Tax and commercial

For details on the industry’s financial performance, download APPEA’s  financial survey results.

The oil and gas industry has been operating in Australia for more than five decades. It is estimated that during this period the industry has paid more than $250 billion – in today’s dollars – to governments through resources charges and company tax.

APPEA seeks a petroleum taxation system that encourages investment in oil and gas while also ensuring that the Australian community receives an appropriate return for the use of its resources.

The tax take includes company income tax, resource taxes and indirect taxes (such as tariff and excise duties). Governments must ensure that the burden of the overall tax take does not discourage investments in what would otherwise be commercially viable projects.

There are several ways to measure the industry’s overall tax contribution.

One is by examining the amount of tax paid as a percentage of pre-tax profit. Over the last decade, the level of tax payments on average made by the industry (resource charges plus company tax) has been about 50% of pre-tax profit per year.

profit-before-tax-tax-contributions

This has been a consistent figure, indicating that the taxes are operating as intended. For more details on the industry’s financial performance, download APPEA’s financial survey results.

The industry is in the midst of a major growth phase that has seen hundreds of billions of dollars invested in new projects.

The industry has invested more than twice the amount it has made in profits over the last three decades.

These projects demonstrate the industry’s commitment to investing in Australia, but many of them will require extended periods before they become profitable.

industry-cumulative-profits-and-estimated-investment-value-million

By any measure, these state-of-the-art investments will provide massive benefits to future generations of Australians. They are recognised as legacy projects and have consistently received bipartisan political support.

Oil and gas prices rise and fall, but it is essential that debates around tax contributions and tax reform recognise the successes of the past that were built on tax policies that meet both community and investment needs.

Petroleum Resource Rent Tax (PRRT)

The PRRT has been operating successfully since the 1980s. It remains a global benchmark for a profits-based resources tax regime and has provided a stable framework that has underpinned investment in the industry over many years.

PRRT was carefully designed to be sensitive to factors such as price, cost and production. This means it can deliver a fair return to the nation while also encouraging further industry investment – which grows the tax take over time.

The tax has received bipartisan support for more than three decades. As recently as in 2010, when the then Federal Government decided to extend the regime to onshore petroleum activities, there was again cross-party support. Indeed, during the Parliamentary debate, the strengths of the tax were widely acknowledged.

As the then Labor Treasurer, Paul Keating, said on 27 June 1984:

“The Government believes that an RRT [resource rent tax] regime, which is related to achieved profits, is the most efficient mechanism for deriving for the community an appropriate share of the large returns that can be associated with the development of particularly rich mineral deposits.

“Alternative secondary taxing regimes, such as the excises and royalties applying in the petroleum sector, are often based on production and, as such, can both discourage marginal projects from getting underway and bring about the early termination of projects.

“The Government believes that, seen in their totality, the arrangements decided upon represent a very reasonable balance between the objectives of satisfying the interests of the community as a whole in sharing in the benefits of very profitable offshore petroleum projects, and of providing companies with adequate rewards in return for the risks that they accept in undertaking offshore exploration and development activities.”

For more information on the PRRT, see this webpage.