Speaking on ABC’s Q&, A on Monday night ( August 12 ), Nobel Prize-winning economist Joseph Stiglitz claimed Australia was “giving away its natural resources”, something he found “mind-boggling”.
He claimed that “you would n’t have the problems you have today” if Australia made the fossil fuel industry pay for the value of the resources it extracts and paid its fair share of taxes.
Stiglitz appeared to be referring to our “gas income,” or profits-based petroleum resource fee income.
I have thoroughly researched and advised professional forums on this subject for many years, and I concur with him that indeed, we are giving away our success, both to foreign places and to businesses that are located elsewhere.
It’s encouraging to see a global star like Stiglitz highlighting some of our system’s most obvious flaws. The federal government must completely abolish its profit-based offshore oil income in order to restore it to the royalty-based system we used to operate.
Australia’s petroleum resource rent tax, or petrol tax, is a secondary taxes on offshore oil sources. It’s a tax on profits, that is to say, it’s just collected when oil firms ‘ revenues exceed their expenses.
Australia is currently one of the world’s leading manufacturers of liquefied natural gas. However, our taxation of the sector has long been excessive.
Thus reduced, in truth, it triggered a national government evaluation in 2017. Michael Callaghan, a former Treasury standard, served as the review‘s impartial expert.
I can remember being asked about my obedience to the assessment, which advocated for significant transformation of existing fuel duty concessions, by Callaghan in early 2017 at my Monash workplace in Melbourne.
However, gas business professionals in Canberra were aggressively lobbying for a change in oil taxation because of” royal risk.”
In the end, Callaghan submitted a report that suggested revenue design changes. However, the changes that the government eventually put into place were essentially window-dressing because, as the income desk below shows, gas tax revenues are still too small.
Figures from 2018 show a sizeable gap between Australia’s gas tax revenue of about A$ 1.1 billion ( US$ 728 million ), and that of our nearest competitors. Qatar collected gas profits that same year of more than A$ 50 billion, and Norway’s special gas tax netted the country A$ 19.5 billion.
It is obvious, even to dispassionate observers like Stiglitz, that Australia’s lackluster gas tax legislation results in a gas industry that does n’t pay its fair share for community-owned natural resources.
Walk away from profits
We used to levy taxes on the offshore oil sector based on the market value of oil produced.
In the 1970s, economists Ross Garnaut and Anthony Clunies Ross created the profits-based income strategy for the previously independent Papua New Guinea fuel economy.
Garnaut was an economic consultant to the Hawke-Keating Government, and in 1983 advocated the reform of national profits. The profits-based duty that replaced it was first applied to earnings from American oil output in 1987, when it generated a respectable amount of income.
But it was later applied to offshore oil production, which is less successful than fuel due to expensive compression, backup infrastructure, and professional high-pressure gas transport requirements.
The fuel tax is delayed by the gas industry’s renowned lower profitability, which prevents the gas industry from enacting it. Companies may run for years without having to pay. In other words, Australia is not being paid for much of its” investment” of oil that is generally sold for trade.
A fair share of taxes
A transfer to offshore oil production’s national royalties may boost government revenues and give the community a fairer outcome.
Some of us may recognize the 2014 reform of mining’s profits-based Minerals Resource Rent Tax, due to its low income. The state repealed the offshore oil profits-based duty in 2019 and is likely to follow suit.
Stiglitz’s studies on how we regulate our natural resources provide another area of reflection. To the disadvantage of our society, we are missing the chance to quite tax things that we can only get again.
Diane Kraal is Adjunct Senior Research Fellow, Business Law and Taxation Dept, Monash Business School, Monash University
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