‘Staggering’: $90 billion lost in resources tax
By Eryk Bagshaw
12 March 2018 — 3:47pm
An Oxford University expert says Australia would be $90 billion better off if it adopted European-style resource tax policies and argues the Turnbull government has given up on collecting a meaningful amount of revenue from some of its most valuable resources.
In one of a suite of new submissions to a Senate inquiry, Oxford Institute for Energy Studies academic Juan Carlos Boué warned unless Australia “radically overhauled its fiscal regime” it would have the second lowest share of government revenue from oil and gas in the world.
Australia is on track to eclipse Qatar as the largest exporter of gas by 2020, but is expected to only earn $600 million in 2018 – the same amount of revenue the government earns in beer tax every year – compared to Qatar’s $26.6 billion.
Fairfax resources writer Peter Ker breaks down what’s behind BHP Billiton’s enormous $8.3 billion profit loss.
Calling the result “a silver medal finish that no Australian should desire,” Mr Carlos Boué, a former industry consultant, found Australia had an effective tax ratio of 21 per cent on gas resources, falling below the 35 per cent or more taken by the North Sea nations of Denmark, the Netherlands, Norway and Germany.
The 30-year-old petroleum resource rent tax has been criticised for its generous uplift concessions that let companies offset the cost of exploration and claim tax credits for decommissioning plants in the future.
It has come under increasing pressure as energy prices climb by six times the average pay rise for east-coast consumers while multinationals extract record levels of liquefied natural gas for export to overseas markets.
Despite calls for reform to the tax deductions system from former Treasury secretary Ken Henry, the Tax Justice Network, Labor leaning think tank the McKell Institute and economist Ross Garnaut, Australia has been reluctant to consider an alternative royalty model of 10 per cent of all exports, on the basis that it would discourage marginal projects from getting underway.
Mr Carlos Boué singled out Australia and the UK for having an alarming downward trend in petroleum and gas revenues.
Combined with the surge in petroleum and gas prices since 2000, the contrast between the tax-take of the two countries and others with large gas and oil fields “reached staggering proportions,” he said.
“The belief, in the face of statistical evidence derived from official government figures, that the Australian and UK fiscal regimes are not somehow aberrant seems akin to the drunken driver’s conviction that it is actually everybody else who is going the wrong way down the motorway.”
Revenue from multinationals has also been hit by corporations legally transferring profits to countries with lower tax environments as research and development credits.
The inquiry will hear allegations US multinational Exxon Mobil deliberately misled the Senate by not revealing its Dutch parent company had based some of its operations in the tax havens of the Bahamas.
Exxon, which is responsible for 19 per cent of east-coast LNG demand, has denied the allegations.
“Irrespective of the domicile for any parent company of an Australian entity, it in no way impacts on the taxes paid in Australia,” it said in its submission.
Tax Justice Network spokesman Jason Ward said the company earned $7.2 billion in revenue in 2016 but only a recorded an operating profit after tax of $38 million after paying interest and finance charges to related parties in unknown locations.
“Exxon, and other multinationals, particularly in the resources sector, must be required to be dramatically increase transparency and disclosure of their operations,” Mr Ward said.
Resource company Shell responded to questions about its foreign operations by clearly stating it had business operations based in the tax haven of Bermuda.
Exxon said it paid over $2 billion in corporate income tax since 2000 and anticipated it would once again be a significant taxpayer once capital depreciation decreased and revenue started growing again.
Glencore – which took over XStrata in 2013 – has operated in Australia for nearly two decades. The company employs more than 15,000 people across 24 mines in three mainland states and the Northern Territory.
Glencore has attracted fierce criticism for its impact in some of the communities where it has mined. In the Northern Territory, Glencore’s McArthur River mine, one of the world’s largest zinc and lead mines, has been beset by community opposition and contamination scares. For 2015 and 2016 Glencore paid nothing in royalties to the Northern Territory government for McArthur River, by offsetting its capital investments to reduce its royalties bill to nothing.
Several miners at Glencore’s Oaky North and Oaky No 1 mines in central Queensland have been diagnosed with pneumoconiosis – known as black lung – a potentially fatal disease caused by long-term exposure to coal dust, and that was, until recently, thought to have been eradicated from Queensland more than 30 years ago.
The Queensland government threatened to close Glencore mines for failing to properly monitor coal dust levels in its mines, and Glencore itself conceded in a statement this year that it had been “non-compliant” with the law: “We are very disappointed and have begun an investigation into this matter.”
The former Labor treasurer compared BHP’s use of Australia’s resources to a hotel guest who stays in the penthouse, orders room service but leaves without paying the bill….. Wayne Swan walked into Parliament and doubled down on his criticism of BHP as a “tax evader…..what’s behind BHP Billiton’s enormous $8.3 billion loss“
BHP is in the political crosshairs at state and federal level, with new Nationals leader in Western Australia, Brendon Grylls, advocating a new $5-a-tonne mining levy on BHP and Rio Tinto to extract $3 billion more revenue a year from their vast WA iron ore operations.
Glencore, the world’s largest mining company by revenue, has attracted significant controversy since its entry into the Australian market in the mid-1990s over its tax strategies, degradation of sacred Indigenous lands, and black lung and lead blood poisoning among its workforce and their families.
The Paradise Papers show that on 12 April 2013 two Bermuda-based arms of Glencore – Glencore Capital and Glencore Finance (Bermuda) – changed $25bn in Australian dollars to US dollars through Glencore Australia Investment Holdings.
Another Australian entity, Glencore Australia Finance, engaged in currency swaps with Bermuda-based Glencore Capital: for A$25m on 15 April 2013; and A$10m on 24 June.
In June 2007, Glencore acquired an interest in Nikanor Plc (Nikanor). Nikanor was a publicly listed company on the Alternative Investment Market (AIM) in London. Glencore’s shareholding in Nikanor prior to the merger with Katanga Mining Limited (Katanga) was an equity interest of 13.88%.
In November 2007 Glencore granted a convertible loan of USD 150 million to Katanga. In January 2009, during the financial crisis, Glencore agreed to increase the amount of the convertible loan to USD 265 million.
In May 2009, Katanga announced a USD 250 million rights issue in which Glencore participated.
In June 2009, Glencore converted its convertible loan in Katanga and acquired a controlling interest in Katanga. Following the conversion of the convertible loan and the Katanga rights issue which completed in July 2009, Glencore held approximately 77.9% of Katanga.
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