Australia’s petroleum tax system will fail to raise much revenue, yet big producers won’t be earning big profits either, according to oil industry consultant Juan Carlos Boue.
Australia’s petroleum tax system will fail to raise much revenue, yet big producers won’t be earning big profits either, according to oil industry consultant Juan Carlos Boue.
Speaking at the Energy in WA conference yesterday, Oxford Institute for Energy Studies' Dr Boue said Australia was getting the second lowest effective tax rate for petroleum resources of six similar jurisdictions.
“When you have a situation where a government is not making great tax revenue … usually the opposite side of the coin is that there’s a company minting it,” he said.
“But that doesn't even apply in this case.
“You can see from the annual reports of Shell and Chevron … because of the massive investments these companies have made in LNG … they were having to borrow money to keep their shareholders happy [through dividend payments].
“LNG projects have failed to generate any economic rent.
“They don’t pay Petroleum Resource Rent Tax or royalties.”
Dr Boue did note 2017 reports that the PRRT had generated about $33 billion in revenue over its lifetime.
An additional problem from the LNG industry was reduced domestic availability of gas, particularly on the east coast, he said.
“This all seems to be a reflection of a tax system that has incentivised and distorted investment in a major way to the extent of even damaging the shareholders of the projects,” Dr Boue said.
“[Chevron’s] Gorgon project came in at a $20 billion cost overrun.
“These sorts of cost overruns you find in jurisdictions such as Kazakhstan, where the tax system is structured in such a way that companies just have to spend, because they believe … it will come out of their future tax liability.”
He said the system was ripe for a crisis and would come under continued political pressure.
In 2017, the Petroleum Resource Rent Tax was reviewed by a panel headed by Michael Callaghan, while last year Senate crossbenchers called for reform of the system in exchange for supporting government legislation.
Dr Boue said producers would continue to carry forward their large capital expenditure items, which would reduce their tax payments.
“The industry has to generate enough cash flow to pay down all its carry forwards before it will pay any PRRT.
“Quite simply, it won't happen.
“These expenditures are currently at $300 billion, and it's hard to imagine the circumstances under which enough cash flow is going to be generated to pay these down.”
