Prosper’s PRRT submission
by Dr Cameron Murray
1. Successful reforms of oil and gas resource taxation that reclaim the public’s rightful share of resource rents will be vigorously contested with extensive lobbying and campaigning. The oil and gas industry is also likely to challenge effective tax changes in the courts. If such industry actions do not occur, it is likely the reforms have been incomplete. After all, successful reforms will take billions of dollars a year of economic rent away from a handful of oil and gas companies and give it to the public. They will not be happy.
2. PRRT has some economic advantages in theory, including stabilisation effects in highly cyclical industries. However, these may be small in practice, as resource rent taxes are complex and difficult to enforce. A lesson from Norway is that taking an ownership stake in projects help enforce such taxes and provides insurance against their avoidance.
3. Previous changes to the PRRT have given ground unnecessarily to oil and gas companies. Changes to important details, like uplift rates on losses, transfer of PRRT credits between projects, and qualifying expenditure for the cost base, individually and cumulatively have had the effect of severely undermining the resource rent base of the PRRT. Closing these loopholes is necessary in order to effectively share resource rents with the public. In doing so, arguments about ‘retrospective taxation’ should be ignored, as protecting projects with their historical tax regimes simply hands over the economic rents any tax reforms are designed to collect for the public.
4. In the absence of a reformed PRRT that has an appropriate resource rent tax base, there are two alternative ways for the public to collect resource rents:
a. A 10% royalty on the market value of all oil and gas projects could replace all Commonwealth resource revenues from the suite of PRRT, crude excise and royalties. It would be simple to enforce and likely raise more revenues in the next decade as the industry unwinds from a large exploration phase. A 12% rate would be sufficient to replace Western Australia’s share of North West shelf royalties as well.
b. A tax could be charged on pure economic rent using a system of self-declared unimproved resource values, with government holding a right to purchase at that value. An annual charge on this value at a rate slightly above the long-term bond rate would capture the majority of economic rents.