Australian Government’s Tax Reforms Hit Parliamentary Roadblock

In news that will not surprise any readers of this blog, but the federal government’s plan to overhaul the tax system for the offshore gas industry have encountered significant delays in parliament. Indeed, we first spoke about the suite of changes in an article last year.

The government wants to modify the Petroleum Resource Rent Tax (PRRT) to ensure that gas companies pay more tax earlier in a project life than they currently do. This move strengthens the tax base, while also bringing a sense of stability and certainty to the gas sector.

Remarkably, the industry itself backs these changes, recognising the long-term benefits of legislative clarity and predictability. After all it is the interests of the resource companies to do so given that annual tax collections data published by the Australian Taxation Office shows that HECS and related student loan repayments provide the government with more revenue than that gained from the PRRT. For instance, in 2022-23 PRRT collections totalled nearly $2.3 billion, compared with $4.9 billion in student loan repayments.

Not a good look

Labor has reached out to the Coalition to secure bipartisan support for the reforms and, in doing so hope to avoid negotiations with the Greens and the cross bench. Both of whom are advocating for more radical amendments to the PRRT. The government’s pursuit of consensus shows a desire to ensure the legislation’s smooth passage without the complexities or the time taken with broader political negotiations with multiple partners.

However, the Coalition has seized upon the proposed PRRT modifications as a bargaining chip, pushing for broader reforms within the gas sector. A significant point of contention is the speed of project approvals. The Coalition wants a streamlined process to minimise delays, thereby accelerating development and resource extraction.

Considering declining capital expenditure by companies combined with rising unemployment rate, bringing forward project start dates might provide some relief to the broader economy. The federal government has expressed its openness to revisit the approvals framework, with the large caveat that faster approvals must not be made by compromising environmental safeguards.

Sounds like that there is a potential deal in the works between Labor and the Coalition, but as they say the proof will be in the pudding.   

Complicating the discussion is the Coalition’s criticism of linking the PRRT reforms with the tax leak scandal involving the consulting giant PwC. This association has annoyed the Government, with the Coalition advocating for a separation of the two issues through amendments. Their final stance waits upon the outcome of a Senate inquiry, expected in mid-April, which will determine the Coalition’s final position on the reforms.

Frustration is apparently mounting within the government ranks over the Coalition’s stalling tactics, as given the battering the Federal government has recently taken in the polls, they desperately need a policy win or just any win. Officials argue that the PRRT changes are fundamentally useful to Australia, promising positive outcomes for taxpayers, the federal budget, and the gas industry at large. The classic ‘win-win’ outcome that all governments seek to achieve.

Despite the current deadlock the government remains optimistic as they are confident that they will secure the necessary support from the Coalition to pass the legislation and I think that they are right to hold this opinion. Therefore, the issue is one of timing and that is the art of politics.