House of Representatives

Second Reading Speech

Mr Frydenberg (Assistant Treasurer)

I move:

That this bill be now read a second time.

The Excise Tariff Amendment (Ethanol and Biodiesel) Bill 2015 implements the government's 2014-15 budget measures to reform the taxation treatment of biodiesel and fuel ethanol. As part of that implementation the Energy Grants and Other Legislation Amendment (Ethanol and Biodiesel) Bill 2015 abolishes the Cleaner Fuels Grant Scheme.

In last year's budget, the government announced changes to the taxation of biodiesel and fuel ethanol to better balance the need to support these important Australian industries while keeping the budget position on track.

Currently domestically produced biodiesel and fuel ethanol and imported biodiesel are subject to the same rate of excise as petrol and diesel. However, these fuel producers and importers are able to access a grant for the full amount of duty paid.

The Cleaner Fuel Grants Scheme refunds excise and excise equivalent customs duty paid on both imported and domestically produced biodiesel.

A similar scheme, the Ethanol Production Grants Scheme, which refunds excise paid on fuel ethanol to domestic producers, will cease on 30 June 2015.

Instead of these grant schemes, the excise payable on domestic production of biodiesel and fuel ethanol will be reduced to zero and will then gradually increase to a reduced rate. The new excise rate for biodiesel will reach 50 per cent of the full rate of excise that applies to petrol and diesel, and the new rate for fuel ethanol will reach approximately 33 per cent of that rate.

Imported biodiesel and fuel ethanol will be subject to the full fuel duty rate.

The government is mindful of the important role that domestic fuel ethanol and biodiesel producers play in the economy and the importance of encouraging diversity in Australia's fuel mix.

Biodiesel and fuel ethanol producers contribute to the Australian economy through their fuel production processes, and having a range of alternative fuels has a positive effect on Australia's energy security.

The government's role in facilitating the success of Australian industries has to be balanced against the government's debt and the cost to the future prosperity of Australians of fiscal policies that do not maintain a sustainable trajectory back to surplus.

For this reason the government has decided to move domestically produced fuel ethanol and biodiesel into the excise system and to apply excise with reference to energy content. This approach is consistent with the government's approach to other alternative fuels and will ensure that fuels are taxed fairly and transparently.

The approach in these bills recognises both that biodiesel is a close substitute for conventional diesel and that fuel ethanol has lower energy content than petrol or diesel.

This treatment in respect of domestically-produced biodiesel and fuel ethanol is consistent with Australia's longstanding government policy to tax alternative fuels at half the energy equivalent rate. This policy recognises not only the potential benefits of these alternative fuels but also the desirability of tax neutrality across alternative fuels. This puts in the hands of Australians the choice of fuel rather than it being dictated by its tax treatment.

The government is committed to working constructively with the opposition and other members and senators to pass these reforms through the parliament.

The government is setting Australia on a realistic return to surplus. We will make the decisions that are needed to repair the budget and maintain the integrity of the tax system.

These decisions form the basis of an economy that will be well placed to ensure the future prosperity of Australia and Australians.

The government's progress back to surplus has made significant progress. As part of the commitment to repair the budget, the government is prepared to make the right decisions to ensure the return to surplus occurs as soon as possible. The 2015-16 budget maintains a steady and credible trajectory towards surplus despite a $52 billion write down in tax receipts and the iron ore price almost halving since the 2014 15 budget.

The savings provided by these measures are part of the government's broader plan to return Australia to surplus.

Full details of the measures are contained in the explanatory memorandum.

Debate adjourned.