Contributed by Joe Montero

A review of the Petroleum Resource Tax (PRRT) by former treasury official Mike Callaghan has found that there are problems with the PRRT and has recommended some changes for new liquefied gas (LNG) projects, which would introduce new royalties.

Although the review was conducted by the Australian Tax Office (ATO), the government has failed to support the recommendations for projects past the investment stage. This means multinational companies like  Chevron’s giant Gorgon and Wheatstone ventures and Shell’s Prelude project off the northern Western Australian, won’t pay PRRT for at least 10 years, because of the existing tax credit system. It comes on top of the exemption from paying company tax.

The Tax Justice Network (TJN) has slammed the failure of the government and given support to the introduction of new royalties, so that these companies would at least be paying some tax.

Royalties are a technically a charge paid to the crown, imposed for using land that belongs to the crown. From this concept has evolved the imposition of a charge on what is extracted.

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.”

The traditional justification for  exemption is that there is a gas shortage in Australia and companies must be given an incentive to produce more. Then why has nearly all of it being exported in recent times? Instead of conserving the resource and ensuring that it is used for priority purposes, the present regime encourages more exports, creating an artificial domestic, which in turn, is used as justification to give even more help to the gas companies.

The world price of gas has fallen, but this is being more than made up for by the volume of exports.  The problem is that this does not meet Australia’s longer term interests that lie is conserving a finite resource. Instead on an incentive, there should be a disincentive to export, something that should be taken into account in a proper tax system.

Being a fossil fuel that contributes to the threat of global warming, gas should eventually be phased out. It may be better than burning coal, but it is far from a satisfactory alternative. If anything, gas companies should be discouraged and any assistance should be earmarked for new alternative energy projects. Gas should be regarded as a transition resource, to be used sparingly.

The PRRT, which places a 40 percent tax on super profits, after all other taxers have been paid, was brought in over community concern that the gas companies were not paying their fair share of tax and the government sought to look like it was doing something. However, its effectiveness was curtailed by allowing generous credits that allow off shore gas companies to avoid the tax. They are permitted to manipulate the opportunity, as offsets for exploration, new projects and shut downs. The companies are now claiming almost $50 billion a year.

University of Calgary economist Jack Mintz, was in Australia in March this year, as a guest of the Minerals Council, said the petroleum resource rent tax (PRRT) was too generous. When this is coming from someone friendly to the resources industry, it is telling.

In a statement to the Senate inquiry into corporate tax avoidance, 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.

And the countries that Australia exports to, Like Saudi Arabia and Japan, charge the same companies an import tax. At least these countries are getting something out of it.