Explanatory Memorandum(Circulated by authority of the Minister for Customs and Consumer Affairs, the Hon. Warren Truss MP)
The principal purpose of this Bill is to insert into the Excise Tariff Act 1921 (the Act) various amendments contained in Excise Tariff Proposals tabled in the House of Representatives during 1998.
The Bill incorporates into the Act Excise Tariff Proposals Nos. 1 and 2 of 1998, the effect of which:
- reduce the rate of duty on aviation gasoline ("avgas") from 3 July 1997, following a decision by the Government not to increase (apart from Consumer Price Index increases) general aviations contribution to the funding of Airservices Australia (Airservices) derived by means of an excise on avgas; and
- correct technical defects identified in the structure of Item 11 of the Schedule to the Act (the Tariff ) inserted by the Excise Tariff (Fuel Rates Amendments) Act 1997, which is referred to throughout this explanatory memorandum as the Amendment Act.
The Bill also makes two technical amendments to the Act, which:
- make clear that changes made by the Amendment Act to the way crude oil is assessed for excise duty do not create any new entitlement to enter crude oil at a lesser, concessional rate; and
- delete a reference in the Tariff to item 3, which is no longer current.
REGULATION IMPACT STATEMENT
Most general aviation operators use piston engined aircraft powered by avgas. They contribute to the cost of air traffic control and navigation services provided by Airservices through excise and customs duty on avgas. This system of cost recovery is inequitable in that many general aviation operators (for example, agricultural operators) only rarely use the services provided by Airservices, yet still pay the duty.
As part of its aviation policy, the Government has undertaken to implement, after consultation with the aviation industry, a more equitable system for funding general aviations contribution to Airservices. In the interim it has stopped any increases in Airservices component of the avgas duty, apart from Consumer Price Index increases.
While major changes to Airservices charging system are yet to be introduced, the 0.6 cents per litre reduction addressed in this legislative amendment is in line with the Governments policy objective. The reduction results from close scrutiny by Airservices of the forecast cost of services provided to general aviation and a review of the forecast level of activity by the general aviation sector in 1997-98.
Two options were available:
- Retain the levels of duty at the previous rates until a new system of charging is introduced which fully addresses the Governments policy objective.
- Reduce the level of duty on avgas as subsequently implemented in Excise Tariff Proposal No. 2 (1997) and Excise Tariff Proposal No. 2 (1998) and Customs Tariff Proposal No. 6 (1997) and Customs Tariff Proposal No.1 (1998). This Bill only addresses alterations made in the Excise Tariff Proposals.
- Retention of the avgas duty at the previous rate would have meant that general aviation operators would not have received a justifiable reduction in the price they pay for avgas.
- The selected option will deliver savings to users of avgas in the order of $0.7M in 1997-98 in customs and excise duty. The users who will benefit include private aircraft owners, sport aviation participants, flying training school operators, agricultural aircraft operators and smaller charter operators. Where applicable, there will be an opportunity for aircraft operators to pass on savings to end users such as student pilots, farmers and charter customers.
Costs to fuel company suppliers of avgas and to the Government in administering the change to rates of duty have been minimal.
The financial benefit to avgas users far exceeds the small administrative costs associated with implementing the changed rates of duty.
Airservices conducts a regular program of consultation with peak aviation industry bodies on a range of major issues, including its proposed schedule of charges for the following year. The proposed reduction in the duty on avgas was raised in Airservices consultation with industry in April 1997, in advance of finalising prices for its services for 1997-98. Aviation industry representatives were not opposed to the reduction.
Airservices will consult extensively with the aviation industry on new charging arrangements before major changes are implemented.
The preferred option is to implement the legislative changes to formalise the 0.6 cents per litre reduction in the duty on avgas notified in Special Commonwealth Gazette No. S261 on 2 July 1997 and was tabled in the House of Representatives in 27 August 1997 as Excise Tariff Proposal No. 2 (1997). Following the passage of the legislation package implementing the fuel substitution reforms, which commenced on 31 January 1998, this decrease was re-instated by a notice published in the Gazette on 18 February 1998. This notice was incorporated in Excise Tariff Proposal No. 2 (1998) which was tabled in the House of Representatives on 11 March 1998. This course is consistent with the Governments policy objective in respect of Airservices charges to general aviation. It delivers savings to the aviation industry with only minimal administrative costs.
The reduction in duty was implemented in July 1997 and February 1998 through the Tariff Notice and Proposal process under section 160B of the Excise Act 1901. This process permits immediate changes in the level of duty. In this matter it avoids the speculative trade in fuel products, which could adversely affect revenue projections. As noted, implementation incurred minimal administrative costs.
This reduction in avgas duty precedes a major review of Airservices charges to industry, including the use of duty on avgas as a means of recovering the costs of services to the general aviation sector. Airservices will consult extensively with the aviation industry before new charging arrangements are implemented.
The other amendments made to the Act in this Bill are regarded by the Office of Regulatory Review as being technical in nature, having no additional impact on industry.
FINANCIAL IMPACT STATEMENT
The reduction in duty on avgas has financial implications for Airservices Australia , the general aviation sector of the aviation industry, consumers of services provided by the general aviation industry, and fuel company suppliers of avgas.
The reduction in duty will reduce Airservices' revenue by approximately $0.7M in 1997-98. Airservices has assessed the cost of providing air navigation services to avgas powered aircraft and the level of activity by these aircraft (and hence consumption of avgas) in 1997-98 and concluded that a reduction in the rate of duty of 0.6 cents per litre was warranted. The expected fall in revenue matches Airservices' anticipated reduction in the cost of providing services to avgas powered aircraft. Therefore, the financial impact is expected to be neutral.
Most operators in the general aviation sector use avgas powered piston engined aircraft.
The reduction in duty will deliver savings of around $0.7M to operators of avgas powered aircraft The operators who stand to benefit include charter operators, flying training schools, agricultural aircraft operators, private aircraft owners and sport aviation participants.
The financial impact on these operators will be positive.
There is potential for consumers of services provided by avgas powered aircraft owners to benefit from reduced prices if savings in fuel costs are reflected in lower prices. Potential beneficiaries include student pilots, farmers and passengers flying with smaller airlines.
There is a potential positive, but only small, financial impact on consumers.
Fuel companies bear an administrative cost in implementing new prices as a result of changes in duty. The cost is relatively small.
The changes to the relevant duty rates contained in the Bill are otherwise neutral in effect.
NOTES ON CLAUSES
This Clause provides for the Act to be cited as the Excise Tariff Amendment Act (No. 1) 1998.
Subclause (1) provides that subject to the effect of the subclauses listed below, this Act commences operation on the day it receives the Royal Assent.
Subclause (2) provides that the amendments to the Schedule to the Act made in items 1 and 2, dealing with the bringing of onshore oil into the excise regime, are taken to have commenced at the time of the commencement of the Amendment Act, which was 31 January 1998.
Subclause (3) provides that the amendments to the Tariff made by item 4, dealing with the level of excise payable on avgas, are taken to have commenced on 3 July 1997.
Subclause (4) provides that the amendments to the Tariff made in items 5 and 6, dealing with corrections to the duty payable on avgas, are taken to have commenced immediately after the commencement of the Amendment Act, which was 31 January 1998.
Subclause (5) provides that the amendments to the Act made to the Tariff by items 7 to 14, dealing with technical amendments, following, are taken to have commenced at the time of the commencement of the Excise Tariff Amendment Act (No.4) 1997, which was 31 January 1998.
This clause is a formal enabling provision, providing that each Act specified in the Schedule to this Act, the Excise Tariff Amendment Act (No.1) 1998, (in this case, only the Excise Tariff Act 1921), is amended according with the applicable items of the Schedule. The clause also provides that the other items of the Schedule have effect according to their terms. This is a standard enabling clause for transitional, savings and application or declaratory items in amending legislation.
Prior to 31 January 1998, the first 30 million barrels of crude oil produced from onshore oil fields were exempt from excise. This exempt crude oil was formally defined as "exempt onshore oil".
As part of the fuel substitution reforms (discussed later in this explanatory memorandum), which came into effect on that day, all production of onshore oil became subject to the excise regime. This now includes the first 30 million barrels from each onshore field.
The Amendment Act replaced the former definitions of "exempt onshore oil" and "exempt onshore field" with the new definitions of "pre-threshold onshore oil" and "onshore field" (items 5 and 6 of Schedule 1 to the Amendment Act). These new definitions removed all references to the word "exempt" from the previous definitions in order to remove the connotation that the first 30 million barrels was exempt from excise duty.
As a result of the new definitions, the previous by-laws which prescribed the onshore fields under the definition of "exempt onshore field" were revoked and replaced by new by-laws under the definition of "onshore field", which took effect from 31 January 1998.
At the time the new definitions came into effect, some existing producers of onshore oil had used up their 30 million barrels exemption under the old definitions. Others had partially used their entitlement. It was not intended that the new definitions or the new by-laws would create any new entitlements to excise concessions, in particular, a further 30 million barrels excisable at the rate of "Free". However, it could be argued the new definitions do create such new entitlements.
The Item inserts a declaratory provision into subsection 3(1) of the Act (the definitions provision) to make clear the new definitions inserted into the Act by the Amendment Act do not create any new entitlements. For those producers who have completely used up their 30 million barrels exemption, there is to be no new entitlement to any concession. For those producers who have partially used their exemption under the old definitions, they will be entitled to continue to claim the duty "Free" exemption under the new definitions up to the 30 million barrel limit.
In addition to the amendments outlined in the previous explanatory note, all other references to exempt onshore field" in excise legislation were repealed and replaced with references to "onshore field. However, one reference to "exempt onshore field" was overlooked. This reference is contained in subsection 3A(1) of the Act, which relates to guidelines which the Minister for Primary Industries and Energy may make, that are to be taken into account by the Chief Executive Officer of Customs when making by-laws prescribing an exempt onshore field. Item 2 makes the necessary correction, by substituting the term exempt onshore field, with onshore field.
At the commencement of the Tariff, several definitional and interpretation provisions are included. The penultimate paragraph commences with the phrase "Except in item 3". Item 3 of the Schedule to the Act was repealed in 1983. However, the phrase mentioned above was not removed. Item 3 has the effect of removing these words from the Tariff.
During 1997, the Government decided to reduce the excise payable on avgas, effective from 3 July 1997.
Prior to 31 January 1998, the excise duty payable on avgas was assessed under subparagraph 11(A)(3)(a) of the Tariff.
On 31 January 1998, the legislation package implementing the fuel substitution reforms (discussed below) came into effect. Part of these reforms involved a complete restructure of item 11 of the Tariff. This was effected by the passage of the Amendment Act. Avgas is now classified to subparagraph 11(H)(1)(a) (if contained in packages not exceeding 210 litres) or 11(H)(2)(a) (if contained in larger packages). The duty rate was set at $0.18003 per litre. This rate did not reflect the decision referred to in the first paragraph of this explanatory note.
The aggregate effect of these changes sets the excise duty payable on avgas at $0.17403 per litre, as from 3 July 1997.
On 31 January 1998, a package of 9 Acts, which implements the Government's Budget decision to combat revenue loss through the minimisation of fuel substitution practices, commenced operation.
This involved, amongst other things, a new classification structure for petroleum products under item 11 of the Tariff.
However, the petroleum industry was concerned the new structure may create misunderstandings in relation to the excise liability of some petroleum products which are intended for uses otherwise than as fuel.
These items propose technical amendments to the new item 11, so as to eliminate any potential misunderstandings, or any unintended windfall gains. These amendments involve the introduction of new subheadings into most of the subitems of item 11. These subheadings cover petroleum products for use otherwise than as fuels and provide excise duty rates of $0.42797 per litre for unleaded products and $0.44972 per litre for leaded products in line with the existing duty differential between such products. These technical amendments do not widen the scope of the fuel substitution minimisation legislation.