Call for tinker with tax to put fire under gas

Australia’s oil and gas industry is pushing Josh Frydenberg to amend the $1.4bn-a-year ­Petroleum Resource Rent Tax.

APPEA chief executive Andrew McConville. Picture: Ross Swanborough

Australia’s oil and gas industry is pushing Josh Frydenberg to amend the $1.4bn-a-year ­Petroleum Resource Rent Tax to unlock gas supplies for the east coast market and investment across the sector.

APPEA, representing gas and oil giants including BP, Shell, BHP, Santos, Jemena and Woodside, has told the Morrison government that amendments to the PRRT were required to “keep pace with modern commercial practices”.

APPEA chief executive Andrew McConville said with the combined impact of COVID-19 and challenging market conditions, “having the right tax, commercial and investment policy settings” would help stabilise Australia’s oil and gas industry and the wider economy.

“The fiscal reforms needed to underpin economic recovery — as well as having an open and competitive gas market — will ­ensure Australia can create a positive, competitive and stable ­investment and operating environment to support employment and growth as we emerge from COVID-19,” Mr McConville said.

The Australian understands Treasury has been considering long-term changes to the PRRT, which was introduced in the 1980s to tax profits from the sale of gas, ethane, crude and shale oil.

In April last year, the Morrison government said it was committed to ensuring the PRRT “better reflects Australia’s petroleum ­industry”, with Treasury commissioned to lead a review of gas transfer pricing arrangements.

Citing the 2018 Callaghan PRRT review, Mr McConville said it outlined how existing legislation did not capture how a “petroleum project can go from having a retention lease to a production licence back to a retention lease”. “While the principles of the PRRT remain the right fit for oil and gas operations in Australia, the proposed amendment could unlock more investment and supply, particularly to the east coast gas markets.”

APPEA said the Callaghan ­review acknowledged PRRT deficiencies had created “fiscal uncertainty and prevents a company’s ability to make investment decisions based on economics and value and which reflect commercial practice”.

“The result is that companies are unable to make investment decisions to bring new gas to market due to the fiscal uncertainty. It is especially problematic for smaller domestic companies who are planning on making significant investments.

“The inability to access ­deductible expenses has the ­potential to render additional further investment sub-economic, leading to a premature closing down of a project or stranding ­assets. The proposed legislative amendment can unlock more investment and supply, particularly to the east coast gas markets. It requires a simple and efficient legislative amendment.”

APPEA’s pre-budget submission called for five key reforms, including tax deductions on salary and wage costs to support employment. The lobby group is also pushing for investment allowances to drive investment and domestic spending, and the removal of barriers to economic restructuring through tax asset rollover ­relief.

Mr McConville said a “decade of regulatory instability and market interventions, coupled with being a high-cost destination, had reduced investment confidence in many industries, including oil and gas”. “Australia competes for scarce global capital and to do this, we must have a best-in-class fiscal regimen, objective-based regulation, promote exploration and innovation in resources development and allow markets to work without intervention,” he said.