The Coalition Government is today releasing its final response to the review of the Petroleum Resource Rent Tax (PRRT) undertaken by economist Mike Callaghan AM PSM.
Australia’s oil and gas industry is a valuable economic contributor, recording nearly $40 billion in export earnings in 2017-18, with continued growth forecast. Over the past decade, the industry estimates it has invested more than $300 billion into the Australian economy.
Since the PRRT was introduced in 1988 the nature of petroleum production has changed, shifting from crude oil and condensate to a more significant role for LNG. In fact, over the past 30 years, oil and condensate production has nearly halved, and gas production has increased over sevenfold.
Our Government initiated the Callaghan Review in November 2016, to provide advice as to whether the PRRT is operating as it was originally intended and to address the reasons for the rapid decline of Australia’s PRRT revenues.
The Callaghan Review received significant input from a wide range of industry and other stakeholders, and was released by the Government in April 2017.
The Review found that while the PRRT remained the preferred way to achieve a fair return to the community without discouraging investment: “Changes should be made to PRRT arrangements to make them more compatible with the developments that have taken place in the Australian oil and gas industry.”
The release of our final response to the Callaghan Review today will provide certainty to the industry and ensure the PRRT better reflects Australia’s petroleum industry today. The changes, to be introduced from 1 July 2019, include:
- Lower uplift rates: These changes will limit the scope for excessive compounding of deductions. For example the uplift rate on exploration expenditure will be reduced from Long Term Bond Rate (LTBR)+15 percentage points to LTBR+5. Existing investments will be respected.
- Onshore projects removed from the PRRT regime: Since onshore projects were brought into the PRRT in 2012, no revenue has been collected and that was expected to remain unchanged into the future. In practice, it has been used to transfer exploration deductions to profitable offshore projects reducing PRRT payable. This change will simplify the system and strengthen its integrity.
- Review of Gas Transfer Pricing Regulations: Treasury will commence a review into the regulations that determine the price of gas in integrated LNG projects for PRRT purposes. Treasury will consult closely with the industry and community.
These changes will ensure production of our petroleum resources are taxed appropriately while continuing to support the development of our world leading LNG industry.
The new uplift rates and removal of onshore projects are expected to raise $6 billion over the next decade, to 2028-29.
The Callaghan Review also made a number of recommendations aimed at improving the efficiency and administration of the PRRT. The Government will consult on exposure draft legislation to allow legislation to be introduced next year. The Government’s response is available HERE.
These reforms are part of the Coalition Government’s plan for a stronger economy, to guarantee the essential services that Australians rely on.