Oil and gas companies slugged $2.4 billion in Jim Chalmers’s federal budget

Labor will impose extra taxes on offshore oil, gas companies to help pay for its cost of living relief package, saying it’s time they started paying their fair share.

Federal Treasurer Jim Chalmers will hand down the budget on Tuesday. Picture: NCA NewsWire / Martin Ollman

Offshore oil and gas companies will be slugged with $2.4 billion in extra taxes to help pay for Labor’s cost of living relief package with the Albanese government claiming it was time they started paying their fair share of tax.

The tax hike on the oil and gas industries will also help partially offset a $4 billion funding boost to mental health, disability, domestic violence and homelessness services which the government has confirmed will also be in Tuesday’s budget.

Jim Chalmers has confirmed that he will impose reforms to the Petroleum Resource Rent Tax which would prevent the LNG industry from continuing to offset its tax liabilities, forcing it to pay more tax sooner.

The reforms which the government claims would bring Australia up to comparable international standards on petroleum resource taxes, come on top of other measures imposed on the energy resource sector since the election of the Albanese government, including a price cap to reduce retail gas prices.

The changes to the PRRT, which flow from review recommendations initiated by the former Coalition governments, will see $2.4 billion in additional tax raised from the LNG sector over the four-year budget forward estimates.

On the current trajectory under the existing rules, the industry was expected to enjoy a fall in PRRT liabilities from $2.6 billion a year to $2 billion a year, despite reaping record profits.

The new tax hike will comes as no surprise to the sector which has been on notice since 2019 when the Morrison government had flagged potential reforms to the PRRT over concerns that it was outdated and not delivering an equitable return to taxpayers.

The Treasurer said it was implementing changes that the former government had failed to deliver, and would mean that the gas industry, which has been posting surging profits since the global energy shock triggered by Russia’s invasion of Ukraine, would provide a “fairer return to the Australian community from their natural resources”.

“It’s been clear for some time that the PRRT isn’t up to scratch – that’s something most Australians would agree with, including the former government that initiated the review,” Mr Chalmers said.

“These sensible changes see the offshore LNG industry pay more tax, sooner. They also deliver a fairer return to the Australian people from the resources they own, provide certainty to industry and ensure Australia remains a reliable trade and investment partner.

“These changes will make a meaningful contribution to the Budget that we hand down on Tuesday night, helping to support our efforts to get the nation’s finances back on track, fund vital services and provide responsible cost-of-living relief.”

Dr Chalmers said the changes would mean the offshore LNG industry “pays more tax, sooner, will provide industry and investors policy certainty to allow the sufficient supply of domestic gas, and will ensure Australia remains a reliable international energy supplier and investment partner”.

The reforms flow from Treasury’s Gas Transfer Pricing (GTP) Review – initiated by the Morrison government – and the earlier Callaghan Review which recommended changes to the structure of the PRRT.

Dr Chalmers said the industry had been widely consulted on potential changes to the PRRT for several years.

The changes include a cap on the use of deductions for capital investments to come into effect from 1 July this year.

This is designed to curb the level of assessable income that can be offset by companies which will bring forward PRRT revenue from LNG projects.

The government maintains this would not impact investment decisions or pose any risk to future supply or international contracts.

Undera key finding of the GTP, Treasury identified there was a structural undervaluing of LNG projects at the point they would attract PRRT, when prices were high, which needed to be reformed.

According to the government, under the existing PRRT rules, a majority of LNG projects were able to defer paying any significant tax until the 2030s.

Dr Chalmers said the government would adopt 8 of 11 recommendations of the GTP review and a further eight recommendations made by the Callaghan Review.

Finance Minister Katy Gallagher has also confirmed that the budget would provide $4 billion over four years for increased funding to government and community organisations through reforms to indexation.

Currently, the funding of many government and community services are based on a five-year averaging of wage cost.

Senator Gallagher said the indexation formula would be changed to be calculated on the past year’s wage cost, baking in a structural future cost to the budget.

The government claims this would increase funding to organisations covering mental health, disability, domestic violence and homelessness services as well as Medicare Benefits Schedule funded services.

“We have listened to the organisations that provide vital services on behalf of government, including community sector organisations, and are improving these arrangements to ensure the funding they receive better reflects the true cost of delivering services,” Senator Gallagher said.

“After years of neglect under the last ten years of Coalition Government – we are committed to the job of repair.

“The Albanese Government is improving the way Government programs are indexed, allowing organisations to keep their doors open, addressing rapid cost pressures for the service providers who support the most vulnerable people in the community.

“Through this change, the Government is also supporting wages growth and addressing failures of the previous Government to properly address wages pressures.”