In the midst of an LNG export boom, why are we getting so little for our gas?
- Written by Diane Kraal, Senior Lecturer, Business Law and Taxation Dept, Monash Business School, Monash University
So worried is the government about the meagre income it is getting from gas during the middle of Australia’s biggest gas export boom that it asked an independent advisor to chair a review and is getting the treasury to run the ruler over his recommendations.
Australia gets paid for gas mined from under its waters by the “petroleum resource rent tax” set up by the Hawke government in 1988.
But payments peaked at around A$2.5 billion in 2000-01. They are now less than half that, and much lower still as a share of the economy and as a share of gas exported.
The government’s December budget update predicts petroleum resource rent tax revenue of just $1.15 billion this financial year, revised down from the $1.4 billion expected in the May budget.
It has pencilled in only $1.15 billion for each of the next three years.
Qatar, which exports the about the same amount of gas as Australia, is said to have got more than A$20 billion in 2018.
Our tax is good in theory
The weak performance of the petroleum resource rent tax is all the odder because it has been held up as the gold standard for resource taxation.
The 2009 Henry Tax Review wanted to apply the model to iron ore and other minerals, which the Rudd government attempted to, announcing a resource super profit tax in 2010.
The Gillard government cleaved it to what became the milder minerals resource rent tax, before it was abolished by the Abbott government in 2014.
The petroleum resource rent tax collects a share of the profit made from mining gas instead of charging a fixed royalty of the kind imposed by state governments for other minerals.
But the “profit” depends on the choice of the price at which the gas is “sold” from one part of the entity that mines it to another before it is processed and turned into liquid for export.
It’s not as good in practice
There is a regulated method to calculate the true “transfer price” for the purpose of determining the tax payable. If it produces too low a result (as it seems to have) too little profit will be recorded and too little tax will be charged.
The Turnbull government was concerned enough about what was being charged to set up a petroleum resource rent tax review headed by former treasury official Mike Callighan in 2016.
- ^ review (treasury.gov.au)
- ^ treasury (ministers.treasury.gov.au)
- ^ petroleum resource rent tax (www.ato.gov.au)
- ^ A$2.5 billion (treasury.gov.au)
- ^ $1.15 billion (budget.gov.au)
- ^ about the same amount (www.smh.com.au)
- ^ more than A$20 billion (www.abc.net.au)
- ^ resource super profit tax (www.aph.gov.au)
- ^ minerals resource rent tax (www.hawkerbritton.com)
- ^ 2014 (www.allens.com.au)
- ^ Mike Callighan (treasury.gov.au)
- ^ The Australian , Saturday February 8, 2020 (www.theaustralian.com.au)
- ^ four reasons (treasury.gov.au)
- ^ tightened (treasury.gov.au)
- ^ review (treasury.gov.au)
- ^ The Australian (www.theaustralian.com.au)
- ^ Arthur Anderson (treasury.gov.au)
- ^ Enron scandal (en.wikipedia.org)
- ^ Australia must catch up with Papua New Guinea on how we tax gas (theconversation.com)
- ^ UNSW Law Journal (www.unswlawjournal.unsw.edu.au)
- ^ Thought Capital (www2.monash.edu)
Authors: Diane Kraal, Senior Lecturer, Business Law and Taxation Dept, Monash Business School, Monash University
Read more https://theconversation.com/in-the-midst-of-an-lng-export-boom-why-are-we-getting-so-little-for-our-gas-131461