A new report by the Australia Institute estimates that through its sovereign wealth fund’s two-thirds ownership of Equinor, the Norwegian Government stands to make $8.1 billion from oil and gas exploration in the Great Australian Bight, which is greater than Australian taxpayers would make:
Norwegian oil company Equinor is planning exploratory drilling for oil and gas in the Great Australian Bight beginning in late 2020. Equinor is 67% owned by the Norwegian Government via its sovereign wealth fund.
We have used modelling commissioned by the oil and gas lobby to estimate the payments the Norwegian Government would receive if this oil source was developed. We then compare that to the tax payments that would be received by the South Australian and Australian Governments.
The Norwegian Government will receive estimated profits (in present value terms) of $8.1 billion from the Bight project.
This is 27 times more than the South Australian Government will receive in payroll tax of $0.3 billion and more than the $7.4 billion the Australian Government will receive in company tax and Petroleum Resource Rent Tax (PRRT).
The forecast tax revenues take decades to materialise. Oil development in the Bight may also be found to be economically unviable and not proceed. The project could also become unviable after it starts producing oil. Events that would render the project uneconomic include competition from lower cost oil produced elsewhere and reduced oil demand (eg because of the development of electric cars).
The $0.3 billion in present value payroll tax revenue the South Australian Government is forecast to receive over the 40-year life of the project is negligible compared to the South Australian Budget. In 2018-19 alone the South Australian Government’s total expected revenue is $20.2 billion.
The $7.4 billion in present value company tax and PRRT the Australian Government is forecast to receive over the 40-year life of the project is negligible compared to the Australian Government Budget. In 2018-19 alone the Australian Government’s total expected revenue is $485.2 billion.
All this comes before considering the subsidies that governments are likely to have to pay to establish an oil industry in the Bight.
Economic modelling of oil and gas projects has been found to notoriously overestimate how much tax revenue oil and gas projects will pay compared to what the projects actually pay. The forecasts of Bight oil tax revenue are also highly likely to be over-optimistic.
The Australian Government is significantly more generous to the petroleum industry than the Norwegian Government. The marginal tax rate on the Norwegian petroleum sector is a very high 78%. The Norwegian Government also receives significant revenues from its direct ownership in oil and gas fields. In 2019 the Norwegian Government is forecast to receive $46 billion from the petroleum industry. In contrast, in 2017-18 the Australian Government only received $1.2 billion in PRRT while rivalling Qatar as the world’s largest LNG exporter.
As a result of the Australian Government’s decision to raise little revenue from the exploitation of its oil and gas resources, drilling in the Bight is effectively a no-win proposition for Australia and the communities along its south coast. While Australians are being asked to shoulder all of the economic and environmental risk of the project, a foreign government is likely to enjoy much of the financial gain.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
