Additionally, Treasurer Jim Chalmers announced a far-reaching amendment to the Petroleum Resource Rent Tax (PRRT). This amendment would increase revenues by an extra $2.4 billion over four years, starting in FY2023. This change comes in direct response to worsening revenue forecasts. They’ve nose-dived from a projected $10.8 billion to a mere $6.3 billion in that span. The PRRT applies only to offshore petroleum projects like those in the North West Shelf. It only charges payment once these projects start generating positive cash flow, based on all costs incurred.
That’s exactly what the latest reports from the Australian Taxation Office indicate a very clear trend toward. The PRRT’s revenue has always tracked the oil market’s roller coaster. The high-water mark for tax paid through the PRRT was almost $2 billion in 2021-22, largely due to increased profitability stemming from soaring oil prices following geopolitical tensions, specifically Russia’s invasion of Ukraine. Chalmers pointed out that PRRT revenue projections are notoriously inconsistent. I understand that this volatility is a real and somewhat inevitable byproduct of fluctuating oil prices.
Revenue Fluctuations and Projections
The revenue raised from this tax has been spectacularly variable. Since the 1980s, Australia has not received a dollar of tax revenue from liquefied natural gas (LNG) export facilities. That is surprising given that Australia is the world’s second largest gas exporter. As Chalmers explained, “It is based on expectations of production but on the oil price, and the oil price is especially volatile… It was actually revised up in the last budget.”
The government currently plans to raise billions of dollars less than once thought. For these reasons and more, there are increasing calls for the PRRT to be reviewed, particularly its ability to effectively capture petroleum resource profits. As Senator David Pocock pointed out last week, Australia is receiving less bang for its gas buck. He noted that the nation is receiving zero PRRT from offshore LNG developments. Pocock stated, “We’re paying international prices for our own gas… these companies have been taking the piss.”
Against all those odds, Zali Steggall, an independent Member of Parliament, raised the PRRT’s structure and fairness as a key concern. She called the existing system a long-overdue loophole that needed fixing yesterday. “At a time of record profits, I think that would be a much more equitable outcome for the Australian people,” she asserted.
The Need for Reform
Calls for PRRT reform have been growing. Unsurprisingly, a review in the Morrison era found that it was desperately overdue to modernise the taxation framework. The review revealed one glaring problem with the current tax structure. It does not truly hold responsible the enormous profits reaped by the offshore oil industry.
Steggall further criticized the government’s approach to budget repair, arguing that “You can’t on one hand talk about budget repair and needing to increase revenue but only target individual endeavour … all tax has to be on the table.” This sentiment reflects a growing consensus among some lawmakers that comprehensive reforms are necessary to ensure that Australia benefits more from its natural resources.
The rising voices advocating for reform underscore a critical moment for policymakers as they navigate economic challenges while seeking fair compensation for Australia’s rich resource base. With global oil prices swinging up and down, making revenue forecasts more volatile, confronting these challenges is vital in guaranteeing the state’s fiscal health long into the future.
Future Implications
Talk of the PRRT is growing more passionate and intense. Stakeholders from every sector are paying attention to how these changes might shape future commitments to petroleum projects in Australia. The government is beginning to address these calls for reform. Their efforts will probably go on to define Australia’s resource taxation landscape for decades.
