This Bills Digest replaces the preliminary Bills Digest published on 30 May 2023.

Purpose of the Bills

The purpose of the Customs Tariff Amendment (Product Stewardship for Oil) Bill 2023 (the Customs Bill) is to amend the Customs Tariff Act 1995 (the Customs Act) to increase the rate of customs duty payable on the import of relevant products from 8.5 cents per litre or kilogram of product to 14.2 cents.

The Excise Tariff Amendment (Product Stewardship for Oil) Bill 2023 (the Excise Bill) amends the Excise Tariff Act 1921 (the Excise Act) to increase the rate of excise duty payable on relevant goods from 8.5 cents per litre or kilogram of product to 14.2 cents.

The Excise Bill will also repeal section 6L of the Excise Act, which imposed a temporary rate reduction from 30 March 2022 to 28 September 2022 on excise duty payable on the manufacture or production in Australia of specified oil products.[1] The Excise Act was amended by the Excise Tariff Amendment (Cost of Living Support) Act 2022 to insert section 6L, as part of a package of cost of living relief measures which recognised the impact on prices of the Russian invasion of Ukraine.[2] As section 6L ceased to have effect after 28 September 2022, this section is no longer relevant and is being repealed.

The Bills will update levies payable under the Product Stewardship for Oil Scheme (PSO Scheme) to ensure that it is fiscally neutral.

Background

Product Stewardship for Oil Scheme

The PSO Scheme was established in 2001 to provide incentives to increase used oil recycling. The scheme aims to ‘encourage the management and re-refining of used and recycled oil. This reduces environmental and human health risks from improperly disposed oil’.[3]

The PSO Scheme pays incentives to used oil recyclers in Australia by imposing a levy (in the form of excise and customs duty) of 8.5 cents per litre or kilogram duty on petroleum-based oil and their synthetic equivalents. The benefits paid vary, depending on the extent of processing and the final product, such that ‘the more sophisticated the treatment the higher the benefit rate’.[4] The aim of these arrangements is to provide incentives to increase used oil recycling in the Australian community.[5]

The PSO Scheme was established under the Product Stewardship (Oil) Act 2000 (PSO Act) and commenced on 1 January 2001. The PSO Scheme encourages oil recycling in Australia, instead of relying on imported oil products. The PSO Scheme also aims to incentivise a reduction in oil waste.[6] The PSO Scheme imposes a duty on oil-based lubricants, while paying benefits on volumes of recycled oils listed in the PSO Benefit Rates table and further defined in the Product Stewardship (Oil) Regulations 2022 and Petroleum Stewardship (Oil) Declaration 2022.[7]

The PSO Act establishes the general framework for the PSO Scheme and the levy rates are set under the Excise Act and the Customs Act.[8] The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has policy responsibility for the program, while the Australian Taxation Office (ATO) is responsible for implementing and administering the scheme.[9]

The levy rate was last increased in 2014,[10] following the third independent review of the PSO Act, which was completed in 2013.[11] Section 36 of the PSO Act requires an independent review of the operation of the PSO Act every four years.

Fourth independent review of the PSO Act

The Fourth Product Stewardship (Oil) Act 2000 report – Final Report, prepared by Deloitte Access Economics Australia, was provided to the Australian Government in December 2020 (the ‘fourth independent review’).

The review found that the PSO Scheme has been successful in encouraging waste oil recycling. The review suggested that no major changes were required to the overall structure and governance of the PSO Scheme.[12] However, the review found that since the last tariff increase in 2014, ‘increased… payments have meant that the PSO Scheme has run at a deficit, which has been funded by taxpayers through consolidated revenue’.[13] From 2015–16 to 2019–20, the scheme required $141.5 million in funding from consolidated revenue to make up the fiscal imbalance.[14]

The fourth independent review made 3 recommendations, the second of which was to ‘increase the levy to address the deficit’.[15] The review stated:

Overall, we consider that a one-off increase to the levy to 13 cpl [cents per litre] to enable the PSO Scheme to achieve fiscal neutrality is an appropriate, and proportional, response to the Scheme deficit, and would be unlikely to significantly impact demand for base oil products. We note that if this recommendation were to be implemented, sufficient lead-in time (at least six or twelve months’ notice) must be provided to allow industry to factor the new levy into their operating models, given the significant lead time for imported products and lengthy supply contracts.

We have also considered the potential for amending the PSO Scheme to enable the levy to escalate annually with general inflation but do not consider this is necessary… particularly in the current low-inflation environment.[16]

The Australian Government provided its response to the review in August 2021, indicating a general commitment to the PSO Scheme. The response stated:

The government is strongly committed to the ongoing success and financial viability of the PSO scheme.

The government will examine the appropriateness of the current levy based on the outcomes of analysis and consultation with industry and other stakeholders to determine the appropriate benefits paid under the PSO Scheme.[17]

Other recommendations from the fourth independent review

The review made two further recommendations. The first was to link the PSO Scheme benefits to global oil prices, and the other was to publish more data on the PSO Scheme.[18] In addition, the review made 4 observations about the PSO Scheme, dealing with streamlining certification and reporting, encouraging uptake in the mining sector, and holding annual stakeholder and participant meetings.[19]

Government Response to the fourth independent review

The Government response to the fourth independent review was tabled in Parliament along with the review report, on 10 August 2021.[20] The Government response to these recommendations was a commitment to work towards implementing them. In general, the Government was receptive to working with industry stakeholders to improve the PSO Scheme, including to make it more transparent and encouraging further expansion of oil recycling in Australia.[21] The government has commenced publishing aggregated data on the DCCEEW website and through annual reporting, as well as including data in the annual Taxation Statistics released by the ATO.

The Government committed to ongoing consultation with relevant government agencies to improve certification mechanisms and streamline reporting. [22] The Government said it would examine the use of waste oil in the mining industry, including end-of-life management and opportunities for waste oil collection. [23] At the time of writing, it is not clear if this examination has commenced. The Government has committed to assessing the scope, outcomes, and feasibility of an annual meeting. [24] No information is currently publicly available on the progress of this commitment.

The Customs and Excise Bills

The Bills will update the PSO Scheme to ensure that it is fiscally neutral.[25] In her second reading speeches, the Minister said:

In 2020, the need to raise the levy to address the deficit was highlighted by an independent review of the scheme.

The passage of this bill will see this long-running deficit remedied. No longer will taxpayers pay for the scheme’s shortfall.[26]

Consequently, the Bills implement the ‘Reform of the Product Stewardship for Oil Scheme’ budget measure as provided in the 2023–24 Budget.[27]

Committee consideration

Senate Environment and Communications Legislation Committee

The Bill has been referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 13 June 2023. Submissions to the inquiry closed on 1 June. See the inquiry homepage for details.

Senate Inquiry Submissions

The only non-government submission to the inquiry was from Southern Oil Refining Pty Ltd. Its submission outlined support for the PSO Scheme but considered that the Bills do not go far enough in positioning the scheme for future success, noting ‘[n]either of these changes make any meaningful difference to address the broader challenges for our sector’.[28] Southern Oil suggested wider ranging changes to the PSO Scheme than those provided for by the Bills and in line with recommendations from the fourth independent review. Southern Oil’s recommendations are:

• updating benefit rates to reflect costs associated with waste oil recycling infrastructure
• increasing the levy to between 18 and 22 cents per litre, which according to modelling commissioned by Southern Oil will ‘have a very minor impact on consumers on an annual basis’
• indexing benefits and levies in line with indexation applied to the fuel excise levy, to reflect the original intent of the PSO Scheme design
• incentivise using domestically produced base oil over imported materials by reducing or eliminating the levy on re-refined base oil and
• increasing the time between PSO Scheme reviews from 4 years to 8 years.[29]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills has not reported on the Bills at the time of writing.

Policy position of non-government parties/independents

During the second reading debate, Ted O’Brien MP, Shadow Minister for Climate Change and Energy noted broad support for the Bills. Mr O’Brien stated that in determining their support for the Bills, the Opposition had canvassed a range of stakeholders:

In our consultations with stakeholders about the bills, it has become apparent that there are some mixed views about the best means of recovering the loss, including how to most appropriately set the levy rates. Likewise, there are some differing views about how the current government and future governments might best be able to continue to incentivise high-quality oil recycling in Australia whilst also minimising the potential impacts of levy changes on Australian consumers. Overall, though, there is general agreement that the cost recovery arrangements need to be brought back onto a more stable and sustainable financial footing.[30]

Position of major interest groups

Other than the submission from Southern Oil Refining referred to above, major interest groups do not appear to have commented on the Bills. However, some peak groups commented on the PSO Scheme after the Government’s response to the fourth independent review was released.

The Australian Oil Recycling Association stated:

...the current PSO scheme, a legacy of the Howard government, is the singularly most effective product stewardship scheme in Australia.[31]

Similarly, the National Waste and Recycling Industry Council stated:

The Scheme has encouraged producers to take responsibility for their waste, has encouraged investment in recycling infrastructure, and created jobs, boosting the economy and importantly, protecting the environment.[32]

Financial implications

According to the respective Explanatory Memoranda, the Bills:

...when combined… would have a positive impact on the Australian Government budget. There will be a net $139 million gain to consolidated revenue over the four years from 2023-2024 to 2026-2027. This includes approximately $161 million in revenue less $22 million in payments….[33]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[34]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights has not reported on the Bills at the time of writing.

Key issues and provisions

Customs Bill

For the purposes of the PSO Scheme, the Customs Act imposes a duty on certain petroleum based oils, greases and their synthetic equivalents, that are imported into Australia. As explained by the Explanatory Memorandum, ‘the import of such goods under specified tariff headings and subheadings is subject to the rate of customs duty as set out in Schedule 3 of the Act. Those goods may also be eligible for a lower rate of customs duty under Schedules 4 to 15’ of the Customs Act.[35]

Items 1 to 290 of Schedule 1 and Items 1 to 17 of Schedule 2 of the Customs Bill would repeal and replace the customs duties on relevant products, with the rates increasing from $0.085 per litre or kilogram (as is relevant) to $0.142 per litre or kilogram (as is relevant).

The Bill would not amend the ad valorem duty component of any duties.[36]

Excise Bill

For the purposes of the PSO Scheme, the Excise Act imposes a duty on certain petroleum based oils, greases, and their synthetic equivalents, that are manufactured or produced in Australia, of $0.085 per litre or $0.085 per kilogram, depending on the product type.

The products that are subject to the excise duty for the purposes of the PSO Scheme are listed in item 15 of Schedule 1 of the Excise Act.

Items 2 to 5 of Schedule 1 of the Excise Bill would repeal and replace the excise duties on the manufacture or production in Australia of relevant products set out in item 15 of Schedule 1, with the rates for subitems 15.1 and subitem 15.2 increasing from 8.5 cents per litre to 14.2 cents per litre and for subitems 15.3 and 15.4 increasing from 8.5 cents per kilogram to 14.2 cents per kilogram.

Item 1 of Schedule 1 of the Excise Bill would repeal section 6L of the Excise Act. Section 6L was added to the Excise Act under the Excise Tariff Amendment (Cost of Living Support) Act 2022, which temporarily lowered the excise duty payable on products listed in item 15 of the Excise Act between 30 March and 28 September 2022.[37]

Impact on scheme participants

The Bills are not expected to increase the regulatory burden on PSO Scheme participants, as noted by the fourth independent review. The Minister noted in her second reading speech that the Bills ‘…will only have a small impact on oil users, with the cost of an oil change for a passenger car increasing in price by approximately 28.5 cents for the average car’.[38]

The fourth independent review noted that the price increase was likely to be insignificant to oil users:

Consultation with industry has confirmed that the levy on wholesale oil products is typically passed on in full to end customers, noting that the market is competitive and that therefore there may be some variation. An increase of the levy from the current level of 8.5 cpl, to enable the PSO Scheme to breakeven at approximately 13 cpl, would result in a very small change to the overall retail price of oil products. Cheaper engine oils currently retail for prices in the order of $5-10/litre, so a 4.5 cpl increase in the levy represents a 0.5% to 1.0% increase in retail prices (assuming the increase in the levy is fully passed on to consumers).[39]

The Explanatory Memoranda note that the PSO Scheme has been highly successful in providing impetus to the waste oil recycling industry in Australia:

The PSO Scheme has been running at a deficit for more than four years with benefit payments significantly exceeding the amount of duty collected by an average of $34.5 million per year. This is primarily due to investments across the oil recycling sector facilitating an increase in higher quality oils attracting greater PSO benefits, while the duties that pay for the scheme have remained static. This Bill, combined with equivalent amendments proposed to the Excise Tariff Act, will broadly address the deficit, returning an estimated $139 million to consolidated revenue over the forward estimates. It will also meet the original policy intent for PSO duty revenue to fully offset benefit payments, and ensure that the cost of managing used oil is paid for by oil users.[40]

As three years has passed between the fourth independent review and the introduction of the Bills, the levy increase is 14.2 cents per litre or kilogram, whereas the review recommended a 13 cents per litre or kilogram increase. This is likely to reflect changes to the fiscal environment since the time of the review report.