PNG leads way on LNG tax

TAX academic Diane Kraal, whose work has exposed issues in the design of Australia’s Petroleum Resource Rent Tax scheme that mean most LNG projects won’t pay a cent of tax for decades, says Australia should learn how to tax LNG from Papua New Guinea.
PNG leads way on LNG tax PNG leads way on LNG tax PNG leads way on LNG tax PNG leads way on LNG tax PNG leads way on LNG tax

Haydn Black


Kraal, an academic at Melbourne's Monash University, wrote a paper for Australian think-tank publication The Conversation, explaining the PRRT was never designed for big, long-term gas projects and the replacing of royalties, which are paid before profit or loss are even a factor, meant the Australian government was losing out on its rightful tax income.

And she moved to head off a key line argument industry that additional taxes will act as a disincentive to invest, by saying that oilers are used to paying additional resource taxes, which are often high, around the world.

"In those countries, the accepted justification for additional resource taxes on petroleum is due to the finiteness of mineral resources: extraction can only occur once," she wrote.

Kraal argued that LNG should be taxed with a modified PRRT to ensure the Australian taxpayer shared the benefits of the $200 billion spent in building the latest wave of LNG developments over the past decade.

Federal budget papers show that PRRT income has decreased substantially in recent years, and will fall to $800 million per annum in 2020, suggesting the community could wait decades for benefits from PRRT on gas.

She said the PRRT needed to reduce the write-offs for infrastructure investment and recognise that gas prices are lower than oil prices.

"A more equitable arrangement would require more prompt payment to the government for gas extraction, such as production-based royalties paid on the coal seam gas and North West Shelf projects, as well as a modified PRRT design," she said.

Kraal said the 2017 PNG budget was one that took big steps in resource tax reform, so resources companies operating in PNG will pay a revamped resource rent tax, as well as the existing royalties and company taxes.

The idea to reform PNG's tax system came from Kraal and former Labor minister Craig Emerson, and she said that following PNG's lead may help Australia bring in more revenue from natural gas, sooner.

She said a re-introduction of some level of royalties for offshore gas projects would not increase the tax burden for industry, but would more immediately provide much-needed revenue for government.

She said when the PRRT was designed by the Hawke-Keating government in 1984 that gas was a domestic product, with little thought to export, so it was excluded because projected PRRT revenues could not match gas royalties.

There are now more gas than oil reserves in Australia, and the nation is on the path to becoming the world's largest LNG exporter, although only Queensland's CSG fields and the North West Shelf projects any pay royalties.

ConocoPhillips' Darwin LNG, Chevron Corporations' Gorgon LNG and Wheatstone LNG, and Inpex's Ichthys LNG will all escape the hand of the tax collector for up to a decade.

She said changing this would help with budget repair.