Michael Callaghan, who wrote the review of the petroleum resource rent tax, has defended his controversial recommendation to make minimal changes to the tax regime for existing oil and gas projects.
He told senators that large oil and gas projects should not have their PRRT arrangements changed midway through development because it would damage Australia’s reputation.
But he reminded senators that he did not have a mandate, under the terms of reference, to negotiate new tax arrangements with already existing projects.
He said the PRRT should be changed significantly for future projects and it was up to parliament to tell the industry that new projects might face an overhauled PRRT.
“My judgment was that changes to the design of the PRRT that impacted on existing projects ... would run the very real prospect of increasing perceptions of fiscal risk in Australia, and potentially could deter future investments,” he said on Monday.
“I would place a high weight on avoiding policy changes that could potentially significantly damage Australia’s attractiveness as an investment location.”
Callaghan, a former Treasury official and the former chief of staff to Peter Costello, had been asked to appear before a Senate inquiry into corporate tax avoidance on Monday to explain why he thought the PRRT did not need a significant overhaul for existing projects.
He was unable to appear in person in Canberra so participated over the phone. He also cut short his scheduled time to give evidence because he had a plane to catch.
The Greens senator Peter Whish-Wilson later asked a Treasury official: “What did it cost us to do the Callaghan review? ... Do you know what Mr Callaghan’s fees were?
“I just wanted to express my disappointment that Mr Callaghan wasn’t able to be here for the whole hour and half today, considering taxpayers funded this report and it’s a very important subject, and we had scheduled this [hearing] for some time.”
Callaghan’s review of the PRRT, released in April, found Australians were not necessarily being unfairly compensated for the exploitation of their natural resources under the PRRT regime.
It suggested taking a softly-softly approach to reform the tax, despite hearing evidence during inquiries that some gas projects might never pay PRRT thanks to high “uplift rates” for deductions that compound over the life of the projects.
He also heard evidence from tax experts that the tax had failed to collect billions of dollars in revenue from existing projects.
It prompted the 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.
The treasurer, Scott Morrison, said last week that the Turnbull government accepted in-principle the 12 recommendations from Callaghan’s review.
He released a consultation paper on Friday – three days before this week’s public hearing – suggesting ways the PRRT could be improved for future projects only.
Callaghan said the Treasury discussion paper would kickstart a process that allowed the government to introduce beneficial changes.
“What is required ... and I suppose this is the way it’s going with the Treasury discussion paper, the government has to say, ‘We are going to have a new tax regime for the PRRT ... and this is what it should be seeking to achieve and we are going to consult with you about what that new regime should be,’ ” he said.
