Australian government to review petroleum resource rent tax

The Australian government has announced a review of the country’s petroleum resource rent tax (PRRT) to be led by former Treasury official Mike Callaghan.

Federal Treasurer Scott Morrison said it will be a “comprehensive and holistic review” into why PRRT collections are now only $800 million (Aus.)/year, a figure that has dropped by half since 2013, and why revenue for the oil excise has halved during the same timeframe.

The announcement follows a report from the Auditor-General this week into one offshore project—the North West Shelf LNG development—that found $5 billion in tax deductions had been claimed from mid-2014 to December 2015 by the Woodside Petroleum Ltd.-led joint venture that includes Chevron Corp., BP PLC, Royal Dutch Shell PLC, Japan Australia LNG, and BHP Billiton Ltd. to reduce their royalty bills. The report said that not all the deductions were valid.

In the industry overall, there have been claims that only 5% of 150 oil and gas venture projects are paying any PRRT.

Morrison declined to quantify the so-called revenue hole from unpaid PRRT, but did warn that revenues are set to fall further despite Australia likely to become the world’s largest exporter of LNG by 2020.

“I anticipate we will see a further revenue deterioration potentially in this area and that is why it is important that we address it,” he said. “We think it is a problem.”

Morrison said there was concern that PRRT was not operating as it was originally intended and the inquiry would look into the reasons behind the rapid decline of the PRRT revenues.

He said the review is about ensuring sustainability and effectiveness of the Australian tax system. He added that it is not primarily about revenue.

“The last thing we want to do in moving in this area is do things that might put at risk investment.”

Mike Callaghan was a chief-of-staff to former Liberal Government Treasurer Peter Costello in the Howard Government of the 1990s. He will make his report to government in April 2017 to enable Morrison to outline new measures in the 2017-18 Federal Budget in May.

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