The gas super profits we’re not taxing
Samantha Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal Land. This is ABC News Daily. Australia’s natural resources like oil and gas belong to us all, but we get to see just a fraction of the super profits the global energy giants are making from them. So why didn’t the government fix that in this week’s budget when it desperately needs the revenue? Today the ABC’s energy reporter Dan Mercer on why the Treasurer Jim Chalmers, won’t go further.
Dan, we’re going to chat about these rather minor changes the government has made to how it will tax the big gas giants in a minute. But first, it just reminds me, this topic, of the mining boom we lived through in the 2000s, because we’re talking about a lot of money being made from a resource that we as Australians all own.
Daniel Mercer: Yeah, that’s right, Sam. You know, many listeners will remember that the federal government — and by extension the Australian public — received a huge and rather unexpected windfall during the mining boom which ran from the early 2000s for a bit more than a decade.
Reporter: The long running mining boom has fuelled a string of bumper profits and now it’s set to push Australian exports to record levels in 2003.
Daniel Mercer: The price for commodities like iron ore and coal began rising quite rapidly.
Reporter: When Peter Costello looks into the cupboard for next May’s budget. There’ll be an embarrassment of riches.
Daniel Mercer: And those prices stayed high for a long time.
Reporter: The big earners are coal, aluminium and gold and while Australia is making record dollars from minerals, it looks set to invest record and.
Daniel Mercer: Generated money from royalties and mining taxes charged on companies that were extracting those minerals and selling them. And it was mostly to China of course, which really drove the mining boom. And the idea is that these resources are finite. You know, they belong to all Australians and we only have one chance to realise their value.
Samantha Hawley: And there’s a debate, of course, then about how that revenue was spent. Some people argue it was wasted on things like tax cuts and sort of one off bonuses. But regardless, there was just a lot of money back then to throw around. So now let’s have a look at gas.
Reporter: They dot our landscapes and our coastlines, massive gas plants that extract and process natural gas for export and use here in Australia. But are we the owners of that gas? Getting a good deal?
Samantha Hawley: Gas is in really high demand right now, isn’t it? Are we having a bit of a boom again?
Daniel Mercer: Yeah, I think it’s probably fair to say, Sam. I mean, in short, the big gas providers are rolling in money at the moment. Times have rarely, if ever, been so good.
Reporter: Prices are high globally because European countries are looking for non-Russian sources of gas due to the Kremlin’s invasion of Ukraine back in Australia. At the same time, more than a quarter of coal fired power stations have recently experienced outages, meaning gas generators are facing more demand to help keep the nation’s lights on, driving prices up even further.
Daniel Mercer: You know, those revenues have leapt to really quite mind boggling heights, and they’re forecast to stay fairly high for the foreseeable future. And, you know, you’ve seen that in the results posted by the big gas players, how much they’re making at the minute. Chevron, the giant US multinational, racked up about $20 billion in profit from its Australian operations, which include some big LNG plants off Western Australia’s north coast for the 12 months to the end of December. There have been similarly spectacular results recorded by home grown companies like Woodside and Santos.
Samantha Hawley: Huge, huge money. So now let’s have a look down at this Petroleum Resources Rent Tax. It’s a rather dull type of name for a tax, really. But anyway, the government’s looking at changing it. But I think it’s useful to actually consider how it operates. Now, first, what is it? What does it do?
Daniel Mercer: Yeah, perhaps a bit of an overview. Very quickly about how gas is generally taxed in Australia. Sam, You know, when it comes to the resource itself, which is, as you say, owned by the public, there are a couple of ways principally that it’s taxed. One of those is a flat royalty that’s typically levied by the states to onshore projects, and that applies regardless of whether a project is making money. The other is what’s known as the PRRT, and that’s really applied by the feds to offshore projects. It’s supposed to capture any excess profits or windfall gains that a project might make, and it applies at the rate of 40%, and it differs to a royalty, obviously, because you know, it’s not applied at a flat rate. It’s designed to only click into gear when a project is in the money, because the PRRT was conceived in the 1980s by the Hawke government when Australia was still paranoid about energy security. You know, it had only been a few years really in the late 80 seconds since the country was badly hit by the oil crises of the 1970s.
Richard Nixon, former US president: When I spoke to you earlier, I indicated that the sudden cut off of oil from the Middle East had turned the serious energy shortages we expected this winter into a major energy crisis. That crisis is now being felt around the world.
Daniel Mercer: And so the Hawke government was really, you know, quite keen to do everything it could to encourage new development in oil projects in particular. And that’s what the part is supposed to do or was supposed to do.
Samantha Hawley: Mm. Okay, so it’s been around for quite some time and there has been growing criticism of how it’s actually working now.
Daniel Mercer: Yeah, it has. And the long and short of it is that the tax is just poorly designed for Australia’s gas industry. It’s no longer fit for purpose. In many ways.
Reporter: The Australia is in the midst of an enormous gas export boom, yet the Australian Government reaps only a fraction of the revenue and that’s because.
Daniel Mercer: Oil projects typically take much less time and much less money to bring online and therefore they usually start paying the tax much sooner. But that’s just not the case for LNG projects, which are enormously long lived and complicated beasts that take aeons and really huge licks of money to build.
Reporter: A tax that’s meant to share the profits with the community is actually failing to raise any new revenue. Huge new gas projects may deliver no tax benefits for decades.
Samantha Hawley: Okay, So let’s now have a look at what the government is going to change in regards to this tax. It’s announced some alterations in the budget. I understand they’re a bit minor, but what are they? How does it change?
Daniel Mercer: In essence, the government wants to limit the extent to which gas producers can use costs to offset their liabilities. Right now they can offset all of their cash flows and the government wants to peg this back just a little bit. And Jim Chalmers, the Treasurer, is proposing to cap deductions at 90% of the annual cash flows of an LNG project. I won’t go too far into the weeds, just keep that at a high level. But that basically just means that 10% of a project’s eligible cash flows will be taxed at that 40% headline rate, according to the government. It will collect an extra $2.4 billion over four years and $7 billion over ten years. Now, that’s a lot less than some were calling for, and it’s way less than Mike Callaghan, a former high ranking treasurer Treasury official who reviewed the tax for the Morrison government, said could be recovered by tightening the rules further. But it seems the Government’s opted for an approach which is kind of, you know, a bird in the hand is worth two in the bushes.
Samantha Hawley: Okay, so currently oil and gas companies are able to fully deduct their project costs against income. But now or from July 1st this year, this will be capped at 90%. So the criticism is that the government really hasn’t gone far enough here that they could be raising a lot more money.
Speaker of the House: I give the call to the honourable member for Mackellar.
Sophie Scamps, independent member for Mackellar: Thank you, Mr. Speaker. My question is for the Treasurer. Over the last three decades, Australia’s petroleum tax has collected a paltry amount of revenue from the sale of our natural resources compared with other countries.
Samantha Hawley: And you know, we need it right, because we’ve got these high costs when it comes to health care, the NDIS, schooling, all that sort of thing. We need this money.
Daniel Mercer: There is certainly a view that Australia is very generous in its treatment of global energy giants compared with other nations around the world. At the moment we’re collecting something in the order of two, $2.5 billion a year in profit and for many years it was barely a billion. In some years it was less than $1 billion. And, you know, the revenue from the taxes remained largely and relatively unchanged for 20 years now. I mean, if you look at a nation like Qatar in the Middle East, you’ll see last year it expected to earn about $76 billion in tax from energy exports. It’s a major producer of gas so comparable to Australia in that sense.
Reporter: Australia is projected to overtake Qatar as the world’s biggest exporter of gas. But over the next decade, the tiny country’s government will net $26.6 billion from its gas projects, compared with our 6 billion.
Daniel Mercer: And the UK 8.6 billion pounds or $16 billion over the next six years, according to its forecasts. And Norway earned the equivalent of $133 billion in oil and gas tax revenue in the year to December just gone. You know, they are numbers that dwarf what the Australian Government is making.
Samantha Hawley: Yeah, when we talk about $2.5 billion compared to 133 billion, it sure does dwarf our numbers. So why on earth, Dan, aren’t we going after the big numbers like that? I mean, the energy giants, even if we do generate that sort of money, they’ll still make a whopping profit, right?
Daniel Mercer: Well, yeah. Look, I mean, there’s probably a few different factors at play, Sam. One is that the gas industry really is coming under pressure from all sorts of different fronts, and the government would know that it’s already had quite a few blues with the industry. The other thing is Jim Chalmers was in Wayne Swan’s office when Labor under Kevin Rudd and Julia Gillard tried to bring in the mining resource rent tax, which was kind of essentially copied off the petroleum resource rent tax and that was a calamity.
Reporter: Slanging match over the super profits tax has taken another turn with both sides unveiling. I think it’s.
Kevin Rudd, former prime minister: Time the mining companies of Australia got used to the idea that they need to return a fairer share to all Australians.
Reporter: The Minerals Council has launched an advertising blitz to fight back.
Minerals Council advertisement: What will the proposed super tax mean? Australian miners pay 58% by far the world’s highest tax on mining.
Daniel Mercer: The tax blew up in their face and it never really collected any revenue. So maybe he’s got some scar tissue that’s speaking here. Maybe the Treasurer has just decided that in this instance it would be better to use the old proverb, cause the least amount of hissing while plucking the goose.
Samantha Hawley: Okay, so the government doesn’t want the goose to hiss, so it doesn’t want to tax the companies more. What? Because it’s worried about a backlash. It doesn’t want to upset the industry. It doesn’t want the industry to hiss, right?
Daniel Mercer: Look, that’s I mean… who knows? Who knows? It’s probably worth bearing in mind that if the world is genuine about reining in emissions, these big LNG producers that have come online in Australia over the past ten years or so, they may only have a couple more decades to really make hay from these resources. So, you know, I think the calls for Australia to get a better return on the gas, they’re unlikely to go away.
Samantha Hawley: Dan Mercer is the ABC’s energy reporter based in Western Australia. The former chairman of the Australian Consumer and Competition Commission, Rod Sims, says the Government should have imposed a tax on the gas giants three times higher than it did. This episode was produced by Veronica Apap, Flint, Duxfield, Chris Dengate and Sam Dunn, who also did the mix. Our supervising producer is Stephen Smiley over the weekend, catch This Week with Madeleine Genner. She’ll be looking at the Medicare changes announced in the budget, and whether they’ll make it easier to see a doctor. I’m Sam Hawley. ABC News Daily will be back again on Monday. Thanks for listening.
