From Fairfax:
In 2005, the federal government collected $1.9 billion in PRRT, mainly from oil operations in Bass Strait. Last year, despite the explosion in LNG projects, revenue fell to $1.4 billion and the 2016 budget slashed the projected take by almost half to just $800 million a year out to 2020.
In April, Fairfax Media revealed documents prepared for the WA Treasury that warned the Commonwealth would wait “decades” to receive any significant revenue from projects such as Chevron’s Gorgon and Wheatstone and Woodside’s Pluto gas field.Diane Kraal, an expert in resource taxation from Victoria’s Monash University, believes the PRRT system is a dud because it was designed in the Hawke government era to tap super profits from oil.
PRRT is a profits-based tax that taxes “rents” – or excessive returns – above a specified rate after deductible expenditure, including exploration and capital investments.
While oil prices spike intermittently, Dr Kraal said, LNG supply is based on long-term contracts to countries such as Japan and profits will remain steady rather than super.
“I doubt in my lifetime that those companies will be paying PRRT on gas,” she said.
“In effect, we are giving it away. It’s already an uphill battle to get those companies to pay corporate tax.
“I compare it to lobster and abalone. There doesn’t seem to be any around these days because they are all extracted and sold overseas and Australians don’t get to enjoy them or get any benefit from that extraction.”
That doesn’t make any sense to me. Oil prices are wildly volatile so therefore are LNG prices and their rents. That’s not the problem. This is:
At a Senate estimates hearing in May, Roger Brake, the acting deputy-secretary of Treasury’s revenue group was asked to explain the dive in projected PRRT.
He put it down to the lower Australian dollar, oil prices and the volatility of rent-based taxes.
He also warned that the companies who invested in LNG are allowed to write off their investments against tax before being forced to pay royalties. Chevron, for example, has potential tax credits of more than $US67 billion ($A90.6 billion) after the cost of building the facility blew out by a third.
“These projects can take a long time before they start paying PRRT, so you can get these long lags between when they enter production and when they start paying PRRT,” Mr Brake said.
But sources have told Fairfax Media that the Australian Tax Office is concerned that the PRRT will not deliver anything over time.
The system of tax credits was made more attractive for oil and gas companies at the same time as the Gillard government was fighting a full-frontal assault by miners over Labor’s proposed mining tax.
To head off another fight, oil and gas companies agreed to back the PRRT – which operates the same way as the mining tax – in return for lucrative concessions negotiated by then resources minister Martin Ferguson.
Off course companies should be able to depreciate investments. The problem is that the disgusting Ferguson-Swan-Gillard resource rent tax provisions allowed assets to be revalued to boom peak levels which included the rents that are supposed to be collected into the future. In other words, the tax that’s supposed to be collected on excessive returns is instead depreciated away every year.
