Gas boom does little to fuel Australian revenue

● Australia is on track to match Qatar as the world’s biggest liquefied natural gas exporter next year. The boost to the budget bottom line? Virtually nil.

While the Gulf nation is forecast to rake in A$26.6-billion (about R245-billion) in fiscal 2020 from fuel taxes, Australia is set to reap a paltry A$800-million, according to the Tax Justice Network’s Australian office.

Australia’s petroleum resource rent tax levies 40% on profits after company tax has been paid, a system that works pretty well for oil projects but is a poor fit for LNG. An oil venture can be cash positive within a few years of production, while LNG needs significantly more capital expenditure, prolonging the time before it generates enough cash to pay tax, a government report has found.

The figures “are an indication the fiscal regime for Australia’s LNG sector is broken”, said Juan Carlos Boué, who made a submission to Australia’s inquiry on tax avoidance while working as an oil industry consultant at the Oxford Institute for Energy Studies. “The incentives are simply too excessive.”

Australia is set to post its 10th straight budget deficit, even as receipts get a boost from higher commodity prices and strong employment growth.

The potential for greater stimulus is vast, especially in an economy that relies heavily on consumption. A “back-of-the-envelope” calculation by HSBC shows that A$10-billion in tax cuts and spending could boost the economy by 0.6 percentage point of GDP.

Lawmakers are gun shy on tackling resource taxes after a ferocious campaign by mining companies against such a proposal in 2010 that helped topple the then prime minister. While the opposition Labour Party has proposed curbing some loopholes such as tax breaks on property and cash refunds to retirees, the government has pledged to retain them. That just further limits its scope to provide relief.

“Every special treatment that’s in the tax code has an army of people who want to defend it to the death,” said economist Saul Eslake, who has campaigned to overhaul the system of revenue raising. “It has become

The incentives are simply too excessive Juan Carlos Boué Oil industry consultant

politically fraught in Australia.”

As politicians uphold the status quo, significant new LNG volumes are poised to start production this year. Chevron’s gigantic Gorgon and Wheatstone LNG projects off Western Australia will pay no resource rent tax until the end of the next decade, according to an estimate by Barclays Capital.

Treasurer Scott Morrison did introduce a bank levy last year, but has shown little appetite to take on LNG multinationals. He last year argued that Australians weren’t being “shortchanged” by the industry, following a review of energy taxes. — Bloomberg