Australian Greens' Dissenting Report

1.1Taking steps to remedy the PwC and consultants scandal and Australia’s broken gas super profits tax laws are completely separate but important issues that should never have been merged together into one Bill.

1.2That the Senate support the motion to be moved by Senator McKim (Contingent Notice of Motion 6A) to split Schedules 1-4 from Schedule 5 so that the two separate issues can be considered and dealt with as two separate bills.

1.3The proposed change to the Petroleum Resource Rent Tax (PRRT) in schedule 5 of the Bill, co-authored by the Government and the gas industry, is so bad that it will raise less revenue after these changes than has been raised in previous financial years.

1.4In last year’s budget, PRRT receipts were written down by $1.3 billion over the estimates.[1]Then in December, PRRT receipts were written down by another $2.4 billion[2] for a total write down of $3.7 billion. The same budget paper forecast this proposal will only raise $2.4b over the estimates, leaving net write downs in revenue of $1.3 billion.

1.5While students and graduates will be contributing more and more to the government’s budget bottom line through indexation of student debt, gas companies will be paying less and less.

1.6In the current financial year $2.4 billion is expected to be collected from gas companies. By the end of the estimates period, only $1.8 billion will be raised in 2026-27.[3]

1.7How does a change touted as ensuring ‘the offshore LNG industry pays more tax, sooner’[4] raise less revenue than today? Because it was co-sponsored by the gas industry who came out immediately pressuring the Opposition to pass the bill.[5]

1.8Almost as if they were paying tribute to the PwC scandal, on 10 March 2023, Treasury invited fifteen gas industry participants to sign non-disclosure agreements and discuss how the PRRT changes would be designed. The signatories were:

APPEA (now Australian Energy Producers)

Beach Energy (owned by the West Australian and Channel 7 owner Kerry Stokes)

BP

Chevron

ConocoPhillips

Cooper Energy

Esso/Exxon Mobil

Inpex

MIMI (Mitsubishi Corporation joint venture)

Mitsui

Santos

Shell

Total

Woodside

Vermillion Oil and Gas

1.9Treasury went into that meeting with its stated preference to restrict the current suite of options gas companies can elect to use to minimise their tax and instead restrict it to a netback only approach. ‘Netback’ is the price at which LNG can be sold on global markets minus the cost to convert to LNG and ship it to its destination.

1.10The slideshow to that 10 March meeting stated:

Treasury’s preferred option for a safe harbour remains the netback only approach.

…

Treasury considers that the netback only approach represents the most appropriate option for minimising impacts to investment while also ensuring the community receives a fairer return from the exploitation of its gas resources.[6]

1.11Yet less than two months later this option was abandoned.

1.12Treasury wanted this netback only approach because the current tax structure gives too much flexibility to gas companies to minimise tax by artificially shifting the time at which profits are realised.

1.13The PRRT applies to the raw gas, for which there is no external market. Gas companies sell the gas to themselves, then burn 450 petajoules a year in order to turn the gas into liquid for export carriers.

1.14The amount of gas used to process LNG is more than is used in all manufacturing in Australia (382PJ); and more than our entire domestic energy market uses (383PJ).[7]

1.15There is no gas shortage in Australia. What we have is a gas misallocation, with 82 per cent of gas extraction going to export.[8]

1.16Gas exports are also the reason why emissions from the gas sector have grown from 15.3 million tonnes in 2005 to 42.7Mt today, now responsible for 10 per cent of Australia’s total emissions.[9]

1.17The PRRT doesn’t apply to higher valued LNG, which is processed by freezing the gas to -162 degrees to convert the gas to liquid for export. Very conveniently for these vertically integrated gas/LNG companies, they can calculate their price on the basis that the natural resource, owned by the people of Australia, has little value. In this case, a low price for the raw gas results in much lower PRRT revenues.

1.18The value of the raw gas used to calculate PRRT, will still remain artificially low under the deductions cap, so the 40 per cent tax rate applied to cheap ‘unprocessed’ gas will continue to be undervalued and distorted by our tax code. This only benefits gas companies and short-changes the Australian public.

1.19Treasury pushed for the netback only option because it is global best practice and already part of the methodology.[10]It would have also raised much more revenue than what was eventually agreed to by the Treasurer and Cabinet.

1.20The second option put forward in the 10 March presentation was to retain the existing residual pricing mechanism but with a modified profiting splitting methodology so that 80 per cent of the profits are calculated at the higher value LNG stage, while 20 per cent weighting would be applied to the lower value raw gas as the PRRT currently prices it.

1.21The documents provided to the Senate show how much research and detailed thought went into exploring these two options. The deductions cap that was announced two months later was an afterthought.

1.22As confirmed by Shell’s country tax manager Mr Glen Gaspar, ‘the deductions cap proposed by Treasury was later in the piece’.[11]

1.23Several inconsistencies in the documents provided to the Senate also give rise to questions about the origins of the proposal eventually adopted by government:

(a)On page 4, which contains the appendix of documents, all of the materials are marked as 10 March except the one page of Appendix G which lists the deductions cap proposal - it omits any date;

(b)The document on page 20 of the PDF is in a different layout, different font and has no page number unlike the other documents that were prepared for that meeting and numbered;

(c)The slide presentation makes no mention of this as an option, but tacked onto the end of that powerpoint slide is a fresh slide saying ‘other matters’ - that other matter being the deductions cap.

1.24As discussed further below, this option raises pitiful amounts of revenue, which is why the gas cartel wholeheartedly supports it.

1.25The Australian public who own these offshore resources receive no royalties from gas companies who are profiting from destroying our planet and are - according to the ATO – ‘systemic non-payers of tax’.[12]

1.26We have all been short changed by the decisions of the Treasurer to proceed with a deductions cap after being presented with two superior options by his Department.

1.27The current Treasurer has form on this. He was Chief of Staff to Treasurer Wayne Swan when the Resource Super Profits Tax was redesigned by mining companies to create the Mining Super Profits Tax.[13]This decision cost the budget $34.6 billion in lost revenue between 2012 and 2020.[14]

1.28Australian Governments must stop letting fossil fuel corporations design their own tax laws.

1.29One of the justifications for putting forward this option is the claim that it raises the most revenue. The table extracted from the report presented to the Treasurer[15] shows that for this to be true, oil prices would have to be very low for an unrealistically prolonged period.

1.30For reference, the current WTI Crude (West Texas Intermediate) price has been fluctuating around $80US, between the central and high scenarios. The last time prices were at $62US was 2005 (excluding the Covid lock down period). Adjusting for inflation makes this low price scenario even more unrealistic and contorted to justify a very bad decision.[16]

1.31Since Covid, WTI Oil prices have not been below $75 for any sustained period, meaning that even the central scenario is conservative.

1.32Without access to the modelling held by Treasury it is difficult to quantify the amount of lost revenue as a result of choosing a deductions cap over the netback only option, except to state that the scale is significant and in the order of $8-15 billion over the decade.

1.33Even these changes would not capture the full exploitation of our gas resources and the mega-profits of gas companies. They get our gas for free, no royalties are paid. No other business in the world gets their inputs for free.

1.34By implementing a royalty regime and wiping out accumulated deductions and applying a conventional depreciation schedule to PRRT expenses, $29 billion could be raised from gas company’s super profits over the estimates period and $94 billion over the decade.[17]

1.35Withdraw schedule 5 of the Bill and introduce new legislation either implementing the netback only approach as preferred by Treasury or require royalty payments for offshore gas and wipe the backlog of built up tax credits.

1.36In August 2023, Senator McKim wrote to the Treasurer saying the Greens, with independents David Pocock, Jacqui Lambie and Tammy Tyrrell, would pass Labor’s changes if the annual deductions cap was lowered from 90 per cent of assessable receipts down to 80 per cent.[18]

1.37While this still would not properly recoup the Australian public for the destruction and profiteering caused by the gas cartel, it is a compromise solution that will pass the Senate.

1.38It was also within the 80-90 per cent range recommended by the Treasury to the Treasurer.[19]While the Treasurer predictably chose the weakest point in the range, 80 per cent is still within the range suggested by his Department and should be adopted.

1.39The choice for the Albanese Government on how to proceed in the Senate is a clear one: double the revenue collected from gas companies in the cost of living crisis they have profited off, or settle for half that revenue and work with the Coalition to weaken and degrade environmental protections to a level that reaches Peter Dutton’s satisfaction.

1.40In the absence of withdrawing and rewriting Schedule 5 of the Bill, the deductions cap should be reduced from 90 per cent of revenue to 80 per cent.

Schedules 1- 4: PwC response – a missed opportunity

1.41The PwC response measures in this bill form a part of the Government’s plan to oversee ‘the biggest crackdown on tax adviser misconduct in Australian history’.[20]The ambition is appropriate but the changes in this bill do not deliver what is needed.

1.42The PwC tax leaks scandal and rot uncovered in the consulting sector by the Finance and Public Administration (FPA) Committee’s inquiry has shocked the Australian public and Parliament.

1.43We must ensure that consulting, accounting, and assurance firms cannot misuse their considerable power and continue to pull the wool over the eyes of this country.

1.44It is the Government’s job to ensure this will not happen again.

1.45The Greens acknowledge this bill does not represent the Government’s whole plan to address the consulting sector’s failings and that the FPA inquiry has not made its comprehensive and structural suite of recommendations to clean up the consulting sector yet.

1.46However, this is a missed legislative opportunity to crack down on promoters of tax avoidance schemes and increase the powers and discretion of the Tax Practitioners Board (TPB) – the regulator that played an instrumental role in bringing PwC to justice.

1.47The Australian Greens support schedules 1, 3 and 4 in this bill. These changes are positive but relatively minor in the scheme of the problems they aim to resolve. We would like to see these changes go further and directly address the shortcomings of our regulatory system highlighted by the PwC tax leaks scandal.

1.48It is unclear whether the PwC tax leaks scandal would have played out any differently had these measures already been in place.

1.49Schedule 1 seeks to ensure the promoter penalty laws operate to effectively deter the promotion of tax avoidance and tax evasion schemes.

1.50The Greens took a policy to the 2022 election calling on the government to double the penalties associated with promoting tax avoidance schemes.[21] We support the increases to the penalties for individuals, corporations, and the extension to cover significant global entities.

1.51Big corporations and billionaires are not paying enough tax as it is. The practice of helping them avoid tax is a scourge on our democracy. It means that honest hard-working people pay the price while the proceeds of the nation are squirrelled away in offshore bank accounts.

1.52In the inquiry hearing, the Tax Justice Network raised concerns about the limited period of time for the Commissioner to gather information and evidence to identify promoters and take action against them.

1.53Dr Mark Zirnsak suggested that ‘the Commissioner be able to apply to the federal court for up to 10 years instead of six – as per the bill – because of the complexity of some of the matters and the length it may take to conduct investigations or delay in activities coming to light’.[22]

1.54Further to the point, even with extension to a 6-year window for reporting and investigating promoter schemes it is unclear whether the PwC matter would have been caught, referred, and investigated in this timeframe.

1.55Similarly, PwC’s Mr Peter Collins would not have been brought to justice under the current promoter penalty scheme due the limited definitions of ‘promoter’, ‘benefits’, and ‘tax exploitation scheme’ under the current laws. These were designed more to target mass marketed schemes.

1.56The Government has committed to a review these shortcomings; however, it is unclear when legislation will be introduced and whether it will be a priority this side of the election.

1.57The Greens support the need for broad, fit for purpose promoter penalty laws to ensure they catch all schemes promoting tax avoidance and that they actively deter entities from promoting in the first place.

1.58This is an urgent issue, and a response can’t wait.

1.59We note the changes to laws to protect whistleblowers under this new scheme in Schedule 2. These are particularly important given the recent history of whistleblowing related to the ATO and PWC that in part prompted these reforms. For much of the past decade the protections available to corporate whistleblowers have been superior to those for public sector whistleblowers. It is hoped these will soon be harmonised, both to a higher standard.

1.60In assessing whistleblower laws we note the overall need for a new privacy act, and the compelling calls for a whistleblower protection commission. This modest attempt to improve laws is positive but it is clear that without the institutional backing of a whistleblower commission driving positive policy and practice in this space that whistleblowers will continue to be victimised, harassed and even prosecuted.

1.61Schedule 3 enhances the powers of the TPB by increasing transparency of publicly available information on registered and unregistered tax agents, as recommended by the James Review.[23]It also extends the time for investigations and TPB discretion over timeframes for information on the register.

1.62The increased public disclosure of the information allows those seeking tax services to be aware of any previous misconduct by a tax agent service.

1.63The Tax Justice Network and the Centre for International Corporate Tax Accountability and Research stated that “the threat of loss of customers through such publication should lead to a deterrent effect … as well as provide information that is in the public interest”.[24]

1.64The Greens support the Tax Justice Network and the Centre for International Corporate Tax Accountability and Research’s recommendation that appropriate staff within the TPB should be able to impose sanctions without the board’s approval. “Criminological research has demonstrated that deterrence is best served when a sanction is imposed swiftly after detecting the breach”.[25]

1.65The TPB was instrumental in bringing the PwC tax leaks scandal to light. However limitations on their sanctioning powers in addition to the administrative frictions that hindered their investigation slowed down the TPB’s ability to respond.

1.66Schedule 4 seeks to enhance the ability of the ATO and TPB to share information, related to misconduct concerning confidence breaches, with Treasury and professional disciplinary bodies.

1.67Limitations on information sharing hindered the TPB’s investigations of Mr Collins and PwC, and threatened whether the PwC betrayal would even become public knowledge.

1.68The changes in this bill to the ATO and TPB’s secrecy provisions are important to correct the mistakes of the past. However, they do not address information sharing hurdles between the TPB and ATO.

1.69Well documented tensions arose between the ATO and TPB in 2021 around the accessing of information relevant to the TPB’s investigation of PwC and Mr Collins.[26] In response the ATO ‘made multiple attempts to sideline or to engineer the dismissal of board chief executive Michael O’Neill because of his team’s actions in investigating PwC, which the ATO saw as overreach’.[27]

1.70The actions of the TPB were later vindicated by a review which found that the TPB had acted legally and consistently with their policies.

1.71The information sharing arrangement issues between the ATO and TPB do not appear to be resolved.

1.72In its response to the exposure draft of this legislation, the TPB also raised concerns about the scope of circumstances in which it can make disclosures of information under the proposed law.[28]

We again note our earlier concerns that the proposed changes are limited to confidence breaches and that there is likely limited use for these provisions by the TPB in the future.

1.73The Government’s changes to information sharing rules for the ATO and TPB don’t address some of the critical lessons we have learned from the PwC tax leaks scandal.

1.74To brand schedules 1, 3 and 4 as a response to the PwC matter is misleading – these measures do not go far enough to address the shortfalls revealed by this scandal and do not directly address the shortcomings in our regulatory system.

Additional considerations

1.75A review of the TPB in 2019 made 28 recommendations to improve the effectiveness and efficiency of the TPB and Tax Agent Service Act 2009.

1.76While the Government is making moves to legislate some of these changes, other key recommendations are being sidelined.

1.77The most important of these is to address the limitations in the disciplinary tools available to the TPB - an issue which featured in the slow response to the PwC scandal.

1.78Currently, the TPB only has the ability to issue low-level sanctions, such as written cautions, and high-level sanctions to punish tax practitioners for doing the wrong thing, including suspensions or terminations of registration. The gaps in their powers to address misconduct limit their ability and willingness to act swiftly and proportionately.

1.79This was a factor impacting the investigation of PwC and Mr Peter Collins. The limitation of enforcement tools is prohibitive and slows down the work of the TPB.

1.80Increasing the repertoire of tools at the TPB’s disposal should be a government priority. It cannot wait until after the election.

1.81The Government already has the recommendations from the James Review on how to broaden the powers of the TPB, it does not need to slow this process down with a drawn-out review.

1.82The last issue not addressed in this bill, that the Greens view to be important, is the issue of the independence of the TPB. The TPB was created to separate the regulation of tax practitioners from the ATO – to minimise opportunity for conflicts of interest.

1.83ATO interference in the TPB’s investigation of Mr Peter Collins and PwC suggests independence is still of concern.

1.84The ATO has significant power and resources in comparison to the TPB – approximately 17,000 compared to just 138 staff. TPB staff are also secondees of the ATO. This dynamic creates avenues from pressure and influence, and we know the ATO used its considerable power to bully and pressure the TPB while it was performing its function of investigation wrongdoing by tax practitioners in the PwC matter.[29]

1.85The James Review recommends that the TPB should become a separate agency to the ATO. The Greens urge the Government to consider the issue of TPB independence.

1.86In August 2023, the Government made their anger at the actions of PwC and the shortcomings of the regulatory system clear and foreshadowed their ambition to clean up consulting.

1.87Now almost a year on and we are still waiting for that strong response.

1.88While this bill may only be a part of the Government’s response, at this point the commitment to reviews appears to be a delay tactic. Some of the key issues elucidated by the scandal are not being addressed urgently enough.

1.89We need a fit for purpose promoter penalty scheme now, the need for broader TPB powers is urgent, and the relationship between the ATO and TPB is not a matter for after the next election. It must be addressed comprehensively as soon as possible.

1.90The egregious events at PwC took eight years to surface and, as the FPA’s recent PwC report acknowledges, came within a whisker of being buried and failing to come to the attention of the Australian Parliament and people.

1.91Such a coverup would have been a national disaster.

1.92The Greens are committed to responding in full and in force to the hard-won lessons learned through the FPA’s inquiry into consulting firms.

1.93We need a vigorous, robust public sector; integrity, transparency, and good governance in the consulting industry; and for strong and effective regulatory structures that are free from capture by big firms, public institutions, and vested interests.

1.94The Senate pass Schedules 1-4 of the Bill.

Footnotes

[1]Commonwealth of Australia, Budget Measures:Budget Paper No.2 2023–24, p. 179.

[2]Commonwealth of Australia, Mid-Year Economic and Fiscal Outlook 2023-24, p. 67.

[3]Commonwealth of Australia, Mid-Year Economic and Fiscal Outlook 2023-24, p. 161.

[4]The Hon Jim Chalmers MP, Treasurer, ‘Changes to the Petroleum Resource Rent Tax’, Media Release, 7 May 2023, https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/changes-petroleum-resource-rent-tax.

[5]Phillip Coorey, ‘Woodside urges swift vote on $2.4b PRRT changes’, Financial Review, www.afr.com/business-summit/chalmers-push-to-clear-gas-tax-changes-fails-to-persuade-coalition-20240311-p5fbc4; Anthony Macdonald, Chanticleer, ‘Chalmers softens PRRT on budget eve, to relief of big gas’, Financial Review, 7 May 2023, www.afr.com/chanticleer/chalmers-softens-prrt-on-budget-eve-to-relief-of-big-gas-20230507-p5d6ed.

[6]The Treasury, ‘Treasury Review of PRRT GTP Arrangement’, March 2023 Industry Roundtable, Order for the Production of Documents, Order of 15 June 2023 (246) relating to petroleum resource rent tax - Review of gas transfer pricing, [p. 26], www.aph.gov.au/Parliamentary_Business/ Tabled_Documents/2849.

[7]Department of Climate Change, Energy, the Environment and Water (DCCEEW), Australian Energy Update 2023, September 2023, p. 9, www.energy.gov.au/sites/default/files/ Australian%20Energy %20Update%202023_0.pdf.

[8]DCCEEW, Australian Energy Update 2023, September 2023, p. 9.

[9]DCCEEW, ‘Data on Australia’s greenhouse gas emissions’, Australia’s National Greenhouse Accounts, https://greenhouseaccounts.climatechange.gov.au (accessed 9 May 2024).

[10]Tax Justice Network Australia and the Centre for International Corporate Tax Accountability and Research, Submission 4, p. 4.

[11]Mr Gaspar, Shell Australia, Committee Hansard, 9 April 2024, p. 27.

[12]Tom McIlroy, ‘Oil, gas 'systemic non-payers' of tax’, Financial Review, 12 December 2019, www.afr.com/politics/federal/oil-gas-systemic-non-payers-of-tax-20191211-p53iys.

[13]Lindy Edwards, Corporate Power in Australian Democracy: Do the 1% Rule?, Monash University Publishing, 2020, Chapter 1.

[14]Parliamentary Budget Office, ‘Request for budget analysis', Lost revenue from the original mining tax, 23 February 2021, www.pbo.gov.au/sites/default/files/2023-03/Lost%20revenue%20 from%20the%20original %20mining%20tax%20PDF.pdf.

[15]The Treasury, Petroleum Resource Rent Tax: Review of Gas Transfer Pricing Arrangements: Final report to the Treasurer, May 2023, p. 68, https://treasury.gov.au/sites/default/files/2023-05/p2023-388153.pdf.

[16]CL.1 WTI Crude Oil

[17]Australian Greens, Gas Giants Still Prrtying [sic] While The Planet Burns, 5 May 2023, https://greens.org.au/news/media-release/gas-giants-still-prrtying-while-planet-burns.

[18]Josh Butler, ‘Crossbenchers to back Labor’s resources tax changes if deductions cap for ‘greedy’ gas companies is cut’, The Guardian, 1 August 2023, www.theguardian.com/australia-news/2023/aug/01/crossbenchers-to-back-labors-resources-tax-changes-if-deductions-cap-for-greedy-gas-companies-is-cut.

[19]The Treasury, ‘Treasury Review of PRRT GTP Arrangement’, March 2023 Industry Roundtable, Order for the Production of Documents, Order of 15 June 2023 (246) relating to petroleum resource rent tax - Review of gas transfer pricing, [p. 20].

[20]The Hon Jim Chalmer MP, Treasurer, ‘Government taking decisive action in response to PwC tax leaks scandal’, Media Release, 6 August 2023, https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/government-taking-decisive-action-response-pwc-tax-leaks.

[21]Parliamentary Budget Office, ‘Appendix G – Costing documentation for the Australian Greens’election commitments’, 2022 Election commitment report: ECR501, www.pbo.gov.au/sites/default/files/2023-03/2022%20Election%20-%20ECR%20-%20Consolidated%20costing%20documents%20-%20Appendix%20G%20-%20Greens.pdf.

[22]Dr Zirnsak, Committee Hansard, 9 April 2024, p. 7.

[23]The Treasury, Review of the Tax Practitioners Board - Final Report, 2019, https://treasury.gov.au/review/review-tax-practitioners-board-final-report.

[24]Tax Justice Network Australia and the Centre for International Corporate Tax Accountability and Research, Submission 4, p. 2.

[25]Tax Justice Network Australia and the Centre for International Corporate Tax Accountability and Research, Submission 4, p. 2.

[26]Senate Finance and Public Administration References Committee, PwC: The Cover-up Worsens the Crime, March 2024, p. 20, https://parlinfo.aph.gov.au/parlInfo/download/committees/reportsen/ RB000277/toc_pdf/PwCTheCover-upWorsenstheCrime.pdf.

[27]Neil Chenoweth, ‘Inside the Tax Office’s bitter feud over PwC’, Financial Review, 8 February 2024, www.afr.com/companies/financial-services/inside-the-tax-office-s-bitter-feud-over-pwc-20240206-p5f2w3.

[28]The Treasury, Tax Practitioners Board, Response to PwC, 5 October 2023, https://consult.treasury.gov.au/pwc-response/tpb-reforms/view/3.

[29]Senate Finance and Public Administration References Committee, PwC: The Cover-up Worsens the Crime, March 2024, p. 21.