Rudd to do things to support important Western Australian industry, to stand up for economic prosperity in Australia and in Western Australia, and to stand up for our capacity to contribute to energy security and to address the global challenge of climate change.

This is a bad public policy measure. It is a lazy tax grab by a lazy government that essentially was desperate to find some cash to fund its high-spending budget. This measure should not be supported. This measure is very bad public policy. This should have gone through a proper strategic process. The Henry review of taxation should have looked at this strategically to ensure that we balanced the need to provide appropriate returns to the community with the need to provide a competitive taxation arrangement for an important industry. This measure should not have been introduced as an ad hoc measure in the budget on 13 May. In my opinion the Senate should very strongly vote against this.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I do not intend to take up too much of the Senate’s time in my response to the Excise Tariff Amendment (Condensate) Bill 2008. The purpose of this bill is to impose excise on condensate which is currently excise free for companies operating on Australia’s North West Shelf. Condensate is a form of crude light oil that is produced when natural gas is extracted. It is used mainly for the production of petrol and domestic gas. When the crude oil excise was introduced in 1975, condensate was exempted so that the infant liquefied natural gas industry could develop. But the industry has grown up and now it is time to pay up.

Over 30 years later, there is merit in the government’s argument that this is no longer an infant industry, and this excise loophole can and must be removed. The industry can hardly complain. It is important to note this is only an exemption from excise for the North West Shelf. Other regions with similar processes do not share in this exemption, although some regions do face a primary industries resource tax.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

None of them pay it.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I thank Senator Cormann for his comments. But the point remains that if there is revenue being derived from our natural resources then as much profit as is practicable should be going to the people of Australia, not to the pockets of large oil companies.

Let’s put this in context. There are a number of other joint venture partners in this project. Of course there is Woodside, the most vocal in its opposition, with profits that I expect this year will be around US$2 billion with a market capitalisation of US$33 billion. BHP Billiton’s market capitalisation is $135 billion and their profit for 2007 is in the region of US$15 billion. Royal Dutch Shell has $256 billion in market capitalisation and $31 billion in profits. Chevron has $175 billion in market capitalisation, with $18 billion in profits. BP has $168 billion in market capitalisation and $21 billion in profits. There is also the Japan Australia LNG consortium and China National Offshore Oil Corporation. China National Offshore Oil Corporation’s 2007 figures were in the vicinity of $13 billion in profits. It is interesting to note that Woodside seems to be the only one—

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

It’s the operator of the venture.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

Well, it seems to be the vocal one. We do not hear the others complaining about this. When sovereign risk is defined by Oxford online as ‘the risk of investment in foreign countries in which the political and economic situation might lead to a government expropriation of private assets’, I just cannot accept, given the history of this tax holiday, that the sovereign risk argument applies in the context of this particular legislation. My office has met with Woodside, but unfortunately I did not have an opportunity to meet with the CEO of Woodside. I would have very much liked to have met with him, and maybe after my comments today he will want to meet with me.

Woodside claims that it has been keeping prices low in the Western Australian gas market through a moral obligation. But now the government plans to remove the tax break it no longer feels morally obliged. Morality is an interesting notion. I must say I found the idea of Woodside cloaking its motives in morality somewhat baffling. At this point, it is important to remind the Senate that, in the past, serious substantive allegations have been made about the morality of this company. I refer honourable senators to an article and investigative piece in the Age on 5 July of this year headed ‘Woodside drill deep into an African money pit’. I note that Senator Christine Milne has been outspoken on this issue, and I commend her for raising some very important concerns in relation to Woodside’s conduct.

Let’s put that in perspective. This is the company that paid US$100 million to the ruling military junta in the African Republic of Mauritania in what was quaintly called a project bonus. This junta was not elected; it replaced the ballot box with bullets. I wonder what a military junta would do with US$100 million—I really hope they did not buy any bullets. If this tax change does not go through, will it leave the folk at Woodside more money to pay their project bonuses? It is my view that morality should exist irrespective of profits. If you are really moral, you are always moral. Your bank balance or your balance sheet should not have anything to do with it.

Let’s turn from morality to economics. With the price of petrol set by world markets, oil companies are restricted in raising domestic oil prices. The reality is 90 per cent of condensate is exported and less than half of one per cent of revenue comes from condensate’s contribution to the Western Australian domestic market—a market that Senator Cormann has been outspoken on. I commend him for that, and I want to deal with his concerns shortly because I respect them.

That said, I am very concerned by threats to pass on costs to consumers. I am concerned firstly by the potential to hurt families at a time when living costs have become increasingly tight. I am concerned by the way this reflects the lack of competition and the amount of market control exercised by these companies. I refer honourable senators to an article by Lenore Taylor, the national correspondent for the Australian, on 30 August this year, headed ‘Gas price inflated, watchdog warned’. The article led off:

WEST Australian gas customers may be paying inflated prices, according to a complaint to the competition watchdog that questions whether a joint marketing arrangement by the six North West Shelf partners is illegal.

Anyone who read that article would be very concerned about the arrangements. As a consequence, I met with the Treasurer, Mr Swan, last week. At the beginning of this week I wrote him a letter where I referred to my meeting with him on 18 September. I wrote to confirm and elaborate my concerns regarding the lack of competition in the upstream gas market as represented by the North West Shelf joint venture project.

I also raised the issue that this joint venture arrangement could pose a real risk that potentially breaches section 45 of the Trade Practices Act. Of fundamental concern is that, while the downstream gas market has been deregulated in keeping with national competition principles, the upstream gas market as represented by the North West Shelf project has not been deregulated. This means that gas buyers are fragmented and individually are not able to exert any degree of countervailing power against the venture.

In contrast, the joint marketing arrangements under which the North West Shelf joint venture currently operates mean that the joint venture can exert market power such that the joint venture potentially has the power to raise prices to pass on tax increases when contracts are renegotiated. I sought the support of the federal government to require the North West Shelf joint venture partners to immediately cease their joint marketing activity and henceforth undertake separate marketing of gas and other petroleum products produced by the North West Shelf project. I received a response from the Treasurer subsequently that confirmed that the ACCC, in response to a number of complaints received, is currently examining the competitive impact of the joint marketing arrangements of the North West Shelf venture project, particularly in the domestic gas market in Western Australia. He added that the government will look to respond to any recommendations made by the ACCC in the event that it identifies significant concerns with the North West Shelf venture. The Treasurer went on to say that he can confirm that the government will examine the remedies I suggested as part of this process.

Further to that, as I understand it the ACCC was written to by the Treasurer in relation to these arrangements. I will seek to table that document, but it seems that it is not with me at this time. Hopefully my office is listening to this speech and I can be provided with a copy of that letter, because I think, in fairness to both sides of the chamber, it is important that those documents be tabled, including my letter to the Treasurer, the Treasurer’s response and the Treasurer’s letter to the ACCC.

I move the second reading amendment standing in my name:

At the end of the motion, add “and the following matter be referred to the Economics Committee for inquiry and report by 10 November 2008:

The joint marketing arrangements on the North West Shelf project and their impact on competition in the upstream gas market and on prices paid by consumers.”

I have moved this second reading amendment—that the issue of the joint marketing arrangements and their impact on competition and on consumer prices in the WA gas market be referred to the economics committee for inquiry to deal with as a matter of some urgency—so that this matter can be properly examined by the Senate. Currently the companies drawing gas from the North West Shelf jointly market their product to the wholesale market. I believe this is anticompetitive and artificially drives up the price paid by consumers. I believe this is unacceptable and I believe there ought to be a more competitive arrangement in place.

Everyone pays taxes in this country. People with jobs pay taxes, retirees pay taxes and even the unemployed and children pay taxes in the form of GST. I believe it is time for Woodside, a company which has posted very significant profits, to pay its fair share of taxes. I also want to put this in context. I believe that those who have done well, who have made enormous profits from the boom in energy prices, ought to pay their fair share in respect of that. It is for those reasons that I support this bill. I hope honourable senators can support my second reading amendment so that this matter can be referred as a matter of some urgency to the economics committee.

I think we all need to reflect on what $2½ billion would do in our country. How many irrigators could $2½ billion bail out? How many hospital beds could $2½ billion supply? How many aged and disability pensioners would love just a tiny fraction of that $2½ billion? How many schools could be assisted with $2½ billion in our education system? I seek leave to table a letter I wrote to the Treasurer in relation to this bill and the Treasurer’s response to my letter.

Leave granted.

I support this bill, and I look forward to the committee stage of this bill.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

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

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

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

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

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

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

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

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

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

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

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

I would like to thank all senators who have taken part in the debate on the Excise Tariff Amendment (Condensate) Bill 2008 and the Excise Legislation Amendment (Condensate) Bill 2008. The bills amend the Excise Tariff Act 1921 and related legislation to apply the crude oil excise regime to condensate produced in the North West Shelf project area and onshore Australia. Condensate is a light crude oil extracted from natural gas. The measure has the effect of removing the current exemption of condensate from the crude oil excise regime and applies to condensates produced after midnight Canberra time on 13 May 2008. This measure allows the Australian community to share more fairly in the benefits from allowing the extraction of non-renewable energy resources located in the North West Shelf project area and onshore.

The exemption of condensate from the crude oil excise was introduced in 1977 to encourage the development of petroleum resources located in the North West Shelf project. Since the commencement of the North West Shelf project, stakeholders in this project have benefited very substantially from the exemption of condensate from crude oil excise. Treasury estimated this tax concession was worth almost $2.7 billion from 2001-02 to 2010-11, even before the price of crude oil rose significantly. As the development of petroleum fields in these regions are now reaching maturity, together with high world prices for non-renewable energy resources, there is no longer a need to retain this generous concession. Since 2001, the North West Shelf project has also benefited from a reduction in the rate of excise applying to crude oil. The concession exempting condensate from the crude oil excise should not remain at a time when the financial integrity of the budget needs to be maintained and at a time of high commodity prices. This measure generates a substantial annual revenue stream to the budget, estimated at $2.5 billion over the period to 2011-12. It makes a significant contribution to the government’s commitment to fiscal discipline.

I now turn to some of the key issues that have been raised in relation to this bill. One of the issues that have been raised is the impact of the measure on gas prices in Western Australia. This measure removes the tax exemption from condensate. It is not a tax on gas and will not put up gas prices. Residential and small business gas consumers in WA account for less than one per cent of Woodside’s revenue. It is not clear on what basis claims are being made to suggest that this group will bear the effects of the excise exemption removal. And to put it beyond doubt there are consumer safeguards that would prevent the costs being passed on to these consumers. In WA a cap on gas prices applies to residential and small business customers. The cap is indexed to the CPI annually. Any increase beyond that is through a review of the WA Office of Energy with the WA energy minister being the final decision maker. So we all know what will happen.

David Johnston (WA, Liberal Party, Shadow Minister for Defence) Share this | Link to this | Hansard source

We all know his decision—he will jack it up.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

Well, then, so be it. If you think that that is an appropriate response, so be it. It will hang around his neck. With the change in government I do not think the opposition would seriously suggest that they would stand by and watch their Liberal state colleagues put up gas prices. But they are not just standing by; they are barracking for it. Listen to them. The CEO of the North West Shelf Venture told the Senate: ‘Our current domestic contracts are in place and will be honoured—and that is for many, many years; they are long-term contracts.’ That is directly from the CEO. On 20 August the former Leader of the Opposition himself said: ‘I’m advised that, in part, it’s not likely to have any impact on domestic gas prices.’ Perhaps Senator Johnston gave him that advice.

In case anyone is starry-eyed about these companies, back in 2001 there was a tax cut worth $460 million that was not passed on as lower gas prices to consumers. How did that work? How did they actually manage to get a $460 million tax cut and consumers not see a cent of it? Where did it go, Senator Johnston? Where did it go? Taxing condensate will also have no impact on the price of petrol in Australia. The price of petrol for Australian consumers is determined by the international benchmark prices for crude oil and petrol.

Increasing sovereign risk has also been raised as an issue. The removal of an exemption that the government considers is no longer necessary is unlikely to have a direct impact on sovereign risk. This is because new projects in offshore areas outside the North West Shelf project area would automatically be subject to the petroleum resource rent tax regime, not the excise regime for condensate.

Some minor government amendments are required to ensure that the measure operates from the announcement date of 13 May 2008. The government will move these during the committee stage. Amendments to the Excise Legislation Amendment (Condensate) Bill 2008 will ensure that a price can be declared for condensate produced in the period following announcement of the measure and prior to the legislation receiving royal assent. Minor amendments to the Excise Act 1901 and the Petroleum Excise (Prices) Act 1987 will extend interim arrangements in the bills to ensure that condensate may be produced and entered for home consumption lawfully prior to the bills receiving royal assent.

To sum up: I would like to point out that the arguments of those opposite are hollow and fallacious. They are not backed by the facts. Removing this crude oil excise exemption from oil condensate, which provides a windfall gain to the companies involved, will not increase gas prices. Back in 2001 there was, as I have mentioned, a crude oil excise cut that was not passed on as lower prices to consumers. I love it! We will take the market going up; and we will take the market going down! The opposition cannot have it both ways, and that is what they seek to do today. They want to have it both ways.

The government believes it is fair enough to have incentives to get major resource projects up and running but once they are up and running the Australian people must get fair value from them. I again thank those who have participated. I commend the bills to the Senate. There were a number of points raised by speakers opposite. Senator Johnston raised the matter of Western Australian residents bearing the brunt of the measure. Let me make it clear again: the excise will reduce the profits of the companies involved in the North West Shelf Venture. The WA government will receive payments to offset offshore petroleum royalty payments, which will be lower as a result of this measure.

Senator Eggleston raised the concern that the measure has broken an agreement with the venture partners. There was never any agreement. The parliament ultimately passes tax laws which impact on all companies. Senator Cormann raised the point that the measures should have been considered as part of the Henry review. The Australian community deserves its fair share from natural assets. The Henry review will be examining ways in which the tax system can continue to provide incentives for new gas projects. Senator Cormann also said that the measures are unfair because no other projects pay excise on condensate. Other projects are subject to petroleum resource rent tax. This applies to oil, gas, condensate and LPG. It is applied at 40 per cent of profits once all costs of production have been deducted. The crude oil excise arrangements do not extend to gas.

I am conscious of the time and the need to move to a vote before 12.45 p.m. I indicate the government’s support for Senator Xenophon’s proposal to refer the joint marketing arrangements on the North West Shelf project and their impact on competition in the upstream gas market and on prices paid by consumers to a committee. Again, I thank all senators for their contributions.

Question put:

That the amendment (Senator Xenophon’s) be agreed to.