Preliminary Pages

Chair’s foreword

This document is the committee's report into four Government bills that affect the tax treatment of alternative fuels. Three of the bills apply an excise on liquid petroleum gas, compressed natural gas and liquid natural gas. The fuels were not previously subject to excise, which will now be applied at 50 per cent of that applied to petrol. The fourth bill continues a grant scheme for the next 10 years where the amount of the grant offsets the amount of excise levied on biofuels such as ethanol and biodiesel.

The committee supports the bills. They implement a similar taxation policy that was announced in 2003 by the previous Treasurer, the Hon Peter Costello MP. They also reduce inconsistencies in the tax treatment of fuels, which are expected to reduce economic distortions in the fuels market and potentially lead to greater economic efficiency. Another important benefit from the bills is increased certainty for the biofuels industry. The committee received evidence that this sector has been deferring investment due to tax uncertainty and the 10 year period in the bills should create a positive climate for investment in this sector. Given that the current grant scheme for biofuels is scheduled to finish on 30 June, the bills should be passed as a matter of urgency.

The report contains two additional recommendations. The first requests Treasury to commence consultations for a method to apply equivalent tax treatment for the power in electric vehicles. This source of energy is outside the scope of the bills, but the technology in this field is moving so quickly that it would be timely to start work now. The second applies to the possibility that grain prices faced by other parts of the economy, such as feedlots, might be affected by greater demand for ethanol, some of which is produced by grain. It is difficult to determine whether this will occur and the report recommends that government agencies monitor this situation going forward.

The committee greatly appreciates the cooperation and advice of the companies and organisations that participated in the inquiry, especially those who travelled to attend the hearing in Sydney. I also thank my colleagues on the committee for their contribution to the report.

Craig Thomson MP
Chair

Membership of the Committee

Committee Secretariat

Terms of reference

On 12 May 2011 the Selection Committee asked the Committee to inquire into and report on the:

n  Taxation of Alternative Fuels Legislation Amendment Bill 2011;

n  Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011;

n  Customs Tariff Amendment (Taxation of Alternative Fuels) Bill 2011; and

n  Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011.

Under Standing Order 222(e), the House is taken to have adopted the Selection Committee’s reports when they are presented.

Recommendations

1     Analysis of the bills

Recommendation 1

Treasury and other relevant agencies commence consultations with industry with a view to developing an excise-equivalent tax for the electricity used by electric vehicles in the medium term.

Recommendation 2

The Treasury and other relevant Commonwealth agencies monitor the relationship between fuel and grain prices. Where subsidised domestic ethanol production is beginning to have a significant adverse effect on competitors for grain, these agencies are to conduct consultations with the industries to minimise market distortions.

Recommendation 3

The House of Representatives pass the bills as a matter of urgency.