Views on the bill
This chapter summarises stakeholder views on the bill. General comments
on the bill are considered initially before concerns regarding specific aspects
of the bill are then explored.
General comments on the bill
A number of submissions supported the intent of strengthening the Petroleum
Resource Rent Tax (PRRT) regime. For example, the Australian Petroleum
Production and Exploration Association (APPEA) recommended that:
The Committee supports the immediate passage of the
legislation, including the removal of PRRT from onshore operations, with the
new provisions to apply from 2019.
INPEX, a member of APPEA, supported the industry's position on the PRRT
reforms and 'supports a taxation regime in Australia that enables investment in
the development of LNG projects in Australia, while providing a fair share of
tax to be returned to the Australian community'.
The Synod of Victoria and Tasmania, Uniting Church in Australia (the
Synod), also supported the passage of this legislation:
We are concerned that if this bill is not passed by the
Parliament, then no reform to the PRRT will occur [and] the current flawed
arrangement will persist for the foreseeable future while the gas reserves are
Notwithstanding the support for the bill, all submissions advocated for
amendments in one form or another.
Some submissions discussed the changes to uplift rates. For example, APPEA
argued that changes to uplift rates for exploration would be counterproductive:
The proposed reduction in the augmentation (carry-forward)
rate for exploration expenditure from LTBR plus 15 percentage points to LBTR
plus five points will in some instances lead to an increase in the after tax
cost of undertaking exploration...
While it is understood that other aspects of the exploration
provisions have been retained (such as the transferability of offshore
expenditures to other projects held by a taxpayer), the future reduction in
the value of exploration deductions for PRRT purposes is arguably not
consistent with the desire to increase exploration in Australia.
By contrast, the Synod supported lowering of uplift rates in general,
...believes they are still too generous at the cost of returns
to the Australian community for things like aged care funding, funding for
schools, funding for the health system, funding to address family violence and
funding for disability schools. Further, the Synod is disappointed the
reduction in uplift rates only applies to future projects and does nothing to
address the massive accumulated credits that apply to many of the existing
The Synod went on to argue that the uplift rates:
...be set at the long term bond rate (LTBR) for those
activities to which any uplift rate is applied to at all. The Synod is
concerned that the different rates of uplift would provide incentives to 'game
the system' and seek to try and have expenditure classified into activities
with the higher uplift rates.
That said, the Synod supported the changes to drop uplift rates to lower
levels after ten years.
Transferability of onshore exploration costs
Some submitters raised concerns about the removal of onshore exploration
APPEA noted that:
The cost of this change will fall most heavily on companies
that have been exploring onshore for natural gas, particularly to support the
east coast gas market.
APPEA went on to argue that:
...the decision to effectively 'dissolve' undeducted onshore
exploration expenditures incurred by companies in the period 2012 to 2019
represents the removal of an entitlement to legitimate deductions incurred by
taxpayers during this period. APPEA considers this represents poor tax policy
and is inconsistent with the tax treatment of offshore exploration expenditure
over the same period that will appropriately remain transferrable to PRRT
paying projects held by a taxpayer.
Santos noted that:
The retrospective expiry of these deductions would also be
inconsistent with the treatment of other proposed changes to the PRRT, for example
augmentation, which has been grandfathered to ensure the changes are prospective
and therefore sound from a taxation policy, equity and fiscal stability
The South Australian Department of Energy and Mines also noted the impact
of the retrospective changes and highlighted the likely significant write-offs
for companies with undeducted onshore exploration expenditure.
The Australian Shareholders' Association (ASA) outlined that country
risk is lower in jurisdictions with clear policies and where any changes are
staged or well-flagged. The ASA argued that this is not the case here; with the
bill applying retrospectively and providing differential treatment between
companies that have already made investment decisions based on the existing
PRRT rules and committed exploration expenditure accordingly.
APPEA and Santos argued for a transition period to be introduced to
allow companies with undeducted onshore exploration expenditure to transfer
For example, Santos considered that:
...the principle of prospectivity should be applied
consistently, including in the case of existing onshore transferable
That said, the Synod supported the changes to transferability of onshore
The committee welcomes the broad support for the bill from stakeholders
and notes the specific concerns raised by submitters to the inquiry. The very small
number of submissions received indicates strong support for the bill.
The changes outlined in the bill will lower the overly generous uplift
rates that apply to certain categories of carried-forward expenditure. The
committee considers that these changes are appropriate to limit the excessive
compounding of deductions and provide some assurance that projects may still
pay PRRT if the timing of cash flows is different to investment forecasts.
The committee notes that generous transitional arrangements were
provided when onshore projects entered the PRRT regime, such as a 'starting
base', and the deductibility of resource tax expenditures (for example,
state/territory royalties). These arrangements not only ensured onshore
projects are expected to pay no PRRT under any realistic scenario, they gave
rise to an unintended consequence in which companies were able to reduce the
PRRT liability of offshore projects via the accumulation and transferability of
unutilised deductions for onshore exploration expenditure.
The committee considers that the removal of onshore petroleum projects
will address the integrity risk to the PRRT from the inclusion of projects that
are unlikely ever to pay PRRT. That said, the committee recognises that the
proposed changes have been considered as retrospective by some stakeholders in
that alternative exploration decisions might have been made between 1 July 2012
and today if the proposals in this bill were known at the time these
exploration decisions were made. Nevertheless, the committee also recognises
the Government's desire for simplicity in addressing the removal of onshore
projects from the PRRT.
The committee recommends that the bill be passed.
Senator Jane Hume
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