Coalition urged to charge 10% royalty on offshore oil and gas projects – The Guardian

The north-west shelf project in Western Australia which the Tax Justice Network says pays high royalties. Photograph: Graeme Robertson for the Guardian

The Turnbull government must introduce a 10% royalty on all offshore oil and gas projects in Australia to ensure taxpayers start getting a fair return on their natural resources, the Tax Justice Network says.

The group has called for the petroleum resource rent tax (PRRT) to be overhauled, saying there were too many opportunities under its regime for offshore oil and gas companies to exploit transfer pricing, with direct impacts on PRRT credits and profits.

In a submission to the PRRT review, the Tax Justice Network said a 10% royalty ought to be applied to offshore oil and gas projects in commonwealth waters that were only subject to the PRRT.

It said a 10% royalty needed to be charged because the PRRT which was designed in the 1980s for crude oil projects, but which had failed to keep up with developments in the industry was failing to collect adequate revenue.

The treasurer, Scott Morrison, admitted last year that revenues from the PRRT had halved since 2012-13, and crude oil excise collections had fallen by more than half.

He announced a formal review of the PRRT regime in November after a rapid decline in revenues from the tax.

Jason Ward, from the network, said a 10% royalty would raise between $4bn and $6bn over the next four years.

He said the royalty system should be similar to existing state and Commonwealth royalties that already apply to all other oil and gas projects in Australia.

It should be deductible from PRRT, and the PRRT should remain as a backstop to collect additional revenue if and when prices increased substantially and when existing PRRT credits were exhausted.

With Australia poised to be the worlds largest exporter of LNG but projected to generate little direct government revenue for decades, there is a major problem that needs to be addressed, he said.

At the moment projects in commonwealth waters are getting millions of tonnes of LNG effectively for free.

No other industry, including coal, iron ore and onshore gas, get given the total cost of their investment (plus uplift) in free resources before they begin paying for that resource.

This policy will level the playing field across the oil and gas industry. At the moment projects in commonwealth waters are getting a competitive advantage over onshore projects and the north-west shelf who pay much higher royalties.

All of the major companies, Shell, Chevron, BHP, Woodside and BP, already pay under our proposed model through their ownership of the north-west shelf project. They have been happy to pay under this model for years without complaint. The north-west shelf shows they still make huge profits under this type of royalty regime.

Ward said mature oil projects, such as BHP in the Bass Strait who already pay PRRT, would not be affected given the royalty would be fully deductible from the PRRT.

This proposal we believe ensures a fair return to the Australian people while still encouraging investment by maintaining our royalty regime as one of the most generous in the world, he said.

We call on the industry to support this proposal to the commonwealth government.

The problems raised by the Tax Justice Network are similar to those raised by tax expert Dr Diane Kraal, from Monash University.

Her submission warned flaws in the PRRT regime meant Chevrons giant Gorgon gas project off WA would not pay the tax until at least 2030, despite decades of operation.

Kraal said her modelling showed $5bn in revenue would be raised from Gorgon alone by 2030 if royalties were reintroduced.

She said her research indicated other natural gas projects in commonwealth waters should also be subject to commonwealth royalties, including Chevrons Wheatstone, Woodsides Pluto LNG project, and Inpexs Ichthys project.

Woodside Petroleum used its submission to argue against any changes to the PRRT.

It said the PRRT had been operating as intended, despite declining revenues from the tax recently.

It said the regime had delivered $200bn worth of projects over the past decade, and Woodside had paid $2bn in PRRT since 2001.

As a profits-based tax, it is not unusual to have declining PRRT at a time of declining oil and gas prices and prior to these projects recouping their costs, its submission said.

Woodside pays billions of dollars of taxes in Australia. The PRRT is just one part of our tax contribution but increasing it could put other tax revenues at risk by making future projects unviable.

Woodside has an ownership stake in three of Australias major undeveloped gas resources. As the leading Australian gas producer, we want to develop these resources and deliver significant benefits to the Australian people.

We urge the PRRT review team to consider carefully the substantial impact of any changes to the current fiscal settings that could jeopardise existing and future investments.

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Coalition urged to charge 10% royalty on offshore oil and gas projects - The Guardian