Petroleum tax: Warning of 'significant damage' to Australian economy if PRRT is replaced

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Petroleum tax: Warning of 'significant damage' to Australian economy if PRRT is replaced

By Eryk Bagshaw
Updated

The author of a landmark report into Australia's petroleum tax regime has warned replacing the existing tax would have damaging consequences despite claims Australia is missing out on billions of dollars in tax from multinational gas exporters.

Economist Michael Callaghan, who was selected by Treasurer Scott Morrison to chair a review into the petroleum resource rent tax, defended his findings at a Senate hearing on Monday.

"In an increasingly competitive marketplace for investment, I would place a high weight on avoiding policy changes that could potentially significantly damage Australia as an attractive investment location," he told the hearing by phone.

"Should investment in Australia be deterred, it would have very damaging consequences to the Australian community and my judgement is we shouldn't take that risk."

The huge Central Processing Facility (named Ichthys Explorer) for Inpex Corporation's Ichthys LNG plant in northern Australia arrived in Australian waters on May 29, 2017.

The huge Central Processing Facility (named Ichthys Explorer) for Inpex Corporation's Ichthys LNG plant in northern Australia arrived in Australian waters on May 29, 2017.

He told the senators future projects should operate under new tax conditions but rejected the adoption of royalty-style scheme, as has been widely advocated.

"By definition the way it's operating now I think is, in some respects, to the detriment of the Australian community," he said.

Experts have warned Australian taxpayers are getting ripped off by the scheme that was re-designed by the Gillard government in 2012 and on Monday one of the world's largest mining companies acknowledged "it is not a level playing field".

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Australia is set to eclipse Qatar as the largest exporter of gas in the world by 2020 but will receive just a fraction of the revenue, $800 million compared to Qatar's $26.6 billion.

Michael Callaghan has been commissioned to review the operation of the PRRT.

Michael Callaghan has been commissioned to review the operation of the PRRT.Credit: Daniel Munoz

"We are giving away our resources for nothing," Dianne Kraal a senior lecturer at the Monash Business school told the hearing.

She said Australia lagged Papua New Guinea on tax reform for natural resources and urged the government to consider implementing a Qatari style nationwide royalty scheme.

Labor senator Sam Dastyari is calling for a ban on political donations.

Labor senator Sam Dastyari is calling for a ban on political donations.Credit: Alex Ellinghausen

Under current regulations companies pay royalties in some states if they are mining on land, but do not pay any royalties to the Commonwealth if they are extracting gas or other resources offshore.

The petroleum tax also only applies to companies after they have begun earning super profits, not while they are extracting resources.

Greens senator Peter Whish-Wilson.

Greens senator Peter Whish-Wilson.Credit: Alex Ellinghausen

Australian Tax Office deputy commissioner Jeremy Hirschhorn said revenue from the tax had fallen from $2 billion a year to $900 million over the past decade due to the time it takes projects to get up and running.

The revenue from the tax has been cut in half despite company revenues soaring from $5 billion in 2007 to $60 billion in 2017.

The huge processing facility for Inpex Corporation's LNG plant in northern Australia arrived in Australian waters on May 29, 2017.

The huge processing facility for Inpex Corporation's LNG plant in northern Australia arrived in Australian waters on May 29, 2017.

Mr Hirschhorn said there had been 10 audits of companies paying the tax, with most resulting in an adjustment to how much tax they paid.

"We see this as a highly compliant tax," he told the senators. "Whether the rules are right or not is a question for your side of the table."

Mining giant Santos, which does not have any projects based offshore but pays state-based royalties for projects on Australian land, said there was a discrepancy between the taxes it paid and those not paid by companies operating offshore.

"It is not a level playing field," said Santos' tax consultant Michael Lawry. "It's a completely different fiscal system."

Labor has joined with the Greens to accuse the government of avoiding reform at the same time as the multinationals starve the east coast of gas, driving up power prices for consumers.

"People are starting to realise it is not a compliance issue, the question is whether or not we have the right settings," said Labor senator Sam Dastyari.

"When you look at the effective rate of tax being paid by the offshore gas companies there is a $2.8 billion gap if they were paying the same effective tax rate of the four banks."

Greens senator Peter Whish-Wilson said the government did not have the courage to pursue the industry through a mining-tax style campaign after introducing the bank levy.

"They haven't got the appetite for the political fight," he said.

The government is due to hand down its final response to the review in September.

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