The Turnbull government has announced a formal review of the petroleum resource rent tax regime, following a rapid decline in revenues from the tax.
It follows months of disquiet about the effectiveness of the tax and warnings from the Tax Justice Network that Australia is set to blow another resources boom because the tax is failing to collect adequate revenue from the explosion in liquefied natural gas exports.
Scott Morrison said on Wednesday that revenues from the PRRT had halved since 2012-13, while crude oil excise collections had fallen by more than half. He said he wanted the tax regime to be reviewed in time for next year’s budget.
Michael Callaghan, a former Treasury official and former chief of staff to Peter Costello, will lead the inquiry. A report will be due by April 2017, with recommendations for reform.
“There have been no changes to the PRRT since 2012 and we think it is timely that these matters be addressed, and be addressed in time for these matters to be considered in the preparation for next year’s budget,” Morrison said on Wednesday.
“It is actually not primarily about revenue. It is important these companies pay their fair share when it comes to these issues.”
The government’s announcement comes days after a damning report from the Australian National Audit Office that found “significant shortcomings” with the way in which royalties are levied on offshore petroleum operations from the North West Shelf (NWS) off Western Australia.
Since the ANAO report, Labor and the Greens have said they want to establish a formal inquiry into the NWS project, though they disagree on the method.
Chris Bowen, the Shadow Treasurer, said he had no problem with the planned review, but he suspected the government had announced it because Labor had announced its own senate inquiry the day before.
“This is a complicated area,” he said.
“There are certain thresholds and principles that have to be borne in mind. We in the Labor Party stand against retrospective tax changes. That’s important. This is why a Senate process is a good one.”
In September, a letter cosigned by 21 union and left-leaning organisations, including the Australian Council of Social Service, the ACTU, Greenpeace, the Australia Institute, ActionAid, GetUp and the Uniting church, was sent to Turnbull and Morrison calling for a parliamentary inquiry into the PRRT.
“The undersigned organisations have major concerns about forecasts of declining or stagnant government revenue from the PRRT coinciding with Australia becoming the world’s largest exporter of LNG,” the letter said.
“LNG will soon compete with iron ore to become Australia’s largest export. However, various analyses show that the primary resource tax on this export, the PRRT, will not collect any new revenue for decades to come.
“The PRRT system, based on voluntary compliance and self-reporting [by gas companies], operates with limited transparency and inadequate oversight. Australians need greater public confidence that they will benefit fairly from the exploitation of our natural resources.”
On Wednesday, Paddy Crumlin, the president of the International Transport Workers’ Federation and a Tax Justice Network member, said he welcomed Morrison’s announcement.
“Under the current rules and projections, oil and gas companies are set to export $40bn of LNG in 2019 yet the federal government revenue from PRRT could disappear altogether because of the massive $180bn in deductions amassed by the industry,” he said. “That’s simply unacceptable and the system needs to change.
“ITF research demonstrates, internationally, Australia is a soft target for the oil and gas industry.
“We welcome the treasurer’s announcement as an important first step and look forward to making a submission to the inquiry.”
In 2010, the Henry tax review warned the PRRT “fails to collect an appropriate and constant share of resource rents from successful projects due to uplift rates that overcompensate successful investors for the deferral of PRRT deductions”.
According to the Treasury, in 2005 the government collected $1.9bn in PRRT and last year that figure fell to $1.4bn. But it is estimated to fall again – to just $800m – when Australia becomes the world’s dominant LNG exporter by 2021.
