House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Emulsified diesel / water fuel blends

This bill will incorporate alterations to the Excise Tariff Act 1921 to allow the water component of emulsified diesel/water fuel blends produced by manufacturers licensed under the Excise Act 1901 to be free of excise duty. The special provisions for diesel/water emulsified blends are an environmental initiative designed to encourage clean fuel technology.

Date of effect: The alterations to duty provisions were notified by Excise Tariff Notice No. 2 (2001), which was published in Special Gazette No. S448 on 25 October 2001, and will be taken to have effect on and from that date. Excise Tariff Proposal No. 1 (2002) was tabled in Parliament on 21 February 2002.

Proposal announced: The proposal was announced on 25 October 2001 via Special Gazette No. S448.

Financial impact: The removal of excise duty from the water component of emulsified diesel/water fuel blends is not expected to result in any significant loss of revenue.

Compliance cost impact: Nil.

Product stewardship oil exemptions

This bill will incorporate alterations to the Excise Tariff Act 1921 to exclude certain oil products from the product stewardship oil (PSO) levy. The exemptions from the PSO levy support the original intention of the levy to reduce the impact of waste oil on the environment.

Date of effect: The alterations to duty provisions were notified by Excise Tariff Notice No. 1 (2002), which was published in Special Gazette No. S109 on 12 April 2002, and will be taken to have effect on and from 15 April 2002. Excise Tariff Proposal No. 2 (2002) was tabled in Parliament on 29 May 2002.

Proposal announced: The proposal was announced on 12 April 2002 via Special Gazette No. S109.

Financial impact: Exempting certain oils from the levy would reduce the costs for businesses using these oils (there will no longer be an excise of approximately 5.3 cents per litre). The estimated cost to the Government is around $1.3 million per annum.

Compliance cost impact: Compliance costs will be reduced for certain business as producers of these oils will no longer be required to report on them.

National scheme for low alcohol beer

This bill will incorporate alterations to the Excise Tariff Act 1921 to introduce new rates of excise duty for certain beer. The change to beer excise rates is a measure agreed with the States and Territories which replace State and Territory subsidies for low alcohol beer, with assistance now to be delivered through lower excise rates.

Date of effect: Excise Tariff Proposal No. 3 (2002) was tabled in the Parliament on 26 June 2002. The new rates for certain beer will be taken to have effect on 1 July 2002.

Proposal announced: The proposal was announced by the Treasurer on 22 March 2002.

Financial impact: The cost of the scheme is estimated to be about $68 million in 2002-2003. The States will make a financial contribution to the national scheme, which is commensurate with the State subsidies in place prior to the commencement of the scheme, and the Commonwealth will fund the shortfall. The Commonwealth will deduct the States financial contributions from each States budget balancing assistance, for as long as each State continues to receive budget balancing assistance. As the States cease to receive budget balancing assistance the Commonwealth will be effectively fully funding the scheme. Each States contribution will be indexed annually to the consumer price index. The Commonwealths contribution is estimated to be $5.1 million in 2002-2003 and will rise to effectively the full cost of the scheme from 2007-2008, which will be about $70 million a year on current estimates.

Compliance cost impact: The scheme will reduce compliance costs for industry, eliminate the requirement for wholesalers to lodge a claim for a rebate, and eliminate administration costs for the States and Territories.

Summary of regulation impact statement

Regulation impact on business

Impact: The States and Territories will make financial contributions to the national scheme in 2002-2003 based on their subsidy expenditures for 2001-2002. The Commonwealth Government will find the shortfall between the cost of the scheme and the State and Territory financial contributions which is estimated to be $5.1 million in 2002-2003 and will meet the full cost of the scheme (about $70 million a year) from 2007-2008 on current estimates. The price of low alcohol beer should fall in some States and Territories. There may be some small price increases in some States and Territories in some market segments.

Main points:

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The national scheme will eliminate the requirement for wholesalers to lodge a claim for a rebate of excise that they have borne. It will also reduce compliance costs for industry and eliminate administration costs for the States and Territories as they will no longer be required to pay subsidies.

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The scheme will result in a variety of pricing outcomes across the States and Territories with the price of low alcohol beer expected to fall by up to 8% in some States and Territories. However, prices may increase marginally in some market segments. These increases are not expected to be significant for consumers as either the price increase will be negligible or the market share of the affected products is quite small.

Product stewardship oil indexation

This bill will incorporate alterations to the indexation provisions of the Excise Tariff Act 1921 to remove the application of the provisions from oil products classified to item 15 of the Schedule to that Act. The removal of the indexation provisions from oils provides for consistency of treatment between petroleum fuels and certain oils subject to the PSO levy for non-fuel use, and reduces costs to business.

Date of effect: The proposed alterations will commence on Royal Assent, to apply to the indexation period commencing on 1 February 2003 and any subsequent indexation period.

Proposal announced: The abolition of oils and lubricants excise indexation was published in the Treasury Mid-Year Economic and Fiscal Outlook (MYEFO) document on 17 October 2001.

Financial impact: The net cost to revenue of the abolition of oil products indexation is $1.1 million in 2002-2003, $1.8 million in 2003-2004 and $2.5 million in 2004-2005.

Compliance cost impact: Costs will be reduced for business as manufacturers of these oils will no longer be required to adjust their systems to accommodate indexation increases to the rate of excise every 6 months.