Australia is ‘giving away’ its wealth

 

Australians are being short-changed when it comes to royalties and tax for its oil and gas, with one expert saying "we're giving away our natural resources".

The Institute for Energy Economics and Financial Analysis (IEEFA) has recommended the royalty and tax system covering oil and gas in Australia be overhauled, pointing out that Telstra paid 20 times as much corporate tax as all of the country's oil and gas companies.

According to data from the Australian Taxation Office, Telstra paid $1.6 billion in tax in 2016/17. Its revenue of $26.9 billion was similar to that produced by the oil and gas industry but they paid just $81 million in tax.

"Australia is literally giving away its natural wealth," IEEFA gas analyst Bruce Robertson said.

"There is so much that can be done to fix this situation. All it requires is a small amount of political will."

While the amount of federal corporate tax that oil and gas companies is relatively small, they are also expected to pay extra state royalties and the royalty-like Federal Petroleum Resource Rent Tax (PRRT). However, even here Australians are missing out.

In 2017, The West Australian reported that the Japanese oil company Inpex would export $195 billion worth of liquefied natural gas (LNG), liquefied petroleum gas (LPG) and condensate from Darwin over 30 years.

However, analysis commissioned by the company revealed no PRRT would be paid by its Ichthys LNG project, even after 30 years.

The 100th shipment of LNG left Darwin Harbour this year. Picture: Supplied
The 100th shipment of LNG left Darwin Harbour this year. Picture: Supplied

In a submission to the Senate inquiry on Australia's oil and gas reserves, IEEFA argues there should be a thorough review of how royalties are calculated and the PRRT should be replaced with a 12.5 per cent royalty system.

"Catherine Tanner, the CEO of BG Group promised around $1 billion a year in taxes and $300 million a year in royalties for its petroleum project in Queensland," Mr Robertson said.

"The reality is BG Group paid no tax in 2016-17 nor did its parent Shell Australia.

"Royalty rates have in fact been so low that the Queensland government increased the rate,

although the amount received is still a fraction of what's expected."

Associate Professor Roman Lanis from the University of Technology, Sydney's accounting school told news.com.au the way the PRRT was structured was part of the problem.

It allows offshore oil and gas companies to deduct their exploration costs as well as other expenses they incur before production.

It also allows them to multiply these costs, using "uplift" rates, to take into account inflation and other factors.

"They can accumulate billions (in offsets) to reduce their PRRT," Prof Lanis said.

Another factor has been the drop in the price of oil and gas so the revenue they expected to earn from their projects have dropped.

Prof Lanis said oil and gas companies may have estimated they would be paying PRRT within 10 to 20 years but this has now been delayed, and it may even take longer if oil prices come down further.

Prof Lanis, who produced a 2017 report for GetUp about the tax rorts of gas giants, believed the uplift rates and the PRRT scheme in general should be changed.

"I think there is definitely potential to revise it, especially if the government wants to raise more taxes," he said.

"The only way to increase the money collected is by revising the legislation. So far they have collected very little, pretty much the only PRRT being collected is off very old projects."

His report estimated that Australia would have collected an extra $52 billion in tax revenue between 2012 and 2015 if it had adopted the same royalty system as in Canada's Alberta region.

"Most countries in the world get significant taxation and royalties from their non-renewable oil and gas wealth. Given its large size, Australia does not," Mr Robertson said.

"Most countries view taxation and royalties as a nation's sovereign right to impose on any

industry. Australia does not.

"And many countries divert a portion of their oil and gas royalties to a sovereign wealth fund to supply future national needs. Australia, again inexplicably, does not do this."

BG Group’s LNG plant at Curtis Island, Gladstone
BG Group’s LNG plant at Curtis Island, Gladstone

The Australia Institute has also criticised the PRRT system, saying it was distorting investment and failing to deliver benefits.

In 2017 it found that revenue from the use of Australia's resources had declined despite huge increases in gas production.

It recommended changes including that the current 40 per cent PRRT be increased to 70 per cent on projects on certain projects. It said exploiting oil and gas reserves did not always benefit the public.

"Unfortunately, the public benefits of oil and gas projects are often exaggerated and the costs minimised or ignored," the institute said in its public submission.