Australia’s tax system is failing to deliver the benefits of the gas boom

by Daniel Bleakley
At a time when Australians should be benefitting from the massive surge in revenue in the gas industry, the money is instead flowing overseas.

An analysis of Australian government revenue from oil and gas shows that for over 30 years the share of industry revenue ending up as taxes has been steadily falling. In 1987-88 the government received 57% of total oil and gas sector revenue. This has declined to just 7% in recent years.

A major reason for the decline has been the changes in both the sector and the Petroleum Resource Rent Tax  (PRRT) Assessment Act. In the early 1990s the industry was dominated by oil exports, however, in recent years LNG has made up over 80% of total exports. Over this period as well, there have been multiple amendments to the PRRT that have resulted in many concessions and deductions.

When the PRRT was introduced it captured 19% of total revenue; this has now dropped to just 1% in 2019-20.

There has also been a dramatic decline in the proportion of corporate tax paid by the sector. In 1996-97, corporate tax for the industry peaked at 16% of total sector revenue but that has dropped to just 2% in recent years.

The sector also has a shameful record of tax avoidance.

In 2017, oil and gas giant Chevron was found to have engaged in transfer pricing.  Chevron’s Australian entity borrowed at an interest rate of 9% from Chevron’s US (Delaware) based entity which itself was financed at just 1.2%. This served to inflate tax-deductible expenses reported in Australia while shifting profits to low-taxing jurisdictions like Delaware. The use of such tactics over recent years has contributed to the decline in overall corporate tax paid by the sector.

The picture is clear – Australians are losing out. The huge booms in revenue and profits should be delivering massive increases in taxation that can be used to fund government services and benefits. Crucially given the emissions created by the sector, the taxes could be used to help invest in the transition to a zero-emissions economy. Instead, the money is flowing overseas and delivering little benefit to Australia.

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