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Treasurer Jim Chalmers’ changes to taxes on offshore oil and gas projects will generate $3.5 billion extra revenue by 2050, nearly $13 billion less than another reform option identified in a report by Treasury.
Oil and gas projects captured by the Petroleum Resources Rent Tax (PRRT) pay just a fraction what producers do in other resources-rich countries, and Chalmers revealed on Saturday a change to the PRRT, imposing a cap of 90 per cent on the amount of income that offshore gas projects can offset.
Tuesday’s federal budget will change the tax regime for offshore oil and gas projects. Credit: Gareth Fuller/PA via AP.
The change will bring forward payments that would have been deferred for years. A Treasury report on the PRRT found reducing tax offsets permitted by the PRRT by 10 per cent would generate an extra $3.5 billion by 2050, and Chalmers said on Sunday it would generate extra $2.4 billion over the next four years.
Treasury investigated a range of other reform options and identified one option for significant structural change to the complicated tax regime that would net an extra $16 billion by 2050.
Former chairman of the Australian Consumer and Competition Commission, Rod Sims, on Monday said the government should have imposed a tax rise three times higher than it did.
Sims rejected industry claims that higher taxes would deter investment in new projects, arguing that only super profits, far above the companies’ expected earnings, would be affected.
“The purpose of a resource rent tax is to only come in whenever [there are] very large sums of money – sums that are so high that you wouldn’t bank your project on the basis of them,” he said.
Norway imposes a tax rate of 78 per cent on the profits of its offshore oil and gas project. The resources-rich US state of Texas reaps an 18.75 per cent royalty from the profits of petroleum producers.
While the PRRT changes are more modest than many producers and industry analysts had feared, Chalmers’ announcement still adds to a series of market interventions that the industry argues risks making Australia less competitive.
US oil and gas giant Chevron on Monday criticised the Albanese government’s tax changes as unnecessary and stressed the importance of stable fiscal regulations to continue attracting investment into Australia.
“Fiscal and regulatory certainty is key for countries such as Australia to remain an attractive place to invest and compete with other energy-producing countries,” a Chevron spokesperson said.
“We do not believe changes to PRRT were necessary because the prevailing settings were working as intended and Chevron was always forecast to pay PRRT once it had recovered its initial investment on its projects in Western Australia.”
Chevron said it had invested more than $80 billion in its Gorgon and Wheatstone natural gas projects off Western Australia with its joint-venture partners.
“Long-term energy investment will be key to maintaining energy security for the state of WA for the nation of Australia and the region, stimulating economic activity, and providing ongoing revenue for both state and federal governments for decades to come.”
Analysts on Monday said Wester Australia’s offshore gas companies including Chevron, Shell, Inpex and Woodside would be hardest-hit by the PRRT changes.
“Nearly every cent of the billions of additional PRRT taxes raised come from offshore WA,” Credit Suisse analyst Saul Kavonic said.
Resources tax expert Jason Ward, from the Centre for International Corporate Tax Accountability and Research said the PRRT offered the world’s most generous tax regime for gas projects, with some companies expected to never pay any tax given the generous deductions offered by government for capital investment in project infrastructure.
He welcomed the changes to the PRRT but said it was “far too little, and far too late”.
Liquified national gas, one of Australia’s most valuable exports, is forecast to hit $91 billion in export earnings this financial year.
Ward said Treasury should impose a tax rate of about 10 per cent to generate $90 billion over the next decade, which is in line with royalties paid by the older North West Shelf gas project, also off the Western Australia coast, which began operation in 1989.
“There’s no jurisdiction that has a worse regime, more generous to the industry, than Australia,” he said.
“They’re [gas companies] getting the gas from Australia for absolutely free.”
The PRRT change is the latest in a series of market interventions in the gas sector after the federal government extended a temporary $12-a-gigajoule cap on the price of domestic gas sales until at least 2025. East coast gas producers are also facing the more regular threat of having exports forcibly diverted to the domestic market to head off potential supply shortfalls under changes to the Australian Domestic Gas Security Mechanism and, from July, gas processing plants that rank among the nation’s 215 top industrial polluters will be forced to comply with new emissions limits under the so-called “safeguard mechanism”.
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