The Turnbull Government has released the report of the review into the operation of the Petroleum Resource Rent Tax (PRRT), crude oil excise and associated Commonwealth royalties.
The review was led by respected economist Mike Callaghan AM PSM and received strong interest from a wide range of industry and other stakeholders.
The review received 77 submissions in response to its December 2016 issues note. The review team also met with a broad range of interested parties, including 19 from industry. Non-confidential submissions received by the review team are available on the Treasury website. I thank Mr Callaghan for his leadership in conducting this review.
The report highlights improvements that can be made to the PRRT over the longer term. It does not recommend changes to the crude oil excise or Commonwealth royalty schemes.
The report finds the decline in PRRT revenue does not, in itself, indicate the Australian community is being shortchanged in receiving an equitable return from the development of its resources. It also finds that the current scheme is not deterring investment.
It recommends scheme changes that impact beyond the current investment decision horizon; such as uplift rates, transferability and order of claiming deductions. In addition, the review has recommended minor changes that would apply to existing and new projects to improve the operation of the PRRT.
The recommendations do not have any immediate material impact on the forthcoming Budget. The report emphasizes that care must be taken in making any changes that could impact important projects that have made advanced plans based on existing arrangements.
Accordingly the Government will consider the report outside the current Budget, to enable comments to be received on the recommendations and provide a considered response in the next few months.
In considering the findings and recommendations of the report, the Government will take into account the need to ensure that the PRRT provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development that is vital to the industry.
The Treasurer has requested additional work be undertaken in considering reforms to the framework. An additional consultation period will be run until the end of August, and Treasury shall have until the end of September to report back to Government. Please see the report attached [PDF 1.8MB].
Background
To help better protect Australia’s revenue base and ensure that companies are paying the right amount of tax on their activities in Australia the Treasurer announced a review into the operation of the Petroleum Resource Rent Tax (PRRT), crude oil excise and associated Commonwealth royalties in November 2016.
The review released an issues paper in December 2016 and received 77 submissions from a range of industry and other interested parties. Non-confidential submissions received by the review team are available on the Treasury website.
The PRRT is a profits based secondary tax that applies to onshore and offshore oil and gas production in Australia.
PRRT receipts averaged around 0.2 per cent of GDP through the 1990s and 2000s, peaking at almost $2.5 billion in 2000-01. Over the past five years, however, PRRT has averaged less than 0.1 per cent of GDP and is forecast to be around 0.04 per cent of GDP per year over the forward estimates period.
There are a number of factors driving the weak revenue outlook, including the price of oil, the significant investment that has taken place over recent years and the structure of the tax system.