'No action' on gas companies’ tax rort slammed

May 13, 2017

The Tax Justice Network (TJN) has criticised the failure of the federal government's review of the Petroleum Resource Rent Tax (PRRT) to recommend a new royalties regime to force the major gas corporations to pay their fair share of tax.

The review by former treasury official Mike Callaghan, instigated by federal Treasurer Scott Morrison last November, recognised problems with the existing PRRT system and recommended some changes for new liquified natural gas (LNG) projects.

However, it failed to support any substantial PRRT changes for projects already past the investment stage, including Chevron's giant Gorgon and Wheatstone ventures and Shell's Prelude project off the northern Western Australian coast. This means that it will be more than a decade until Chevron and the other multinationals would start paying PRRT and company tax.

These multinational gas companies will soon sell an annual $50 billion worth of gas to overseas markets, but will pay no tax on these sales until at least 2027. Some projects may never pay a cent in tax on the huge resources they extract, because companies have built up a massive stockpile of $238 billion in tax credits.

The PRRT is a 40% tax on "super profits", calculated after company tax has been paid on the usual corporate profits. However, the current low global oil price — to which Australia's LNG price is linked — coupled with over-generous tax deductions against the PRRT, means that the tax has reaped little value so far.

Modelling for the review found that the sector would pay just $12 billion in PRRT by 2027. In that time, sales of LNG to Japan, South Korea and China would top $400 billion.

In comparison, Qatar, currently the world's largest LNG exporter, is forecast to gain $26.6 billion through its flat, volume-based royalty system in 2021. By that time, Australia will sell the same amount of LNG as Qatar.

After a ferocious campaign by the petroleum and gas industry against any changes to the PRRT, Morrison responded to the review by postponing any action on the PRRT till a time frame, "outside the current budget".

The TJN is concerned at the recommendation that existing royalty regimes will not be changed. Royalties are generally paid to the state in which mining or gas extraction is taking place as state governments, and the people of the states, own the resources.

TJN spokesperson Jason Ward described the existing royalty regimes as a patchwork and questioned why some companies are not paying any royalties at all.

"It's a bit of a mystery to me," he said. "There are five offshore LNG projects and they're all in Commonwealth waters off Western Australia that are subject only to the PRRT and no other royalty. The North West Shelf Project is also in Commonwealth waters, but it pays a royalty that is split between the Western Australian and federal governments."

Ward said the TJN believed that the US-based Chevron corporation was not paying any royalties.

"Virtually every other oil and gas project in Australia already pays a 10% royalty, or an amount close to that," he said. "The royalty sits in front of the PRRT and payments made under a royalty system would be deductible for PRRT purposes.

"The third party modelling we've had done estimated that when these projects are at peak production, a flat 10% royalty could raise up to $2.8 billion in additional revenue every year. 

"It appears reducing paperwork for multinational corporations has been prioritised over protecting the Australian community and our shared interest in these resources.

“This report and the response from the Treasurer will only increase community concern over the integrity of the PRRT and represent a significant missed opportunity."

The Senate is currently conducting an inquiry into corporate tax avoidance. In a statement to the inquiry on April 27, Ward said: "The current situation is a national disgrace. Gas prices on the east coast are skyrocketing while Australia becomes the world's largest exporter of LNG and we are giving away our new offshore gas for free.

How is it that Australian gas is cheaper for industry and consumers in Japan than it is in Australia after liquefaction, shipping and the Japanese government collecting a significant amount of import duties on Australian gas?

"The TJN's proposal [to extend a 10% royalty to the five new LNG projects off Western Australia] is fair and modest and has widespread support," he said.

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