They are making use of generous deductions they receive for costs incurred in exploring for new reserves

This article is more than 4 years old

This article is more than 4 years old

Generous tax offsets for oil and gas companies to search for new fossil fuel reserves are wiping out their need to pay any of the country’s main resources tax.

Figures released by the Australian Taxation Office and BP show the companies are paying nothing in petroleum resources rent tax – designed to compensate Australians for the exploitation of national resources.

Oil and gas companies can claim deductions of 150% for some costs associated with searching for offshore fossil fuel resources, an incentive introduced by the Howard government in 2004.

Known global reserves of fossil fuel already contain three times as much as can safely be exploited if temperature rises are to be kept below 2C.

The companies can use those deductions against profits that would otherwise be subject to the petroleum resources rent tax. The ever-growing credits are transferable – they may be used to reduce the taxable profits from any oil or gas project anywhere in the country.

Moreover, the credits can be carried over to subsequent years if not used, and many of them grow about 18% a year, creating a growing nest egg for the oil and gas companies.

In figures released to the Senate, the ATO said the oil and gas industry had accumulated $187.6bn in credits by June 2015 – roughly a 20% increase in a year.



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“The PRRT credits are growing faster than the revenue they are supposed to be taxing,” said the Wilderness Society national director, Lyndon Schneiders. He said the 150% rebate and the 18% uplift each year were “obscenely generous”

As a result of the booming credits, PRRT payments have been dwindling. According to research by the International Transport Workers’ Federation, the amount of PRRT paid has plummeted from 24% of the industry’s revenue in 2003-04 to just 5% in 2013-14. It is forecast to drop to just 2% in 2018-19.

BP paid no PRRT in 2013-14, despite making about $4.7bn from its share in the North West Shelf gas facility.

In a recent Senate committee hearing, BP said the credits it was accumulating from its exploration of the Great Australian Bight could take 20 years to use up. “It’s entirely possible it may be in that time frame, possibly even longer,” said Claire Fitzpatrick, BP’s managing director of exploration and production in Australia.

If BP spent $1bn on the oil rig there, that would immediately be worth $1.5bn in credits against any PRRT payments. And in five years it would grow to $3.4bn that it could use to offset its taxable profits. Over a 20-year period, assuming there was no change to the regime, they would be worth $41bn.

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“It’s obscene that Australians are subsidising big oil’s exploitation of our natural resources and getting little in return,” said Jason Ward, senior global strategist at the International Transport Workers’ Federation. “The PRRT system desperately needs to be exposed and reformed.”

The new figures come eight years after the 2008 Henry tax review concluded the PRRT “fails to collect an appropriate and constant share of resource rents from successful projects due to uplift rates that over-compensate successful investors for the deferral of PRRT deductions”.

One of the review’s key findings said: “Australia’s current resource charging arrangements fail to collect an appropriate return for the community from allowing private firms to exploit non-renewable resources, mainly because these arrangements are unresponsive to changes in profits.”

Malcolm Roberts, chief executive of the Australian Petroleum Production and Exploration Association, the oil and gas industry’s peak body, said critics misunderstood the tax. “The PRRT collects more revenue when profits are higher, and less when the industry faces a downturn. This is a smart design – it fosters a sustainable industry and encourages investment while also giving a fair return to the nation,” he said.

Roberts said exploration had a low probability of success, and so the 18% uplift rate for unused credits reflected that risk.