Coalition Senators' Dissenting Report

1.1Schedules 1 to 4, presented in response to the PwC tax leak, make a range of reforms to tax governance. Schedule 5 imposes a cap on the availability of deductible expenditure for an LNG project. Effectively, the deduction cap brings forward PRRT collections for these projects.

1.2On 30 November 2016, the former Coalition Government announced an independent review into the Petroleum Resource Rent Tax, to be chaired by Michael Callaghan AM PSM (Callaghan Review).

1.3As part of the then-Government’s response to the Callaghan Review, the Coalition asked the Treasury Department to lead a review of the Gas Transfer Pricing arrangements (Treasury Review), which determine the value of sales gas for PRRT purposes in integrated LNG projects.

1.4The introduction of a deductions cap was one of the recommendations of the Treasury Review.

1.5Since these measures were announced, the Coalition has consistently attempted to engage in a constructive dialogue with the Government.

1.6Unfortunately, the Government has sought to politicise this reform from the beginning. By combining Schedule 5 with its legislative response to the PwC tax leak, the Government sought to wedge the opposition and the crossbench, and stymie consultation and scrutiny.

1.7The Coalition has been particularly cognisant of the need for a productive and competitive resources and gas sector. That is why the Coalition has proposed a number of measures to provide certainty for industry and stimulate investment, and sought more detail on the Government’s proposal.

1.8When the Coalition was first briefed on the draft legislation in August 2023, the Treasury Department and the Treasurer’s office undertook to clarify the following questions:

The proportion of forward estimates revenue that is additional or brought forward from the medium term;

The modelled impact of the tax on investment; and

The medium-term cost of the measures.

1.9To date, no answers have been provided to these critical questions.

1.10On 16 November 2023, the Shadow Treasurer and Shadow Minister for Resources wrote to the Treasurer with a number of sensible and modest asks. This letter proposed the following measures:

Driving offshore gas investment by clarifying the regulatory consultation requirements under the Offshore Petroleum and Greenhouse Gas Storage Act;

Ensuring timely approvals by preventing the abuse of ‘stop the clock’ provisions, which are being used by regulators to effectively circumvent statutory timeframes for approvals under the EPBC Act and OPGGS Act;

Providing certainty for existing project developments by providing a safe harbour to all existing project applications, including those submitted but not yet approved, from any future EPA process; and

Supporting the government’s ability to fund gas infrastructure by repealing Labor amendments to the Industry Research & Development Act that ban funding projects that support the extraction of natural gas.

1.11The Treasurer has not engaged with these requests.

1.12Following this Committee’s hearing into the Bill on 9 April 2024, senators submitted a number of questions on notice to the Treasury.

1.13Over a month later the Treasury still has not provided answers to these questions. Critically, the Department could not provide information details around these measures within the reporting timeframe.

Another piece in a chaotic legislative agenda

1.14The Government’s decision to attach two unrelated measures to one bizarre piece of “wedge-isolation” demonstrates the seriousness with which it approaches these issues.

1.15The Tax Institute told the Committee:

We note that the Bill also contains measures proposing reforms to the Petroleum Resources Rent Tax in Schedule 5. It remains unclear to us why these completely distinct and unrelated regimes have been amalgamated into a single Bill.[1]

1.16The Tax Justice Network Australia and Centre for International Corporate Tax Accountability and Research similarly recommended the following:

Issues related to reforms of the Petroleum Resource Rent Tax should be considered separately from reforms responding to the unethical and illegal conduct of PwC partners and staff. …[W]e believe that Schedule 5 does not belong in the Bill and should have been brought forward in a stand alone Bill.[2]

1.17When questioned on their industry’s view on the PRRT and whether it was an issue their membership was confronting, the Tax Practitioners Board had little to say.[3]

1.18The Government told the Australian people it was taking “decisive”, “strong and substantial action”[4] in response to the PwC tax leak.

1.19The Assistant Treasurer told the House of Representatives that the tax governance reform in this Bill was the “biggest government crackdown on tax adviser misconduct in Australian history”.[5]

1.20If the Government was as serious and decisive about tax misconduct as it claims to be, it would not have attached Schedules 1 to 4 to a measure that has been controversial from day one.

1.21The Government’s approach was instead to play politics.

1.22The Government attached these two unrelated measures in an attempt to wedge the opposition and the crossbench, at the expense of what it described as critical reform to ensure confidence in our tax system.

1.23The Coalition and industry stakeholders have repeatedly called for the two measures to be separated to assist in the passage of the tax misconduct reforms. The Government has ignored these calls.

Schedules 1 - 4: PwC Response

1.24Several submitters expressed concerns with respect to certain elements in the Government's response package to the PwC tax leaks scandal.

1.25The Law Council of Australia submitted that it was concerned about the “highly disproportionate scale of the proposed new promoter penalty provisions and the application of these penalties to partners not involved in the contravention.”[6] They argued that the same treatment should be applied to partnerships and corporations, or that individual partners should be able to make defences on the basis of non-involvement.[7]

1.26The Tax Institute submitted that they were concerned about the “potential for unintended serious consequences” with respect to the promoter penalty provisions, and argued that the penalty calculation should be based on aggregate turnover of the relevant entity in the year that the breach occurred.[8]

1.27In their submission, the Law Council also flagged that consideration be given to any conflicts between whistleblower protections under the Tax Administration Act 1953 (TAA) and the Corporations Act 2001 (Cth).[9] Furthermore, they argued that limitations should be put “on how information disclosed … may be further disclosed by recipients”.[10]

1.28The Tax Institute expressed concern about the ‘gap in protection’ for tax practitioners in how the whistleblower regime interacts with breach reporting provisions, and argued that the whistleblower protections be extended to tax practitioners required to make disclosures under the breach reporting provisions.[11]

1.29There was also concern about changes to rules concerning register managed by the Tax Practitioners Board (TPB), with the Law Council arguing that provisions with respect to the publicising of “adverse decisions against an entity whose registration has been deliberately allowed to expire” were “too broad” and could lead to unintended consequences.[12]

1.30On this issue, the Tax Institute argued that the register should be updated in cases where a sanction against an entity has “lapsed or has been otherwise remediated”.[13]

1.31Furthermore, with respect to the information sharing powers between the Taxation Office, TPB and the Treasury, the Law Council expressed concern about the scope of the measures and argued that peak professional bodies be excluded from the measures to provide certainty about what entities the measure is intended to capture.

1.32Coalition Senators note these concerns by stakeholders, and consider it critical that these new penalty provisions, whistleblower protections and information sharing powers operate fairly and proportionately.

1.33To that end, Coalition Senators recommend that the provisions be subject to a post-implementation review in order to identify any unintended consequences. and that amendments proposed by submitters be taken into consideration by the Government.

1.34That the Government give consideration to amendments proposed by submitters concerned with unintended consequences, and that there be a post-implementation statutory review of the ‘PwC response’ package to evaluate any unintended consequences.

The need to drive investment in offshore gas

1.35The Committee heard that the transition to a net zero emissions economy by 2050 can only be achieved through an increase in gas supply over the coming years. As a capital importing country, this will require extensive foreign investment:

It is critically important the policy settings and legislative frameworks are designed to attract and retain investment in Australia. A stable and consistent fiscal and regulatory environment is critical to ensure investors have confidence in making investment in long-lived, capital-intensive projects. The transition to a netzero emissions economy by 2050 will require investment in new gas supplies to provide the essential energy security required to support renewable energy technologies as they are increasingly integrated into the energy supply chain. New investment in gas supplies in Australia is also needed to assist regional trading partners meeting their decarbonisation targets. Without these investments, the transition to a net-zero economy will be slower and more costly. A stable and consistent fiscal and regulatory environment will also ensure Australia maintains its reputation as a destination of choice for foreign investment. This is important not only for the development of new gas supplies. It is also essential as we look to investment in renewable energy and low emission technologies.[14]

1.36The Australian Energy Market Operator (AEMO) found in its recent Gas Statement of Opportunities reports for the east and west coast gas markets that new investment in gas supply would be critical to avoid structural domestic gas shortfalls in the coming years.[15] The AEMO report covering the east coast concluded:

…new investment is urgently needed if gas supply from 2028 is to keep up with demand from homes and businesses, and for gas-powered electricity generation.[16]

1.37As coal is phased out, witnesses emphasised the importance of a stable gas supply to back up renewables, particularly for manufacturing and other industrial processes that are so reliant on it.[17]

1.38The Committee heard repeatedly that regulatory stability and certainty is critical to send the right signals to investors. Woodside was highly critical of the Government’s approach:

…state and federal Government policy decisions and interventions in the gas market and prolonged regulatory uncertainty have delayed the new gas supply projects and investment urgently needed to keep the lights on and put downward pressure on prices for Australian homes and businesses. Australia needs an effective, streamlined regulatory environment that will help to expedite project delivery, improve environmental outcomes, and attract the investment in new gas supply that will be essential to Australia’s energy transition and to meet net zero by 2050.[18]

1.39It is for this reason that any changes to the PRRT need to be carefully managed and comprehensively consulted upon:

The overall assessment is that while the Petroleum Resource Rent Tax (PRRT) remains the preferred way to achieve a fair return to the community for the extraction of petroleum resources without discouraging investment, changes should be made to PRRT arrangements to make them more compatible with the developments that have taken place in the Australian oil and gas industry. However, the timing of any changes will need to take into account that there have been very large investments in the Australian petroleum industry based on tax arrangements that have been in place for nearly 30 years. Fiscal certainty is an important factor influencing a country’s investment attractiveness.[19]

1.40When asked about Australia’s investment climate compared to comparable economies, Australian Energy Producers said Australia was failing to seize its competitive advantage:

Yet at present, we are failing to seize this opportunity, and the increased demand for gas that Australia and our region will need in the coming years and decades is at risk of not being met.[20]

1.41Chevron agreed, saying that proposed legislation should not undermine this advantage:

It’s crucial for Australia to leverage its competitive advantages and ensure proposed reforms, when they are undertaken, do not inadvertently impact future investment or tarnish the country’s reputation as a viable investment destination.[21]

1.42The Committee also heard how discouraging investment in gas projects could in fact decrease Australia’s PRRT revenue collection:

It is reasonable to assume that Australia’s future PRRT revenue will be diminished if new LNG projects are delayed or do not proceed as a result of an unfavourable and uncertain operating environment.[22]

1.43In answers to questions on notice Chevron recommended that the Government increase the investment attractiveness of Australia for gas developments and supply infrastructure, and amend major project assessment processes to improve efficiency and certainty.[23]

1.44Witnesses were supportive of the Coalition’s policy proposals to government, and said that the Government should work to implement them:

The Coalition has put forward sensible policy proposals aimed at providing clearer and more timely decisions for offshore and onshore gas projects and we continue to urge the Government to work constructively with the Coalition on environmental reforms to streamline approvals and on the PRRT changes to secure bipartisan support and provide certainty to industry.[24]

1.45Furthermore, the Coalition’s proposals were described as “measured and pragmatic and would assist in ensuring the responsible development of resources is appropriately regulated”.[25]

1.46That Schedule 5 of the Bill be removed and considered separately by the Parliament.

1.47That the Government:

clarify regulatory consultations requirements under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth);

prevent abuse of ‘stop the clock’ provisions used by regulators circumventing statutory timeframes under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) and Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth);

provide safe harbour to existing project applications, including those submitted but not yet approved, from any future EPA process; and

repeal amendments to the Industry Research and Development Act 1986 (Cth) that banned funding to projects that support extraction of natural gas.

Senator Andrew Bragg Senator Dean Smith

Deputy ChairSenator for Western Australia

Senator for New South Wales

Footnotes

[1]The Tax Institute, Submission 12, p. 1.

[2]Tax Justice Network Australia and Centre for International Corporate Tax Accountability and Research, Submission 4, pp. 1-3.

[3]Tax Practitioners Board - 001: Answers to Written Questions on Notice asked by Senator Andrew Bragg- (received 29 April 2024).

[4]The Hon Dr Jim Chalmers MP, ‘Government taking decisive action in response to PwC tax leaks scandal’, Media Release, 6 August 2023.

[5]The Hon Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023, 16 November 2023.

[6]Law Council of Australia, Submission 7, p. 5.

[7]Law Council of Australia, Submission 7, p. 8.

[8]The Tax Institute, Submission 12, p. 6.

[9]Law Council of Australia, Submission 7, p. 10.

[10]Law Council of Australia, Submission 7, p. 11.

[11]The Tax Institute, Submission 12, pp. 7–8.

[12]Law Council of Australia, Submission 7, p. 12.

[13]The Tax Institute, Submission 12, p. 8.

[14]Australian Energy Producers, Submission 11, p. 2.

[15]Australian Energy Producers - 001: Answers to Questions on Notice asked by Senator Nick McKim and Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 1.

[16]Australian Energy Market Operator, ‘Gas market outlook signals need for new investment’, Media Release, 21 March 2024, https://aemo.com.au/newsroom/media-release/gas-market-outlook-signals-need-for-new-investment (accessed 8 May 2024).

[17]Australian Energy Producers - 001: Answers to Questions on Notice asked by Senator Nick McKim and Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 1.

[18]Australian Energy Producers - 001: Answers to Questions on Notice asked by Senator Nick McKim and Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), pp. 1-2.

[19]Department of the Treasury, Petroleum Resource Rent Tax Review - Final Report, April 2017, https://treasury.gov.au/sites/default/files/2019-03/R2016-001_PRRT_final_report.pdf (accessed 8May 2024), p. 13.

[20]Australian Energy Producers - 001: Answers to Questions on Notice asked by Senator Nick McKim and Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 2.

[21]Chevron - 002: Answers to Question on Notice asked by Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 2.

[22]Australian Energy Producers - 001: Answers to Questions on Notice asked by Senator Nick McKim and Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 2.

[23]Chevron - 002: Answers to Question on Notice asked by Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 2.

[24]Australian Energy Producers - 001: Answers to Questions on Notice asked by Senator Nick McKim and Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 3.

[25]Chevron - 002: Answers to Question on Notice asked by Senator Andrew Bragg at Public Hearing on 9 April 2024 - (received 24 April 2024), p. 4.