ITF campaigner Jason Ward has addressed the Senate Inquiry into corporate tax avoidance in Perth. Below is his opening statement.
Good morning. My name is Jason Ward. I am a spokesperson for the Tax Justice Network – Australia (TJN) and employed by the International Transport Workers’ Federation (ITF). I have made submissions on behalf of TJN on the Petroleum Rent Resource Tax (PRRT) to this Inquiry and to the government’s PRRT Review. I have made a recent submission to this Committee on behalf of the ITF that is focused on Chevron’s tax affairs and a follow on to previous submissions that were subject of much discussion at the Committee’s last hearing on corporate tax avoidance.
It is unfortunate that the government has not provided the PRRT Review report to the committee in advance of this hearing. It may be worthwhile to hold another hearing when the content of that report has been absorbed.
I would like to table this McKell Institute Report, “Harnessing the Boom: How Australia Can Better Capture the Benefits of the Natural Gas Boom”. The report was commissioned by the ITF to evaluate the PRRT and to model the TJN proposal to extend a 10% royalty to the 5 new offshore LNG projects that are only subject to the PRRT but no royalty scheme be it state or federal.
The Tax Justice Network and the ITF are here to seek positive solutions that ensure that Australian people benefit from the exploitation of our finite natural resources and that the oil and gas industry has a fair, stable and sustainable fiscal regime moving forward. If significant changes are not made now there will continue to be widespread public support for change and continuing uncertainty.
While there are broader issues to be discussed around the aggressive tax avoidance practices of Chevron and other global oil giants in Australia, I want to focus primarily on our proposal to extend a 10% royalty to the 5 new offshore LNG projects. There is a real opportunity to fix a major problem and ensure that Australia does not continue to give away our new offshore gas resources to the world’s largest multinationals for free.
The current situation is truly a national disgrace. Gas prices on the east coast are skyrocketing while Australia becomes the world’s largest exporter of LNG and we are giving away our new offshore gas for free. How is it that Australian gas is cheaper for industry and consumers in Japan than it is in Australia after liquefication, shipping and the Japanese government collecting a significant amount of import duties on Australian gas?
The Wood Mackenzie modelling done for APPEA’s submission to the PRRT review shows that the massive Chevron-led Gorgon project, at a global oil price of up to $65/barrel will not make any PRRT payments over the entire 40-year life of the project. There are no other royalty payments. The scenario is likely to be the same for the other 4 other offshore LNG projects.
This week APPEA released a new Wood Mackenzie report on the 5 LNG projects, but frankly the overall analysis is not much different. It draws attention to the supposed amount and types of other taxes should be paid by the industry. However, last week’s landmark federal court case against Chevron, the data in the ATO’s submission and the last two years of corporate tax data show that foreign multinational oil companies are very adept at avoiding their tax obligations in Australia. Chevron, despite significant production volumes from the North West Shelf and Bass Strait, have paid no corporate income tax for the last 2 years and only paid corporate tax twice in 7 years.
Interestingly, in contrast to APPEA’s figures, Chevron still claims that the Gorgon and Wheatstone projects will make $338 billion in federal tax payments over the life of the project. Those estimates are absurd. If there was any expectation that this might be true, we would not be here today. The statement Chevron issued in response to the federal court case also claimed that they are one of Australia’s largest employers. They also claimed in the last hearing that their shipping company was based in Bermuda because of its record of maritime safety. The ATO seems to hold a different view on that…
Qatar is forecast to earn over $26 billion in royalties on LNG in 2019/20. This does not include the additional income that the government will earn in dividends from state-owned companies or the corporate tax payments made by the industry. In the same year, the export volume of LNG in Qatar will be comparable to Australia’s, but Australia will generate no PRRT revenues from LNG production. While Qatar’s production has been running for much longer and production costs are lower, the stark difference is still very alarming.
More than half the current PRRT payments are made by one company, BHP. The vast majority of PRRT payments come from Bass Strait oil production which is 50% owned by BHP and Exxon. Interestingly, while BHP makes substantial corporate income tax payments from Bass Strait -and discloses them- Exxon has paid no corporate tax in Australia for the last two years. Exxon’s PRRT payments are also half of what BHP pays.
Excluding the 5 new offshore gas projects, every other oil and gas project in Australia is subject to another state or commonwealth royalty or makes significant PRRT payments. The TJN proposal levels the playing field across the oil and gas industry and ensures a guaranteed minimum price for the one-time exploitation of our finite natural resources. In all other projects, royalties are deductible from PRRT and the PRRT continues to act as a backdrop to collect additional revenues from super profits, if they occur. That is what we are proposing for these new offshore LNG projects, a level playing field.
As has been pointed out in submissions by the former WA Liberal state government and now the current Labor government, royalties are not a tax but a payment for the resource. These resources belong to the Australian people. These submissions have also made the case that royalties are far more efficient than profit-based taxes.
As the existing gas fields that supply the North West Shelf are being depleted, new reservoirs are tapped to extend the life of this very successful project. Those new fields will not be subject to the North West Shelf’s existing royalty regime and will only be subject to the PRRT. Without changes, the WA government is looking at huge drop in state revenues as the existing royalties are split with 2/3 going to the state government.
It is worth pointing out that no company submissions have projected when -or if- any of these 5 new offshore LNG projects will pay PRRT, nor have they disclosed how much of the nearly $240 billion in PRRT credits belong to them.
Eighty-seven percent of the output of these 5 projects is owned by foreign companies. Chevron alone will own more than 30%. Even the Reserve Bank of Australia has commented that the economic impact from the LNG boom will be limited due to the high level of foreign ownership, the huge tax deductions and the limited jobs in the post-construction phase.
It is also worth noting that none of the submissions have complained about the existing royalty regimes on the North West Shelf or the Queensland CSG to LNG projects. Most of the companies involved in the new offshore LNG projects are already paying a 10% royalty. In fact, Chevron’s submission may unwittingly make the most compelling argument for extending a 10% royalty to new offshore LNG projects. Chevron’s submission shows that royalty and excise payments from its one-sixth interest in the North West Shelf have produced more than 5 and a half times more revenue than what it has paid in corporate income tax in the last 7 years.
While some companies have suggested that changes to the tax regime will deter future investment; this is a scare tactic to preserve the status quo which is overly generous to the industry and short-changing Australians. These companies have a strong incentive to maximise the returns on the investments they have already made. Even with an extension of a 10% royalty to new offshore gas, Australia will continue to have one of the most generous fiscal regimes in the world for the oil and gas industry.
The extension of a royalty to these 5 offshore LNG projects does not fundamentally change the economic returns on these projects over their long lifespans. It will bring payments forward and will guarantee that the Australian people will get a return from our natural resources.
The McKell report projects that with oil at $67/barrel, the best case scenario, an extended 10% royalty would generate an additional $2.8 billion per year. This is still far lower than the promises that were made of huge government revenues when these projects were licensed and sanctioned. The flip side of sovereign risk -something the industry likes to talk about- is corporate risk. If there was any prospect that the PRRT would deliver the returns to government that these multinationals promised, we would not be having this hearing.
The Tax Justice Network’s proposal is fair and modest and has widespread support from all sides of politics. We hope that the government will act now to stand up for the Australian people and not bend to the will of foreign multinational oil companies that have shown contempt for the Australian people and have clearly demonstrated their ability to avoid tax obligations in Australia and around the world.