.Throwing petrol on resource super-profits fire Matthew Stevens From: The Australian May 15, 2010 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these?THE Rudd government's marketing of the furiously controversial resources super-profits tax has again been undermined by misrepresentation, with official data challenging claims that the petroleum industry has thrived under the 25-year-old resources rent regime. Both Kevin Rudd and Wayne Swan have told the public and parliament through the past two weeks that oil and gas production in Australia has remained strong under the Petroleum Resources Rent Tax scheme, a central tenet of which is a 40 per cent tax rate.
But industry and ABARE data shows that just about every tonne of extra gas production has been generated by the North West Shelf gas project and it is not covered by the PRRT regime.
Further, the data shows that oil production in Australia has declined pretty consistently since 1987, while production from fields not covered by the regime (Bass Strait and Timor Sea) consistently rose to a peak at the turn of the century, although they now appear to be in natural decline.
Start of sidebar. Skip to end of sidebar. Related CoverageTax may push miners overseas: Moody's The Australian, 4 hours ago State pushes Swan to bend on tax Perth Now, 17 hours ago We love resources tax, says PNG Perth Now, 17 hours ago The 'good' and bad of super taxes Herald Sun, 19 hours ago Nasser sets BHP's tax terms Herald Sun, 1 day ago .End of sidebar. Return to start of sidebar. The message is clear: new production is not replacing old.
The pitch on PRRT becomes then the fourth big government deception in the first two weeks of the government's RSPT campaign.
The first was the claim that the minerals sector's tax payments had increased by only $9 billion over the past decade. The government's numbers reflected only increases in royalty payments. In fact, last year the industry paid $22bn in taxes and royalties and that will be substantially higher in 2010 because of the surge in commodities demand and prices. Over the past decade, the industry has paid $80bn in taxes.
The second was that the riches of the nation's resources boom were leaking overseas to shareholders of BHP Billiton and Rio Tinto.
But the fact is that the mining industry has historically reinvested upwards of 95 per cent of Australian profits into new projects and that the likes of Rio Tinto and Xstrata have reinvested more than they have earned here since the turn of the century.
And the third big fib is that the government is somehow involved in a consultation process with the miners over the detail of the RSPT. In fact, the Treasurer's process is all about implementation and nothing to do with a discussion about the shape of his tax proposal or its potential impacts.
And now we can add to that the claim that the PRRT has not constrained investment in the petroleum business.
In his latest Treasurer's Economic Note, published on May 9, Swan highlighted two graphs that attempted to reinforce the government's line that oil and gas exports from Australia had been strong since the introduction of the PRRT. Neither identified the fact that the growth was underpinned by the production being free of the federal impost.
Similarly, the buoyancy of the petroleum sector has been a cornerstone of the Prime Minister's rhetoric, not least during post-budget Question Time last Thursday when on at least four occasions Rudd asserted that the PRRT had not lived up to forecasts that it would constrain future production.
"Everyone at that stage predicted doom and gloom and the collapse of the entire offshore mining (petroleum) industry," Rudd said.
"It did not happen. It has produced, instead, one of the most vibrant exploration and production platforms that we have seen in the Australian resources sector, including our largest resources project, the Gorgon project -- also under a tax at 40 per cent, I would note."
That the $43bn Gorgon project will be covered by the PRRT is completely accurate. It will start building up to its 15 million tonnes a year of liquefied natural gas capacity from about 2015.
There are other developments too that reinforce the government's growth story: Woodside's Pluto and Darwin LNG. Both will be covered by the PRRT and their owners will have the opportunity to switch them into the RSPT regime if they want to.
But any idea that the growth in LNG exports since 1987 has occurred under the PRRT regime is either prime ministerial delusion or deception.
After all, to appreciate that the North West Shelf is not covered by the PRRT, Rudd and Swan need only to read the KPMG Econtech assessment of the economic impact of their proposed RSPT.
On page 17 of that report, Econtech observes: "The North West Shelf and the Joint Production Development Area in the Timor Sea are both exempt from PRRT."
There are two really important questions raised by the current taxation status of the North West Shelf.
The first, obviously, is whether or not its protection from PRRT will see it also avoid capture by the RSPT. On that, no one is too sure, least of all the project's operator Woodside or its local owner, the Global Australian BHP.
The other question that's pertinent to the current debate is just why a project as substantial as the North West Shelf was excluded from the PRRT regime even though its export phase entered production after the trigger date for the new tax?
Well, that was because the Hawke government recognised that the investors in the project had already sunk their capital and that the PRRT regime might well undermine the economics of their investment.
One of the principles that guided the manufacture and introduction of the PRRT regime was that it would not be retrospective.
That, needless to say, is a discipline not embraced by the Rudd government, which has decided that existing projects will be covered by the new tax.
