Turnbull Government prepares to squib on PRRT
The Petroleum Resource Rent Tax has been a successful revenue-sharing device since 1987, delivering well over $33 billion to Consolidated Revenue, derived entirely from the economic rents of resource extraction with no harm to producers.
It has never deterred exploration or hindered output.
Treasurer Scott Morrison commissioned a Treasury review by Michael Callaghan into why revenues from the PRRT have halved to $800m since 2012-13 and crude oil excise has fallen by more than half. He is right to ask: other taxes are now higher or government services lower because of this.
Now, according to recent media reports, Mr Morrison is preparing the way for a government budget backflip “insisting Australia was not ‘missing out’ on revenue from the LNG sector”.
While Qatar will extract $26.6bn (23%) from export sales of natural gas Australia will receive just $300 million from our soon-to-be $60bn gas industry, a tiny fraction of what it takes from Australian mums and dads in beer excise ($2.5bn).
The PRRT honours the express intent of Australia’s Constitution, which rules that natural resources are owned by government on behalf of us all.
A properly functioning PRRT will take many billions of dollars in economic rents from producers’ profits and market capitalisation. Yet much of the current value producers enjoy come from the failure of exactly these tax arrangements.
Once lifted from the ground, our valuable mineral wealth is gone – which is why resource rent taxes are so fundamentally important. Bad amendments to the PRRT Assessment Act have given ground unnecessarily to oil and gas companies and undermine these lofty constitutional principles.
Changes like uplift rates on losses, transfer of PRRT credits between projects and qualifying expenditure for the cost base, individually and cumulatively, have severely undermined the PRRT.
Closing these loopholes is necessary to effectively share resource rents with the public.
In doing so, arguments about ‘retrospective taxation’ must be ignored: protecting the historical tax regimes of projects simply lets them keep the economic rents the PRRT is expressly designed to collect.
Professor Craig Emerson, a principal architect of the original PRRT, observed:
“A 10 per cent royalty based on the gross value of gas production – as advocated by the Tax Justice Network – would result in higher-cost gas being left in the ground, generating no government revenue. A royalty that allowed cash operating costs as a deduction would avoid this problem.
Prosper Australia’s submission to the PRRT review was written by Dr Cameron Murray. He backs this assessment, concluding a simple 10 per cent royalty would be better than the sorely compromised PRRT that has diverged strongly from producer profits and delivers a smaller and smaller revenue stream to government.
“The reaction of the industry – investing tens of millions of dollars in lobbying and campaigning – is the normal and logical outcome of effective tax reform that reclaims economic rents for the public.
“Indeed, if the reforms are not challenged in court (and in the media) by the affected oil and gas companies, they can probably be judged as ineffective. Taxing economic rents is a battle over who gets billions of dollars, and the loser will go down fighting.
Norway’s institutions successfully resisted the resource rent-seekers. Its petroleum tax regime allowed it to start a sovereign wealth fund in 1990, now worth over a trillion dollars. Yes, a thousand billion dollars between five million Norwegians. They enjoy a higher standard of living because of it – a prize available to resource-rich Australia as well.
There is a lot of money involved here and we can expect a bare-knuckle response from oil and gas producers offering blood and bruises to anyone wanting to take some of ‘their’ profits as an extraction charge.
Do Australia’s politicians and bureaucrats have the courage and stamina to stand up to resource rent-seekers and hold them to a quality resource rent regime?
Deputy Prime Minister Barnaby Joyce does not. Last month he floated a monstrous plan to divert a share of government royalties to buy out land holders’ furious opposition to coal seam gas drilling. This would come from Consolidated Revenue, an entirely satisfactory arrangement for gas producers. In whose interest is Mr Joyce governing?
Former WA National Party leader Brendan Grylls does. He fought the WA election on a promise to raise the 25c a tonne royalty on WA iron ore to $5. Digging up iron ore in WA is one of the most profitable businesses on earth and miners’ capacity to pay is beyond question.
The miners spent an estimated $250 per voter in his Pilbara electorate and unseated him. These are 80 per cent foreign-owned companies corrupting an election in a first world democracy – ours.
At what point do we assert sovereignty over our affairs, our national well-being?
If our leaders lack the political courage to insist on resource rent taxes like the PRRT, we must go back to an oil and gas royalty – which means marginal production stays in the ground and the economy underperforms.
Surely taking less tax from wages and business – taxes that deter enterprise and stifle employment – is a prize worth fighting for no matter who holds government.
Australia’s PRRT is more than just another grubby tax. The oil and gas down there belongs to you and me. This tax rises and falls with prices and profits, an automatic stabilizer that limits oil and gas producers’ risk.
The Turnbull government commissioned the Callaghan review. It must expect to receive painful blows as it fights this important battle – after all, it was elected to represent and defend the interests of ALL Australians.