Gas exporters in frame as government looks for revenue boost

Higher taxes on gas exporters are on the agenda after Treasurer Jim Chalmers said he would look at an official review of resources taxes while warning of the need for sensible tax reform to make the budget more sustainable.

In a sign the government is open to increasing the petroleum resource rent tax (PRRT) arrangements to collect more revenue from gas exporters, Chalmers said he would take “really seriously” the advice of a Treasury review into the issue when it delivers its findings.

Treasurer Dr Jim Chalmers has signalled a preparedness to consider changes to the PRRT pending the findings of a Treasury review.Credit: Alex Ellinghausen

“I do understand that there is a substantial part of the community that would prefer that PRRT take was higher,” Chalmers told ABC Insiders on Sunday.

“We haven’t been working up an option to do that – to change the PRRT arrangements – but the Treasury has been commissioned by my predecessor and by his predecessor to do some of this work around the taxing point in the PRRT.

“I’ll obviously take their recommendations really seriously. We do want to make sure that Australians get a good return for their resources. We need to balance that against the investment that’s been made into the sector.”

A week after the budget showed government debt will surpass $1 trillion by June 2024, Chalmers indicated the government had no appetite to reignite a debate on negative gearing, capital gains tax, and franking credits – which formed the ballast of Labor’s tax policy agenda in its failed 2019 election bid – saying: “We haven’t been reconsidering those”.

The 2022-23 federal budget papers show the PRRT is expected to raise $2.6 billion this financial year, but will thereafter decline steadily over the next four years to about $2 billion by 2025-26.

The PRRT is levied at a rate of 40 per cent of an offshore oil or gas project’s taxable profit, but this is applied after generous deductions for capital investments.

Rod Sims, former chair of the Australian Competition and Consumer Commission, said changes to the PRRT could deliver billions of dollars of revenue to government coffers and the reforms could be achieved before the next budget in May.

“The PRRT patently does not work. The easiest way to get more tax revenue is through changes to the PRRT,” Sims said.

He said the war in Ukraine was a clear example of the limitations of the PRRT in capturing the massive windfall gains enjoyed by multinational LNG companies, as a ban on Russia’s fossil fuel exports has driven up global oil and gas prices.

“The PRRT is meant to capture those [windfall gains] so that the community gets a fair return. It can’t do the task it was designed to do, which is properly sharing those returns.”

Any changes to the PRRT will be fiercely resisted by the gas sector. The Australian Petroleum Production and Exploration Association executive Samantha McCulloch said the PRRT had been reviewed four times since 2017 and was “fit for purpose”.

“It is part of a taxation system – alongside corporate income tax and state royalties – that APPEA forecasts recently showed would deliver an extra $9 billion revenue from gas exporters alone this financial year,” she said.

Tim Buckley, director of the Climate Energy Finance think tank, said the PRRT was structurally flawed and predicted Treasury would find that it was not operating in the national interest.

“That’s obviously been known for a long time and you just have to look at the ratio of PRRT revenue to the government versus the revenue that the multinational gas exporters are booking off the back of public finite assets,” he said.

Former Treasury secretary Ken Henry, who proposed a resources “super profits” tax in his renowned 2010 tax review, remains a key advocate for stronger measures being applied to gas exporters.

“Just choose your tax rate and you can determine by how much the domestic price will be below the export price,” he previously told this masthead.

“Tax on exports generates revenue, mainly from foreign shareholders in foreign companies.

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