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Wednesday, 2 November 2011
Page: 12414

Mr SHORTEN (Maribyrnong—Assistant Treasurer and Minister for Financial Services and Superannuation) (09:14): I move:

That this bill be now read a second time.

This bill is part of establishing a new way to tax Australia's valuable non-renewable resources.

This bill extends the existing petroleum resource rent tax regime to all oil and gas production in Australia.

The Petroleum Resource Rent Tax Assessment Amendment Bill 2011 establishes a tax that keeps pace with our booming resource sector.

Last year, the government announced new resource taxation arrangements to build a stronger economy and a fairer tax system.

Extending the PRRT to all Australian oil and gas production is another component of that vision.

It is an ambitious step in a long-term reform agenda that will provide all Australian oil and gas projects with a certain and consistent tax regime that takes account of the varying circumstances and profitability of individual projects.

Australia is experiencing an unprecedented boom in its resources sector.

Australian oil and gas production is expected to continue to grow as new projects come online.

Over $140 billion of investment has been committed to Australia's booming LNG industry, putting Australia on track to becoming the world's second largest exporter of LNG in 2015.

Just as the application of the PRRT in offshore areas has not prevented investments in offshore oil and gas projects, the extension of this regime to onshore oil and gas projects and the North West Shelf project is not expected to affect investment levels onshore.

Resource charging arrangements have not been keeping pace with resource profits and resource taxes have been declining as a share of resource profits.

For the first time, the Australian community will share in the profits of this resources boom to develop a stronger and broader economy, through investments in jobs, infrastructure and sustainable economic growth.

Like the MRRT, the PRRT extension has been developed in a cooperative manner between industry and government.

These bills underwent the same comprehensive consultation process as the MRRT, with industry involved in the policy, legislative development and design process.

Extensive consultation has occurred through the Resource Tax Consultation Panel, the Policy Transition Group, the Resource Tax Implementation Group and a public submission process.

The PRRT has been operating successfully offshore since 1987.

The bill before the House extends this efficient profit based tax to onshore oil and gas, including the growing onshore coal seam gas industry, while ensuring that the long-term attractiveness of investment in Australian oil and gas extraction is not impaired.

It was true back in 1987 and it is true now.

I quote Hansard back when the PRRT was first introduced:

Petroleum resources are, in their most basic sense, community property and the government believes that the community as a whole should share in the potentially high returns from the exploitation of these scarce, non-renewable resources.

…   …   …

The government believes that a resource rent tax related to achieved profits is a more efficient and equitable secondary taxation regime …

…   …   …

In contrast to production-based secondary tax regimes, the petroleum resource rent tax will be payable only in respect of projects earning a high rate of return on outlays.

And Hansard continues that the PRRT:

… strikes a reasonable balance between the objectives of satisfying the right of the community as a whole to share in the benefits of profitable offshore petroleum projects, and of providing the participants with adequate returns for the risks they accept in undertaking off-shore exploration and development activities.

The PRRT is applied at a rate of 40 per cent on the taxable profit derived from a petroleum project.

Broadly speaking a petroleum project's profit is calculated by deducting expenses from the assessable revenues derived from the project.

Project expenditure is immediately deductible and exploration expenditure may be transferable to other petroleum projects.

Assessable revenue primarily comprises the receipts received from the sale of petroleum or marketable petroleum commodities recovered or produced from a project.

Where deductible expenditure exceeds assessable revenue from a project in a financial year, the excess expenditure is carried forward and uplifted to be deducted against project earnings in future years.

From 1 July 2012, the PRRT will apply to all new and existing oil and gas projects in Australia.

The core design features of the PRRT will remain unchanged, and offshore projects currently operating under the PRRT will be largely unaffected by the PRRT extension.

To accommodate onshore projects and the North West Shelf project into the PRRT the bill makes the following key amendments.

The project combination certificate criteria are expanded to allow onshore projects with integrated downstream operations to be treated as a single project.

Consolidated group companies will have the choice to treat interests held by different group companies within a petroleum project as a single interest for PRRT purposes.

Project expenditure related to the environment is made explicitly deductible.

A new category of assessable incidental production receipts will include revenue generated using petroleum project facilities.

Deductible expenditure is expanded to include resource taxation expenditure to avoid the double taxation of petroleum projects subject to crude oil excise and state based royalty regimes.

And finally, existing petroleum projects that are transitioning to the PRRT are entitled to a starting base to shield historical investment and prevent the retrospective application of the extended PRRT.

The starting base is non-transferable, and unused starting base expenditure will be uplifted, consistent with the treatment of unused general project expenditure, to be deducted in future years.

Like the MRRT, under the extended PRRT the state and territory governments will continue to receive a stream of royalty revenues.

To ensure that taxpayers are not double taxed, the PRRT regime provides a deduction equivalent for state royalties paid by a taxpayer in respect of a petroleum project.

Unused resource tax credits are not transferable between petroleum projects and will be uplifted at the long-term government bond rate plus five per cent, consistent with the treatment of other losses.

The bill includes amendments to ensure that, in circumstances where onshore coal seam gas producers have an integrated gas-to-liquids project, they will be able to access the pricing methodologies contained in the Petroleum Resource Rent Tax Assessment Regulations 2005.

It is the government's intention to undertake subsequent consultation on the PRRT regulations to ensure they operate effectively in an onshore context.

The PRRT will ensure a more consistent share for all Australians of the returns generated from our non-renewable resources while maintaining a healthy pipeline of investment and job creation.

Like the MRRT, the PRRT extension is landmark legislation. Legislation that will do much for our great nation and it deserves the full support of the parliament, the business sector and the community. I commend this bill to the House.

Debate adjourned.