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Oil and gas giants pocket $324b in tax credits – an explainer

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Oil and gas giants pocket $324b in tax credits – an explainer

OIl rigs. Image by: Selba. (CC BY-NC-ND 2.0)

OIl rigs. Image by: Selba. (CC BY-NC-ND 2.0)

OIl rigs. Image by: Selba. (CC BY-NC-ND 2.0)

OIl rigs. Image by: Selba. (CC BY-NC-ND 2.0)

Henry Sims, Reporter

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Major oil and gas companies have seen their tax credits rise to a total of $324b in 2017-18 – meaning many of these companies won’t have to pay tax for years to come. 

These credits are a result of a piece of tax law called the Petroleum Resource Rent Tax (PRRT), introduced by the Hawke government in 1987 to apply to offshore oil and gas projects. 

In 2012 it was expanded to cover all new oil and gas projects in Australia.  

The PRRT isn’t without its critics, with many questions being asked about why Australia is so generous to major resource companies. 

The different parts at play explained

What is a ‘tax credit’? 

In basic terms, a tax credit is a sum of money certain taxpayers can use to offset the amount they pay in tax at the end of the financial year.  

Why are oil and gas companies given tax credits? 

Under the PRRT, Australia affords oil and gas companies generous concessions when they spend more money on projects than their total assessable tax receipts – and unlike many other tax credits, these can be carried on year over year.  

When do these tax credits expire? 

They don’t – companies can transfer their tax credits from project to project, meaning some companies can use the PRRT to reduce their tax bills long-term. 

How much does the PRRT raise? 

In 2017-18, there were only six “profitable” projects that paid the PRRT out of 138 receipts lodged with the Australian Taxation Office (ATO). From a total of $29.7b lodged in tax receipts, $1.16b was paid in tax. 

The supporters and detractors 

The Coalition is generally supportive of the PRRT in its current form, although a bill introduced this week could make some changes to the way deductions apply to future years. 

These changes follow a tax review conducted in 2016, as well as the findings in the far more well-known 2010 Henry Tax Review, which found the PRRT “fails to collect an appropriate and constant share of resource rents from successful projects due to uplift rates that over-compensate successful investors for the deferral of PRRT deductions”.

Speaking to the ABC, Assistant Treasurer Stuart Robert said the comparison between revenue raised under the PRRT and tax credits was misleading. 

“The former is a function of the profitability of projects, while the latter is a function of the money actually spent by companies to develop those projects,” he said. 

“Tax losses, or credits as they are sometimes called, represent money companies have actually spent on developing projects, plus uplift, and are mostly not transferable between projects.” 

Through the shadow assistant treasurer, Andrew Leigh, Labor (ALP) has signalled it will support the new government bill, expected to raise $6b in additional revenue over ten years. But for the most part, the ALP has been silent on the issue of mining royalties, seemingly playing it safe after the bruising fight they had with the mining lobby over the Minerals Resource Rent Tax during the Gillard government. 

The Greens went on the offensive in the wake of the announcement, with their treasury spokesperson Senator Peter Whish-Wilson saying the concessions provided were “overly generous”. 

“The PRRT is the most egregious rort in the Australian tax code,” Senator Whish-Wilson said. 

“While the world is in the middle of an LNG boom, we’re practically giving the stuff away.” 

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About the Writer
Henry Sims, Reporter

Henry is an aspiring broadcaster and journalist with a strong interest in politics, sport, and all things WA. With a background in arts and community organising,...

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Oil and gas giants pocket $324b in tax credits – an explainer