By Nick Toscano and Mike Foley
Oil and gas producers have expressed relief after the Albanese government cut a deal with the Greens to pass a tax increase for fossil fuel projects in Commonwealth waters without ceding to the minor party’s demands for more severe hikes.
The deal with the Greens on Thursday clears the way for the government to pass new laws reforming the Petroleum Resources Rent Tax (PRRT), which applies to offshore oil and gas projects, amid long-held concerns that Australians have not been getting a reasonable return from exports of their natural resources.
The Ocean Onyx drill rig, which is being used by oil and gas producer Beach Energy in the Otway Basin, off Victoria’s coast.
The changes are expected to recoup an extra $2.4 billion over the next four years by bringing forward deferred payments and reducing permissible deductions, the government said.
Woodside, the biggest Australian oil and gas company, welcomed the resolution of the PRRT legislation “without further amendments”. Woodside is the largest payer of the PRRT, contributing $681 million under the tax last year.
“The legislation ... provides certainty for industry to consider future investment decisions,” a company spokesperson said.
Despite the proposed tax reforms attracting wide support from oil and gas developers when they were introduced last year, the opposition declined to support them without reductions to environmental regulations impeding new projects.
In return for the Greens’ support for the bill, which is now set to pass the Senate with the votes of Tammy Tyrrell and Lidia Thorpe, the government on Thursday agreed to shelve draft laws designed to speed up development approvals for new offshore gas projects.
“This is a big blow to the coal and gas corporations, a big win for the climate and First Nations voices, and it happened because the Greens have power in parliament,” Greens leader Adam Bandt said.
Labor has said it remains committed to these reforms and will bring it back to parliament at a later date, which is not expected to fall before the next election, due by May next year.
However, the decision to defer the push for now drew criticism from the peak oil and gas industry group, Australian Energy Producers, which has described the offshore approval system as “broken”.
Santos’ $5.8 billion Barossa project in the Timor Sea and Woodside’s $16.5 billion Scarborough venture have been mired in costly delays amid ambiguity in rules governing community consultation requirements, which has left them exposed to legal action from environmental groups and traditional owners.
Australian Energy Producers chief executive Samantha McCulloch said regulations providing clarity and certainty for industry, while maintaining comprehensive and meaningful consultation, were urgently needed.
“The expected passage of the government’s PRRT legislation provides a level of certainty to the industry to assess future investment decisions,” she said.
“However, securing this should not be at the expense of fixing the broken offshore approvals system.”
The federal government last week released its “Future Gas Strategy”, which describes gas as fundamental to the nation’s transition to net-zero emissions and indicates that new production fields would receive stronger federal support.
McCulloch said the deferral of the offshore regulatory reforms was inconsistent with the strategy, which listed offshore regulatory reform as an “immediate action”.
The PRRT, currently levied on offshore oil or gas projects at 40 per cent of their taxable profit, allows generous deductions for capital investments. Under the changes legislated on Thursday, a cap will be introduced on the use of deductions, limiting the proportion of assessable income that can be offset by deductions to 90 per cent.
The Greens have long been critical of the PRRT’s rate of taxation compared to the billions of dollars of profits made by companies such as Woodside, Chevron and Santos, particularly since 2022 when profits soared due to the war in Ukraine exacerbating a global energy crunch and driving up commodity prices.
With the Greens initially pressing for much higher tax rates, the oil and gas industry was nervous that government may have agreed to bigger increases to secure their support. 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.
Independent Senator David Pocock on Thursday slammed the Greens for cutting a “dud deal”, which he said locked in a weak rate of taxation for gas companies and did nothing to cut back on dangerous greenhouse gases.
“They’re going to dud Australians on a fair return on our resources, on our gas, which we’re currently giving away to multinationals to export, make a lot of money and then minimise their corporate tax here in Australia,” Pocock said.
“Australians want better, and they deserve better.”
The Coalition on Thursday slammed Labor’s “last-minute deal to backflip on reducing red tape for Australia’s world-leading gas industry”.
“The Albanese Labor government has voted against key elements of their own Future Gas Strategy just a week after Anthony Albanese told an audience in Perth that it signalled his commitment to Western Australian jobs,” opposition treasury spokesman Angus Taylor and resources spokeswoman Susan McDonald said in a statement.
“This is a direct attack on Western Australia’s export industries that support jobs, and provide the tax revenue that funds Australia’s infrastructure, schools, hospitals and defence forces.”
Conservation groups, however, welcomed the shelving of the proposed changes, which they said would have empowered the resources minister to override environmental laws and fast-track offshore gas project approvals.
The Australian Marine Conservation Society said the changes would have undermined the nation’s “already weak environmental regulations that apply to offshore fossil fuels ... and silence the voice of First Nations people who are fighting fossil fuel projects on their land and sea country”.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.