Independent’s letter to prime minister and treasurer says petroleum resource rent tax failing and royalty regime could help repair budget

This article is more than 3 years old

This article is more than 3 years old

The independent Jacqui Lambie has written to Malcolm Turnbull and Scott Morrison, urging them to impose a 10% royalty on all offshore gas projects in commonwealth waters.

Her letter comes ahead of the Callaghan review into the petroleum resource rent tax (PRRT), designed to provide recommendations for reform to address declining revenue from offshore gas projects.

In a rare display of unity, the majority of the Senate crossbench has called for the government to reform the tax regime.

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In her letter to the prime minister and treasurer on Monday, Lambie said the PRRT had not operated as intended in recent times, with corporations within the sector accumulating almost $240bn in tax credits.

“Australia is about to experience a natural gas boom and it appears the Australian government could miss out on vital revenue if it doesn’t act quickly,” Lambie said. “Therefore, I urge you to consider extending the commonwealth royalty regime of 10% on all projects in commonwealth waters.

“Extending this royalty regime has the capacity to raise almost $12bn in revenue over the forward estimates, which could go a long way in repairing the budget and supporting greater government services, such as the public health system and education.”

In 2015, the Reserve Bank argued that while Australian production of LNG was expected to ramp up substantially over the next few years, the effect on Australian living standards would be muted.

“The effect on Australian living standards will be less noticeable than this given the low employment intensity of LNG production, the high level of foreign ownership of the LNG industry and, in the near term, the use of deductions on taxation payments,” the bulletin said.

In 2016, the treasurer announced the Callaghan review, noting that PRRT revenue had halved since 2012-13.

But the industry has taken some comfort after he appeared to walk away from wholesale reform of the PRRT last week. Morrison said he did not want to risk scuttling major projects at the cost of jobs.

Industry sources said following his comments that they expect some changes to the tax rules but root and branch reforms appeared less likely.

While the Callaghan review is due to report at the end of April, the Senate standing committee on economics is also conducting hearings but will not report until September.

Oil and gas companies have used submissions to call on the government to retain the current system while tax experts such as Diane Krall of Monash University and the Tax Justice Network have argued for a reintroduction of a commonwealth royalty scheme.

Tax Justice Network spokesman Jason Ward said the original PRRT scheme was designed for oil, which has lower upfront costs and high shorter-term profits. He said the more recent gas boom had seen companies accumulate tax credits for development which could delay PRRT payments longer term.

“Just two companies, BHP and Exxon, paid 77% of the total PRRT payments, which appear to be from Bass Strait oil production,” Ward said. “Neither Shell or BP made any PRRT payments, while fellow oil and gas giants Exxon and Chevron paid no corporate tax.

“Numerous sources, including APPEA’s own submission, confirm that at today’s prices the Gorgon project – and presumably the other four projects – will never pay a single cent in PRRT through the entire 40 plus years of project life.”

Ward said 87% of Australia’s new offshore LNG production would be owned by foreign companies, including 5% ownership by companies that are controlled by the governments of Kuwait, Taiwan and South Korea. He said 77% of the new output would be owned by five multinational oil companies.

But Chevron’s submission said criticism ignores the fact that the oil-linked gas price had fallen and that Gorgon only commenced production in 2016 and Wheatstone would not start up until later in 2017.

“It is entirely appropriate that projects in the start-up phase have not yet generated company tax,” the submission said.

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Chevron urged the government to think of delayed tax revenue as a sort of “future fund” for Australia’s ageing population.

“[Project] fiscal and economic benefits must be assessed over the lives of the projects,” the Chevron submission says. “PRRT should be viewed as a form of Future Fund, delivering large returns at a time in the future when Australia’s demographic challenges will be at their sharpest.”

The industry body, the Australian Petroleum Production and Exploration Association (Appea) said any change to the tax regime would jeopardise future investments in the industry.

“Any increased tax burden (whether that be through modifying the terms of the PRRT or applying a new layer of taxation) will present hurdles to future investments in the industry,” the Appea submission says.

While BHP pays 55% of total PRRT payments as opposed to much smaller payments by other oil and gas companies, BHP has also argued against changing the current system.