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Michael Pascoe: Hiding in plain sight, Labor commits to further big fossil fuel projects

The tweaking of the Petroleum Resources Rent Tax is ominous for our future, Michael Pascoe writes.

The tweaking of the Petroleum Resources Rent Tax is ominous for our future, Michael Pascoe writes. Photo: Getty/TND

What the, er, hell? Is it possible that nobody else saw the big story in Jim Chalmers’ sweetheart deal with Big Carbon over the weekend?

The Treasurer fed the chooks ahead of the federal budget with his desired spin on a minor tweaking of the revenue-bleeding Petroleum Resources Rent Tax. The chooks dutifully swallowed it and laid government-friendly eggs.

The headlines everywhere shouted “$2.4 billion gas tax rise” – which sounds like a lot of money when, to use a technical term, it is actually bugger all.

That big headline figure is over “the forward estimates” i.e. four years, so $600 million a year and, more importantly, it’s mainly a pull-forward of tax that largely would have happened later.

It’s a fraction of what could have been fairly achieved, demonstrating the power Big Carbon continues to exercise over both sides of Parliament.

Wait, there’s more …

Two things everyone seems to have overlooked in the once-over-lightly reporting and lack of PRRT understanding:

  1. The Albanese/Chalmers government went ever so gently with the gas industry because it hopes for more big new fossil fuel extraction projects – it didn’t want to scare Big Carbon away from exploring for and exploiting more gas fields and too bad about the climate implications of that. This is explicit in the official announcement.
  2. The government allowed the gas industry to pick its preferred option for a tiny PRRT reform. That again is explicit in the government’s response to the Treasury’s five-year-long review. (And while Treasury needs a sharp independent review, don’t try to tell me COVID-19 was the reason it took five years to understand the PRRT rort. It’s not quite that useless a department.)

A special prize should go to the Australian Financial Review headline writer’s effort – “$2.4b gas tax rise must be the last, APPEA says”.

The prize is for indicating who is running the show. It isn’t for the arrogance APPEA displays in the story – the AFR reports the oil and gas sector has “accepted” the government’s feather tickle “on the proviso it ends the pursuit of the industry for more revenue”.

I missed the bit in Government 101 where the gas industry sets the rules, but it turns out that is the case.

Wrong option

Treasury, being the weak-kneed outfit that it is, began its published recommendations to the government with a fine statement:

“Treasury considers that the existing Gas Transfer Pricing Regulation results in a structural undervaluation of gas at the PRRT taxing point for integrated LNG projects, particularly when resource prices are high.”

Too-bloody-right.

But then the Canberra public servants went to water. Instead of offering “frank and fearless” advice on the best solution for Australians, it fudged into giving the government three options, of which the government has chosen the one the industry liked and admits as much in its official response:

“The government notes that Treasury has consulted industry on the three options in Recommendation 1, and that the recommended design for the deductions cap takes into account stakeholder feedback to minimise impacts on new investment in current and future projects.”

And just to underline the explicit commitment to all the new gas projects that might be possible, the government said the gas industry’s preferred option – tweaking the deductions cap – “would provide greater certainty to support future investment and gas supply”.

The Albanese government continues to run the line that new gas projects for as far as the eye might see and a dollar might be turned are “supporting the economy’s net-zero transition”.

And if you believe that, you haven’t been following the climate crisis and Australian politics.

What the expert says

Someone who actually has a detailed knowledge of how the arcane PRRT thing works and has been exploited is Dr Diane Kraal, adjunct senior research fellow at Monash University’s business school. She is quoted several times in Treasury’s report – I suspect Treasury relied heavily on her to explain what it was meant to be understanding.

Dr Kraal also understands the climate implications. I have been fortunate to interview Dr Kraal in the past when I was trying to understand it and obtained her view on Monday night on the Chalmers’ sideshow.

She welcomed Dr Chalmers’ 90 per cent cap on the use of deductions, but immediately said it did not go far enough and told us what she really thinks.

“The anticipated $2.4 billion expectation of extra PRRT revenue is insufficient and the budget’s proposed change to the PRRT will hardly make any difference to tax collections,’’ Dr Kraal said.

“The Treasurer’s proposed PRRT changes do not go far enough. In fact, it has made the PRRT more complex, for very little extra tax revenue. The PRRT should be repealed and a royalty system should be re-introduced.

“The PRRT was repealed in 2019 for the onshore gas industry in Queensland. Royalties are now the tax method for onshore gas in Queensland. The precedent is now there for offshore gas off Western Australia and Northern Territory – to change to royalty taxation.”

‘Gas needs to pay its fair share’

“The gas industry needs to pay its fair share of PRRT to fix its carbon emissions. Currently 9.8 per cent of carbon emissions in Australia are mainly from gas production,’’ Dr Kraal said.

“According to the Treasurer, the proposed changes will limit the proportion of PRRT assessable income that can be offset by deductions and ‘increase tax receipts by $2.4 billion over the forward estimates’.

“The Treasurer’s anticipated extra revenue from the PRRT changes will not even come close to covering the build-up of deductions. For instance, the latest ATO statistics for 2019-20 reveal ‘carried forward deductions’ for the PRRT are already at $282 billion.

“Other ATO statistics for 2020-21 show that, apart from the producers of gas from Bass Strait in Victoria – no other large offshore producer of gas is paying any significant PRRT – if at all.

“The government’s PRRT collection in 2021-22 was a poor $1.6 billion. The LNG producers in Australia received a record $91 billion in revenues in 2022. These industry revenues will be greater in 2023.”

Thank you Dr Kraal – but your recommendation doesn’t suit the gas industry. And this government, like the last one, wants the industry to be happy, to keep exploring and developing new gas fields, to keep being one of our biggest carbon polluters, to keep donating to political parties.

Just don’t tell the chooks.

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