‘We have crossed a threshold’: Oil and gas taxes in Chalmers’ sights

Key points

  • Treasurer Jim Chalmers told a conference that the price of gas and fuel had reached a threshold where the government should intervene. 
  • Commodity prices feed huge amounts of tax into the federal budget but little comes from the taxation of petroleum and gas.
  • Chalmers said the Petroleum Resource Rent Tax could operate more effectively. 
  • Fuel companies argue they already pay hundreds of millions in taxes and the system is fit for purpose already. 
  • Meanwhile, negative gearing claims have been calculated to cost the budget $111 billion over the next decade if rates climb to 3.35. 

Soaring gas prices have crossed a threshold that now risked strangling Australian businesses, Treasurer Jim Chalmers has warned while signalling changes to the way oil is taxed and ramping up scrutiny of the nation’s largest companies and richest people.

As the Greens released new data showing Labor’s decision to abandon changes to negative gearing will cost the budget almost $100 billion over the next decade, Chalmers said the government was considering all options to reduce the cost-of-living squeeze caused by high energy prices.

Changes to the petroleum resource rent tax are on the agenda as the government seeks to bring down the price of gas.Credit:Michele Mossop

The October budget revealed the government expects electricity prices to climb by 56 per cent over the next 18 months while gas prices are tipped to rise by more than 42 per cent. Overall inflation is now forecast to peak close to 8 per cent by year’s end, remaining higher than expected over the next two years.

Chalmers, speaking to the Melbourne Institute on Wednesday, said the surge in energy prices meant the government was contemplating options that would have been unpalatable just a few years ago.

“As someone who is a relatively reluctant intervener in markets, for me, and for my colleagues, I think we have crossed a threshold where everybody in our cabinet – and I think most people in the Australian community – accept … when the price is expected to become so extraordinarily high that they risk strangling industries, then we need to do something about it,” he said.

“If there’s something sensible, responsible, but also meaningful that we can do to take some of the sting out of these high prices, then obviously we’ll consider doing that.”

Data to be released on Thursday by the Australian Tax Office, covering tax paid by the nation’s largest businesses, shows commodity prices feeding huge amounts of tax into the federal budget but little from the taxation of petroleum and gas.

In 2020-21, large public mining companies paid a combined $32.3 billion in tax, a 29 per cent jump on the $25 billion paid in 2019-20. The increase was largely driven by a spike in iron ore prices.

The nation’s largest banks paid $15.2 billion in tax, up $1.1 billion, while large businesses across the entire wholesale, retail and services sector paid $15.3 billion.

The same data showed just 10 large businesses paid a combined $926 million in petroleum resource rent tax (PRRT). It was up on the $881.1 million paid by 12 corporate entities in 2019-20.

“When the price is expected to become so extraordinarily high that they risk strangling industries, then we need to do something about it.”

A Treasury working party, formed under then-treasurer Josh Frydenberg in late 2018 but put on hold during the COVID pandemic, has been revived to consider transfer pricing of gas under the PRRT system. It is explicitly looking at how extreme profits are taxed during periods of high prices.

Chalmers said while PRRT was expected to lift a little this year and next due to the surge in oil and gas prices, more could be raised.

“I think there is an appetite in the Australian community to see if that tax can operate more effectively,” he said.

Shadow treasurer Angus Taylor said the government should focus on policies that pumped more gas into the country’s power network.

Shadow treasurer Angus Taylor says the government should focus on lifting gas supply rather than tax changes.Credit:Alex Ellinghausen

“Our focus is to get the price down, not to tax more. The primary goal here right now has to be to get the price down (and) the key to that, it’s economics 101, (is) get more supply in, that’s how markets work,” he said.

But the PRRT is already “fit for purpose”, argues Australian Petroleum Production and Exploration Association Chief Executive Samantha McCulloch, who noted the tax had been reviewed four times since 2017.

“The PRRT is already a profits tax delivering a growing return for Australian taxpayers – totaling around $40 billion since its introduction and another $11 billion across the forward estimates in last week’s budget.”

Woodside, which accounted for just under 10 per cent of Australia’s LNG production for export last year, released a statement after Chalmers’ speech saying they needed “stable tax and fiscal settings in order to make the large, long-term investments that support energy security, decarbonisation and economic growth”, and that the current PRRT regime “operates as intended”.

“We paid more than A$700 million in Australian taxes, royalties and excise in the first half of 2022 and about A$12 billion since 2011,” a spokesman for the company said.

The government is finding other ways to raise extra revenue.

The recent federal budget contained an extra $800 million over four years to continue and expand the ATO’s tax avoidance taskforce.

ATO deputy commissioner Rebecca Saint said this would help employ another 1200 staff, adding to the existing 1800 already charged with examining the tax details of high-net-worth individuals, large private companies and large public businesses.

Modelling for the Greens shows the recent lift in interest rates will drive up the cost of negative gearing to the budget.Credit:Peter Rae

In 2020-21, the compliance program raised an additional $3 billion in tax from 122 separate companies. About $2.4 billion of that is being disputed by 13 different taxpayers.

The government is also under pressure from the Left to look at other policies that are getting more expensive because of the lift in interest rates.

Data compiled by the independent Parliamentary Budget Office for the Greens shows the cost of negative gearing will climb beyond $100 billion over the next decade if official interest rates stay at their current level of 2.85 per cent.

If rates climb to 3.35 per cent, the cost to the budget rises to $111 billion.

Higher interest rates lift the costs that landlords are able to write off against the incomes of their rental properties, driving up the foregone revenue from negative gearing.

Greens housing spokesman Max Chandler-Mather said Labor, which took plans to overhaul negative gearing to the 2019 federal election, should revisit its policy.

“The higher interest rates go, the more negative gearing will cost the budget, which means
right at the time when the government needs extra revenue to help alleviate the cost-of-living
crisis they are instead handing it over in the form of tax concessions to wealthy property
investors,” he said.

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