Q.1 What do you feel will be the effect on the emerging ethanol industry on the advent of Brazilian ethanol being landed at the same excise level as domestic ethanol in 2012?
A. On 12 September 2002 the Prime Minister announced that the fuel tax exemption on ethanol would be removed and that a producer subsidy for domestic ethanol producers would be provided for 12 months from 17 September 2002. The Government announced arrangements for the future taxation of alternative fuels in the 2003/04 Budget. As part of this package the Government announced that the production subsidy provided to ethanol producers, that was originally due to end on 18 September 2003, would be continued until 30 June 2008. In 2004, the Government announced that the subsidy would be continued for a further 3 years until 30 June 2011.
Q.2 The change this bill makes is to reclassify the manufacturer’s grant that is provided by the Department of Environment and Heritage to encourage biodiesel production to being an excise rebated and then treat the biodiesel as a zero excised fuel. But it is different for the manufacturer of a 5% biodiesel blended product – is this the case?
A. Commonwealth grants to encourage the production of biofuels are paid under the Biofuels Capital Grants Program administered by the Department of Industry, Tourism and Resources.
Grants to offset customs and excise duty on biodiesel are paid under the Energy Grants (Cleaner Fuels) Scheme. The objects of the Scheme can be found in s2A of the Energy Grants (Cleaner Fuels) Scheme Act 2004. The grant is also payable on a proportional basis for fuel blends containing biodiesel, extending an effective excise rate of zero to the biodiesel component of fuels blends for the same period.
Q.3 The Cleaner Fuel Grants Scheme was introduced to create a long term framework to encourage the manufacture and importation of fuels and was put in place in 2004 to build an industry. Do you agree that this Bill changes the treatment of those grants?
A. The objects of the Energy Grants (Cleaner Fuels) Scheme can be found in s2A of the Energy Grants (Cleaner Fuels) Scheme Act 2004.
The Fuel Tax Bill 2006 provides a fuel tax credit to fuel users of the amount of effective fuel tax that is payable on fuel.
Q.4 What do you believe the effect will be on the new domestic biodiesel industry for mixes greater than 5% biodiesel after the implementation of the act and the fact that consumers will no longer be able to claim the diesel fuel rebate on the product that has been allowed the investment grant?
A. The Government’s policy in relation to fuel tax credit reform was announced in the Energy White Paper Securing Australia’s Energy Future on 15 June 2004 and prior to the announcement of capital grants under the Biofuels Capital Grants Program. The Fuel Tax Bill 2006 gives effect to the Government’s policy announcement.
Q.5 What do you believe will be the effect on our Trade Deficit if we do not address the proponent of the deficit due to the importation of oil?
A. Please refer to page 3-26 of Budget Paper No.1 - Budget Strategy and Outlook 2006-07.
Q.6 Do you believe that the current and potential broadening of the economic base of regional towns brought about by a bio-fuel industry would be lost if this bill goes through in its current frame?
The Government has a range of measures in place to support the biofuels industry, including
• Measures announced by the Prime Minister on 22 September 2005 in response to the Biofuels Taskforce Report
• The transitional arrangements of the taxation of alternative fuels and the 50 per cent discount on the energy content excise rate for alternative fuels
• The $37.6 million Biofuels Capital Grants Program.
Q7. What is the loss/gain to treasury of the comparative status quo position now to the post bill implementation position?
The financial impact section of the Explanatory Memorandum shows that during the transition period in which the fuel tax credit reforms are to be introduced from 1 July 2006 to 1 July 2012, the measures contained in the Bill are expected to result in increased expenditure of $1.5 billion.
In addition the government’s decision not to increase the road user charge announced in the 2006-07 Budget will result in a further $1.2 billion in expenditure over the forward estimates for the measures contained in the Bill.