Labor will cap deductions to collect $2.4bn more in petroleum resource rent tax over four years and boost community services by $4bn through fairer indexation of wage costs.
The two major measures were announced by the treasurer, Jim Chalmers, and finance minister, Katy Gallagher, ahead of Tuesday’s budget, which is expected to be at or near surplus.
Under the changes to the PRRT, which have been under consideration since 2019, the Albanese government will accept a recommendation from Treasury to limit the proportion of PRRT assessable income that can be offset by deductions to 90%.
The change, to take effect from 1 July, will bring forward the date that liquefied natural gas projects are expected to pay PRRT. Under current rules, they are not expected to pay any significant amount until the 2030s.
In a statement Chalmers said this “will ensure a greater return to taxpayers from the offshore LNG industry, while limiting impacts on investment incentives and risks to future supply”.
“The changes announced today will support the Albanese government’s budget repair efforts, fund the delivery of vital services that Australians rely on, and help build a stronger, fairer and more resilient economy.”
In all, the government will implement eight of the 11 recommendations of Treasury’s gas transfer pricing review and eight of the Callaghan review, which the Morrison government accepted but did not implement.
The PRRT change is one of four “modest but meaningful” revenue-raising measures in the budget, including the multinational tax crackdown, details of which will be revealed on Tuesday, the tobacco excise rise and “slightly less generous” superannuation tax concessions for earnings on balances over $3m.
The $2.4bn over four years expected from Labor’s PRRT measure is less than alternatives proposed by the Grattan Institute and the Greens.
The Grattan Institute estimates that changing the method of pricing for gas could raise up to $4bn a year and introducing a 10% commonwealth royalty on offshore gas a further $4bn.
The Greens want the government to eliminate $284bn of accumulated credits that allow gas companies to reduce their tax liability.
Forcing gas companies to start paying the tax from 1 July after new legislation and applying a 10% royalty to all offshore projects that are subject to the tax could raise $33.8bn over four years, according to Parliamentary Budget Office costings.
Under the indexation changes, Labor seeks to address government funding for services not keeping up with rising wage costs.
The key change is to remove the five-year averaging of the wage component of the indexation calculation so that indexation better reflects what is happening in the economy.
Services to benefit from the measure include: the Medicare benefits schedule, commonwealth home support, affordable housing and homelessness, mental health, First Nations health, community legal services and services to reduce violence against women.
In October the government granted $560m for partial indexation to help community services keep up with rising costs.
Gallagher said: “We have listened to the organisations that provide vital services on behalf of government, including community sector organisations, and are improving these arrangements to ensure the funding they receive better reflects the true cost of delivering services.
“After years of neglect under the last 10 years of Coalition government – we are committed to the job of repair.
“The Albanese government is improving the way government programs are indexed, allowing organisations to keep their doors open, addressing rapid cost pressures for the service providers who support the most vulnerable people in the community.”
The changes will also support wages growth in the community services sector, she said.
