Daily Bulletin


The Conversation

  • Written by Diane Kraal, Senior Lecturer, Business Law and Taxation Dept, Monash Business School, Monash University

Resources usually give the budget a healthy boost in economic boom times but the government could be reaping more revenue if it changed the way it taxes gas projects, my new modelling shows.

A small change in the method for valuing gas would increase revenue from the petroleum resource rent tax by US$15.5 billion to 2030, compared to the current US$5 billion to 2030.

I modelled what would happen with an alternative but accepted method to tax the revenue from Australia’s four largest gas projects in Western Australia - Inpex’s Ichthys, Woodside Petroleum’s Pluto and Chevron’s Wheatstone and Gorgon. The method is called “net back” and it calculates back from a gas market price to get the gas transfer price, in a similar approach to that currently used for state gas royalties. It netted an average of A$1 billion per annum in Queensland and Western Australia from 2012 to 2016.

Read more: PRRT explained: why aren't we benefitting from the resource tax?

The production capacity of the four largest projects is 38.3 million tonnes of gas per annum (about 44% of Australia’s natural gas). But these projects currently raise no petroleum resource rent tax and scant income tax. This gas is earmarked for export and little is reserved for domestic consumption.

When businesses shifts or transfers gas between different stages (upstream to downstream) of a project they are required by petroleum resource rent tax regulation to use a combination of methods (“cost plus” and “net back”) to value gas at the transfer point. My alternative of the net back method alone, uses the LNG market price from which costs are deducted back to the point, prior to gas being processed into liquid form.

My submissions to both Treasury, and the Senate inquiry into tax avoidance for the offshore gas industry, explain how the current gas transfer pricing method can be legally manipulated by gas operators. For instance, timing differences in recognising capital or operating costs.

The petroleum resource rent tax regulations prescribe an arbitrary gas valuation method for integrated gas projects, which devalues the transfer price of gas, meaning less revenue for the government.

The current method is not a transparent approach for businesses to use to value gas on its transfer from upstream to downstream. It incentivises tax minimisation through easily manipulated calculations.

Since September 2017 the Turnbull government has yet to respond to the Treasury inquiry’s interim report on gas. The Senate inquiry report has also been delayed.

Another variation to increase revenue along with the “net back” method would be to shift the gas taxing point from just before liquefaction, to after the gas-to-liquid process, at what’s called the “custody transfer meter”. The price per the metered volumes is accepted by the buyer and the seller of gas as the basis for a transaction.

Read more: Senate inquiry told zero tax or royalties paid on Australia's biggest new gas projects

Australia needs to follow in the footsteps of countries like the Netherlands, which has already reformed its inequitable, regulated gas pricing to market-linked pricing. The Netherlands government changes, which increased tax revenues, mainly targeted their current (not future) Groningen gas field, partly owned by Shell and Exxon.

Any change to resource taxing will bring the usual chorus of concern about sovereign risk so often heard in Australia when tax reform is raised. However sovereign risk concerns overt changes, such as nationalisation of resources, certainly not regulatory changes to promote transparency in taxation.

Changes to the petroleum resource rent tax have been part of pre-budget negotiations between the Turnbull government and certain independent senators. However these changes will only affect new projects that will not start for at least 10 to 15 years, so the expected revenue will have no impact on next week’s budget.

The current petroleum resource rent tax regulations prescribe an arbitrary gas valuation method for integrated gas projects. It devalues the transfer price of gas, meaning less revenue for government.

As a first step, the government should reform tax regulation to the net back method for existing projects. This change could easily be part of next week’s federal budget.

Authors: Diane Kraal, Senior Lecturer, Business Law and Taxation Dept, Monash Business School, Monash University

Read more http://theconversation.com/the-government-could-be-boosting-the-budget-bottom-line-with-a-change-to-how-it-taxes-gas-95782

Writers Wanted

'Severely threatened and deteriorating': global authority on nature lists the Great Barrier Reef as critical

arrow_forward

'Unjustifiable': new report shows how the nation's gas expansion puts Australians in harm’s way

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Ben Fordham, 2GB

BEN FORDHAM: Scott Morrison, good morning to you.    PRIME MINISTER: Good morning, Ben. How are you?    FORDHAM: Good. How many days have you got to go?   PRIME MINISTER: I've got another we...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Business News

Nisbets’ Collab with The Lobby is Showing the Sexy Side of Hospitality Supply

Hospitality supply services might not immediately make you think ‘sexy’. But when a barkeep in a moodily lit bar holds up the perfectly formed juniper gin balloon or catches the light in the edg...

The Atticism - avatar The Atticism

Buy Instagram Followers And Likes Now

Do you like to buy followers on Instagram? Just give a simple Google search on the internet, and there will be an abounding of seeking outcomes full of businesses offering such services. But, th...

News Co - avatar News Co

Cybersecurity data means nothing to business leaders without context

Top business leaders are starting to realise the widespread impact a cyberattack can have on a business. Unfortunately, according to a study by Forrester Consulting commissioned by Tenable, some...

Scott McKinnel, ANZ Country Manager, Tenable - avatar Scott McKinnel, ANZ Country Manager, Tenable



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion