Petroleum resource rent rort: fossil fuel companies continue to rip taxpayers off

If you’re wondering who is going to pay for Scott Morrison’s $16 billion election war chest of pork, or the massive, seemingly permanent increase in the size of the federal government as a part of the Australian economy, you can at least be sure of who ain’t gonna pay: our fossil giants.

As Crikey pointed out last week when the Australian Tax Office published its annual tax transparency data for 2019-20, fossil fuel companies paid little or no tax on billions in revenue and profits. Santos — zero tax. Origin — no tax. Chevron — no tax. Shell — no tax. Woodside — just $176 million off nearly $2.2 billion in profit.

They make the giant mining companies like Rio Tinto and BHP, which paid billions in company tax, and the big banks, which have fewer opportunities for profit-shifting, look like model corporate citizens.

Last week’s MYEFO showed that the government expects a monster $18 billion rise in company tax receipts this year compared with the budget, along with an extra $8 billion in superannuation tax receipts. It also expects company tax to come in $9.5 billion higher than expected next year, though it expects to lose some to lower super tax receipts.

But don’t worry — you’re shouldering the burden too. It expects individual income tax receipts to come in nearly $20 billion above the May budget estimate this year, and another $13.5 billion next year.

Remember, virtually none of that is actually being saved by Morrison and Treasurer Josh Frydenberg — they’re spending it, including tens of billions on pork-barrelling and gifts to the National Party.

But one area of taxation where the dial remains strangely unmoved is receipts from the petroleum resource rent tax. MYEFO bumped up the budget forecasts this year and next from $1 billion to $1.4 billion — but that’s only a restoration of the default returns from the PRRT, which Treasury simply assumes will be at $1.4 billion based on an oil price of US$86 a barrel. Indeed, the forward estimates in MYEFO show how consistent Treasury is on this:

So while the tax bill for everyone else goes up, the big resource companies’ bill remains static — ostensibly because it’s tied to the oil price.

But you might wonder, how can that be when gas exports have, so to speak, exploded in recent years? According to the Australian Bureau of Statistics, in 2003 we exported 426 petajoules of gas. In 2015 we exported 1383 petajoules. In 2019-20, we exported nearly 4400 petajoules. Last year we became the world’s biggest exporter of gas.

But in 2003 taxpayers received $1.7 billion in PPRT revenue. And in 2015 nearly $1.9 billion. So we’re now receiving substantially less in PRRT than when gas exports were a tenth of their current level, or even a third of their current level.

To make things worse, Treasury has a long-running problem of overestimating tax receipts from PRRT. Between 2012-20, Treasury overestimated PRRT receipts six times. In net terms, we’re $600 million worse off than forecast over that period despite the bumper year of 2014-15 when revenue came in $70 million over.

Under pressure over the lack of PRRT revenue despite the extraordinary expansion of gas exports, then-treasurer Morrison asked right-wing economist Mike Callaghan to review the PRRT in 2017.

His review concentrated on the assumption that providing the community with an equitable return on the taking of its resources by corporations was no more important than not deterring investment, and waved away submissions from a wide variety of stakeholders that the PRRT rate was too low and the uplift rates for deductions too generous to corporations. Callaghan’s scepticism only extended to noting that resources companies now said the current PRRT arrangements did not deter investment at all — in contrast to their warnings when the Hawke government introduced it, that it would crush investment.

But even Callaghan thought that the rise and rise of gas posed significant challenges for a regime designed around oil exploration, and he recommended a review of the treatment of the pricing of gas when it was transferred from its extraction phase to its liquefaction phase (as Diane Kraal explained last year, we have a unique pricing methodology devised by the discredited and disgraced Arthur Andersen consulting firm). The government, along with some marginal changes to the regime that would only apply to new projects, agreed to a review — which remains unfinished on its fourth year.

Meantime, Shell has announced it will pay no PRRT at all ever on exports from its Gorgon and Prelude gas fields. Australians are giving free gas to a multinational fossil fuel company permanently.

Now you can see why, when everyone else’s tax bills are going up, fossil fuel companies are pumping out massive exports, earning colossal revenue — and generating vast CO2 emissions — and not paying a single cent in tax.

It’s another subsidy by the government — which understands the problem perfectly well — to its fossil fuel donors via the tax system, one that runs into billions of dollars.