Scott Morrison says the Turnbull government has accepted in-principle the 12 recommendations from the Callaghan Review of the controversial petroleum resource rent tax (PRRT).
He says the PRRT does not need overhauling, and remains “the preferred way” to achieve a fair return to the community without discouraging investment. He has released a consultation paper suggesting ways the PRRT can be improved, with changes to affect only future projects.
His consultation paper has been released three days before the author of the PRRT review, Michael Callaghan, a former Treasury official and the former chief of staff to Peter Costello, will appear before a Senate corporate tax avoidance inquiry on Monday.
Callaghan has been asked to appear at the inquiry to explain why he thinks the PRRT does not need a significant overhaul, after he heard warnings from tax experts that the tax has failed to collect billions of dollars in revenue.
During his review, Callaghan was told Chevron’s huge Gorgon gas project off Western Australia will not pay the tax until at least 2030 in spite of decades of production.
He also heard some gas projects may never pay PRRT, thanks to high “uplift rates” for deductions that compound over the life of the projects.
But he concluded that Australians were still not necessarily being unfairly compensated by the PRRT regime for the exploitation of their natural resources.
When his review was released in April, it suggested taking a softly-softly approach to reform the tax.
It prompted Labor senators Sam Dastyari and Jenny McAllister to complain that they did not understand how Callaghan arrived at his conclusions, given he admitted in his report that some gas projects may never pay PRRT.
But Morrison said on Friday that he agreed in-principle with all of Callaghan’s recommendations.
“But there are design elements of the PRRT that may pose long-term revenue risks, including the high uplift rates, transferability and sequencing for carrying forward exploration expenditure,” he said.
Morrison said his consultation paper was not intended to revisit the question of whether the PRRT should be replaced with alternative forms of taxation.
Rather, he wants feedback on the review’s recommendations only.
His options paper suggests changing the PRRT’s excessively high “uplift rates” which oil and gas projects use to carry forward deductions into future years when profits are stronger.
At the moment, uplift rates can be as high as the long-term bond rate (LTBR) plus 15 percentage points.
But the options for reforming uplift rates include:
- Reduce uplift rates to better reflect the risk of losing deductions (for example, to the LTBR plus 5 percentage points).
- Limit the number of years for which a high uplift rate applies.
- Provide an investment allowance (a deduction in excess of 100%) for the initial expenditure, with a low uplift applied thereafter. This approach was suggested in the 2003 report Australia’s Petroleum Resource Rent Tax – An Economic Assessment of Fiscal Settings by Lindsay Hogan.
The options paper also suggests ways to change the way projects report to the Australian Taxation Office each year.
Like the Callaghan Review, it does not recommend changes to the crude oil excise or commonwealth royalty schemes.
Submissions to the options paper are due by 28 July.
Morrison wants the consultation period to conclude by the end of August, with Treasury reporting back to the government by the end of September.
