Greens’ ‘complex’ plan to overhaul gas tax would generate $29bn

Overhauling the petroleum resource rent tax, applying it to onshore gas projects and applying a 10 per cent royalty tax to offshore projects would generate an extra $29.1bn out to 2025-26.

Greens leader Adam Bandt has advocated for making oil and gas companies pay more tax. Picture: NCA NewsWire/Martin Ollman

Overhauling the petroleum resource rent tax, applying it to onshore gas projects and applying a 10 per cent royalty tax to offshore projects would generate an extra $29.1bn for the budget out to 2025-26.

The Parliamentary Budget Office’s costing of the Greens’ longstanding policy comes amid widespread criticism that the PRRT has not done enough to capture taxpayer revenue from oil and gas companies, especially at a time of high energy prices.

The October budget estimated the PRRT would raise $2.6bn this financial year, and $9.2bn over the four financial years to 2025-26. The PBO estimated the Greens’ proposal could boost the underlying cash balance by an ­extra $29.1bn over the forward ­estimates, and raise $94.5bn over the decade.

The Greens said the extra revenue could be used to help fund cost-of-living support, including dental services in Medicare, and raising the rate of welfare payments.

There is a wide view among experts that the PRRT has not been effective in capturing a fair share of the super cycle in gas and oil profits for taxpayers, and is generally not fit for purpose in the high-cost gas industry.

Under current rules, companies subject to the tax are not liable to pay PRRT until the point where the total revenues from the project exceed total spending, including on exploration, development, and all the associated infrastructure costs.

The Greens policy would, from July, eliminate the more than $280bn in deductions carried over by oil and gas companies from previous years. Future capital or operating spending would be deductible over 15 years, or 6.7 per cent annually, with no ­annual “uplift”, which currently can run as high as the 10-year bond rate plus 15 per cent.

Jim Chalmers late last year ­restarted a Treasury review – begun under the former government – into the PRRT’s application to gas production.

Diane Kraal, a senior research fellow at the Monash Business School, said the PRRT in its current form was “just not good enough” at capturing for the community the benefits from the massive investment in Australia’s offshore petroleum industry since the early 2000s.

But Dr Kraal said the Greens policy would make a complicated tax even more complex, and ­advocated the “bold” step of ­removing the PRRT altogether in favour of a simple 10 per cent royalty tax on offshore production in Australian waters.

The PBO’s estimates assumed the additional taxation did not ­affect oil and gas production, and that no new projects would begin production by 2032-33. The costings also assumed a high oil price of $US95 a barrel by the middle of this year, increasing annually with inflation for the 10 years.