In Hollywood everyone knows never to ask for a percentage of the film profits. These so-called “monkey points” are the stuff of legends and mirth. Anyone silly enough to demand a slice of profits will be waiting by the letterbox for a cheque that will never come. Famously Forrest Gump never turned a profit, which is quite the achievement for a film that cost $55m to make and earned $678m worldwide.
Given how we tax our gas industry, you get the feeling our gas companies love the way Hollywood does business, and the government has not worked out that they’re the silly ones waiting for a cheque that will never arrive.
Were we to tax gas appropriately we would have a much better chance to properly fund new policies such as those in the universities accord final report released on the weekend.
Australia produces more than six times the amount of gas needed to supply our manufacturing industry, power stations and homes. But more than 80% either heads overseas as LNG exports or is used to convert natural gas into LNG:
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We export a stonkingly large amount – and much more than we used to. In the 2000s we exported around 14m tonnes of LNG a year. Now, due to the opening of the Gladstone LNG terminal, we send 83mt overseas – the second most of any nation.
More production equals more revenue thus surely more profit (even if the margins remain the same) and thus more tax – after all, why would companies massively increase production if not to make more money?
Given we have a mining tax for the gas industry called the petroleum resources rent tax (PRRT), the government surely is swimming in a money bin of gas tax revenue.
Alas no:
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When Australia exported 15.4mt of LNG in 2008-09, the government raised $2.2bn in PRRT. In 2022-23, exports had increased 437% to 83mt but PRRT revenue was up just 7% to $2.4bn.
It would appear that gas suddenly became unprofitable.
At this point the corporate shills will scream that you don’t get taxed on revenue or production but profits.
That is both obvious and true but it was also obvious and true that before 2015, when the Gladstone terminal opened, there was a very strong correlation between gas industry revenue and gas industry taxes:
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The same went for production and tax:
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Were the companies stupid to start exporting LNG from Gladstone as it seems their profit margins have all but disappeared?
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Had the relationship between revenue and tax paid stayed the same as in the decade before the Gladstone terminal opened, the gas industry would have paid $14bn more tax in 2020-21 and $58bn more in the seven years after 2014-15.
The gas industry pays less tax per barrel of gas produced now than any time going back 35 years. Who would have thought producing so much gas would destroy their profits.
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The problem is the PRRT is a tax lawyers’ picnic – they can use costs to defray their liabilities for as long as they like.
In 2021 the ATO told the Senate that Shell expected it would never pay PRRT on its 25% share of the $55bn Gorgon project.
Never. Not one dollar.
We tax our massive gas exports so weakly that, as the head of the Australia Institute, (whom I work for), Richard Denniss, noted to the National Press Club, Australians pay more each year in Hecs/Help debt than gas companies do in PRRT:
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In last year’s budget, the government finally proposed limiting the deductions to the PRRT in any year to 90% of LNG project revenues. Alas that proposal also had a punchline.
The government announced the changes would raise an extra $2.4bn in PRRT over the next four years. That was roughly a 30% increase in tax.
Thirty per cent!
You would think the gas industry would launch the mother of all campaigns against it.
But no. They loved it.
The day it was announced the gas industry peak body recommended bipartisan support as the changes “would see more revenue collected earlier”.
The key word was “earlier”. It won’t raise more tax; it just moves some tax from later to earlier.
But it won’t even do that.
In December’s midyear economic and fiscal outlook (Myefo), the government announced it was revising down its estimate of how much PRRT would be raised over the next four years.
How much did it reduce its estimate by?
You guessed it: $2.4bn:
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That’s despite the Treasury also estimating higher gas prices. No wonder the gas companies love the changes.
We have rising levels of student debt, declining public school infrastructure and facilities and a desperate need for better tertiary education all the while apparently being the second biggest exporter of gas in the world.
For too long governments have been content to be monkeys playing the fool for the gas companies. That needs to change.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
