Revenue Academic raises alarm

Heath Aston: Political correspondent, SMH

The contribution to federal tax revenues from multinational oil and gas companies has slumped and a senior academic has warned that the mega gas projects coming online off the Western Australian coast will not contribute a single dollar in royalty payments ‘‘in her lifetime’’.

The dire forecast for what little the next stage of the mining boom will deliver calls into question claims by Prime Minister Malcolm Turnbull and Opposition Leader Bill Shorten that their parties are committed to ‘‘cracking down’’ on multinational tax avoidance.

gasrevenueThe only royalty-like payment applicable to liquefied natural gas (LNG) projects in Commonwealth waters, including the

$US70 billion Gorgon plant operated by Chevron, is the ‘‘petroleum resource rent tax’’ (PRRT).

Despite the $200 billion invested in LNG over the past decade – putting Australia on track to surpass Qatar as the world’s biggest exporter of LNG by 2019 – there is little or no sign of any benefit to the nation via the PRRT.

In fact, PRRT revenues are the only class of Commonwealth tax revenue that has fallen over the past decade.

In 2005, the federal government collected $1.9 billion in PRRT, mainly from oil operations in Bass Strait. Last year, despite the explosion in LNG projects, revenue fell to $1.4 billion and the 2016 budget slashed the projected take by almost half to just $800 million a year out to 2020.

In April, Fairfax Media revealed documents prepared for the WA Treasury that warned the Commonwealth would wait ‘‘decades’’ to receive any significant revenue from projects such as Chevron’s Gorgon and Wheatstone and Woodside’s Pluto gas field.

Diane Kraal, an expert in resource taxation from Victoria’s Monash University, believes the PRRT system is a dud because it was designed in the Hawke government era to tap super profits from oil.

PRRT is a profits-based tax that taxes ‘‘rents’’ – or excessive returns

– above a specified rate after deductible expenditure, including exploration and capital investments.

While oil prices spike intermittently, Dr Kraal said, LNG supply is based on long-term contracts and profits will remain steady rather than super.

1462416706612‘‘I doubt in my lifetime that those companies will be paying PRRT on gas,’’ she said. ‘‘In effect, we are giving it away. It’s already an uphill battle to get those companies to pay corporate tax.’’

Dr Kraal, who has written a paper calling for a PRRT review, has warned a senior Treasury official that the system is a white elephant to the detriment of royalties, which are supposed to reflect that a nation’s finite resources can only be extracted once and should therefore enrich the country as well as profit-focused companies willing to invest in Australia.

At a Senate estimates hearing in May, Roger Brake, acting deputysecretary of Treasury’s revenue group, was asked to explain the dive in projected PRRT.

He put it down to the lower Australian dollar, oil prices and the volatility of rent-based taxes. He also warned the companies who invested in LNG are allowed to write off their investments against tax before being forced to pay royalties. Chevron has potential tax credits of more than $US67 billion ($A90.6b) after the cost of building the facility blew out by a third.

‘‘These projects can take a long time before they start paying PRRT, so you can get these long lags between when they enter production and when they start paying PRRT,’’ Mr Brake said.

But sources have told Fairfax Media the Australian Tax Office is concerned PRRT will not deliver anything over time.

The system of tax credits was made more attractive for oil and gas companies at the same time as the Gillard government was fighting a full-frontal assault by miners over Labor’s proposed mining tax.

To head off another fight, oil and gas companies agreed to back the PRRT in return for lucrative concessions negotiated by then resources minister Martin Ferguson.

In her paper, Dr Kraal criticised the lack of transparency around how PRRT is assessed, saying the ATO relied on the assessment of the big accountancy firms employed by multinational companies to calculate liabilities.

Treasury and the ATO declined to comment, citing caretaker conventions.

Originally published SMH 20th June 2016