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Labor’s plans to raise an extra $2.4 billion from oil and gas companies could depend on the Coalition after the Greens seized on previously confidential documents to argue the proposal does not go far enough.
Greens economic justice spokesman Nick McKim said the documents, created by Treasury and handed to the Senate, showed the government had effectively handed control of the plan to the oil and gas sector, which had watered down the tax options at the expense of voters.
Previously confidential documents show federal Treasury proposed much larger changes to the tax treatment of LNG.
On top of the Greens’ refusal to back the government’s $10 billion housing future fund, the move signals more difficulties for Labor in the Senate.
In the May budget, Treasurer Jim Chalmers revealed plans to raise $2.4 billion over four years through changes to the petroleum resource rent tax (PRRT) after years of investigation by Treasury and the Morrison government.
Currently levied on offshore oil or gas projects at 40 per cent of their taxable profit, the PRRT allows generous deductions for capital investments, raising questions over the revenue the tax raises compared with the billions reaped in profits by gas giants including Woodside, Chevron and Santos.
Under Chalmers’ proposal, a cap was to be introduced from July 1 this year on the use of deductions, limiting the proportion of PRRT-assessable income that can be offset by deductions to 90 per cent. It will bring forward the potential PRRT revenue from offshore liquefied natural gas (LNG) projects, which are all based on Australia’s west coast.
“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,” Chalmers said before the May budget.
But the documents from March this year show Treasury sketched out other far-reaching propositions to the government that would have raised extra revenue for taxpayers.
Declaring that the current PRRT system “underprices gas”, Treasury said a key objective of the review of the tax was to ensure the “community receives a fair return for oil and gas resources, while not discouraging investment”.
The documents also show Treasury was highly critical of advice provided on behalf of the sector by consultants, arguing it was based on “commercially unrealistic” assumptions.
Treasury briefed oil and gas companies on what it described as its preferred overhaul of the PRRT, which it admitted may reduce investment across the sector. It also had a second option that would have also raised extra revenue from LNG producers.
But these proposals were not developed to the point where the amount of extra revenue could be determined. The government ultimately went with an option that McKim described as a Treasury “afterthought”.
He said the documents showed fossil fuel companies had captured the parliament and were now nominating how much tax they pay.
“Under the model the government has been directed to choose, the higher the gas price, the less revenue Australians will receive for a resource they own,” he said.
Former Australian Competition and Consumer Commission chairman Rod Sims slammed the tax rise shortly after the budget, saying the government should have imposed a tax rise three times higher than it did.
“The purpose of a resource rent tax is to only come in whenever [there are] very large sums of money – sums that are so high that you wouldn’t bank your project on the basis of them,” he said.
Jim Chalmers delivers the May budget in which he revealed plans to raise an additional $2.4 billion in PRRT.Credit: Rhett Wyman
The Coalition initially signalled it may support Labor’s proposal, but Liberal leader Peter Dutton has since argued the government is trying to “hammer” the gas sector with taxation. Without Coalition backing, Labor would need the Greens to make the tax changes law.
The industry has rejected the Greens’ accusations about its tax practices.
The Australian Petroleum Production and Exploration Association has described Chalmers’ PRRT reforms as striking the right balance between supporting a gas sector able to supply the domestic manufacturing and electricity industries and delivering more revenue to the federal budget.
The Greens have proposed their own major overhaul of the PRRT that would raise $94.5 billion over a decade. The industry has warned such changes would effectively stop gas development across the country and cripple current supplies.
Budget figures to the end of May show that despite the government enjoying a windfall in personal and company tax, collections of petroleum tax are on track to fall just short of the forecast $2.2 billion for the 2022-23 financial year.
A spokesman for Chalmers said the government stood by its planned tax changes. “The PRRT changes strike the right balance in ensuring Australians receive a fairer return from our nation’s natural resources, while limiting impacts on investment incentives and risks to future supply in the offshore LNG sector,” he said.
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