Energy companies will pay more under budget changes that could also secure company tax win

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Energy companies will pay more under budget changes that could also secure company tax win

By Eryk Bagshaw

Oil and gas giants will be forced to pay billions more in tax under changes to the Petroleum Resources Rent Tax that could also deliver the Turnbull government a shock victory on its stalled company tax cuts.

It is understood next month's budget will tackle longstanding concerns about the way energy companies are taxed by curbing "uplift concessions", which determine tax deductions associated with exploration and construction. But in a concession expected to win industry support, the changes will exempt existing projects.

Treasurer Scott Morrison ordered a review into the system in 2016.

Treasurer Scott Morrison ordered a review into the system in 2016.Credit: Alex Ellinghausen

Former Treasury official Michael Callaghan recommended changing the uplift concessions last year in a review of the PRRT aimed at ensuring big Australian and multi-national energy companies were paying an appropriate amount of tax in Australia.

With Australia poised to overtake Qatar as the largest exporter of liquified natural gas in the world by 2020, critics of the PRRT note Canberra is forecast to receive a much smaller tax take than the Middle Eastern country.

This disparity has caught the interest of crossbench senator Rex Patrick, who could help the government pass its plan to cut the corporate tax rate from 30 per cent to 25 per cent for all companies. Senator Patrick and his Centre Alliance colleague Stirling Griff this week signalled a willingness to vote in favour of the tax cut after previously ruling out support.

"On the face of it the legislation is simply not supportable, but if it is packaged together with a number of measures [it is]," Senator Patrick told Fairfax Media.

"There are a whole range of things the government could do to make them palatable."

The billions of dollars in extra revenue will not start flowing for decades, but could be enough to help secure the support of the two crucial crossbenchers. Fellow independent senator Tim Storer has also described the focus on company tax reform as "narrow".

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Fairfax Media revealed in 2015 that tax revenue from offshore gas will continue to flatline until at least 2027 despite company revenues soaring from $5 billion in 2007 to $60 billion in 2017.

Treasurer Scott Morrison ordered a review into the system in 2016 and labelled it "a problem".

He said there were design elements of the 40 per cent tax on super profits - paid on top of company tax - that may pose long-term revenue risks, including high uplift rates, transferability, and sequencing for carrying forward exploration expenditure.

A spokesman for the Treasurer described the expected budget announcement as "further budget speculation not informed by the government".

Mr Morrison received the report ahead of last year's budget, but asked for more work to be done before making a final decision.

Industry has been gearing up for changes ever since. A spokeswoman for LNG giant Santos said it "fully understands the need to pay our fair share of taxes."

"Last year, we worked cooperatively with the federal government and proposed a sensible package of PRRT reforms, including a reduction in the PRRT uplift rate," she said.

NXT Senators Rex Patrick and Stirling Griff.

NXT Senators Rex Patrick and Stirling Griff. Credit: Alex Ellinghausen

Senator Patrick added his decision to support the company tax cuts would also be based on their impact on gross national income. He will not support the cuts if they have a negative impact on GNI or present a risk of cuts to social services.

"I'm not pushing anything on the government, I'm just going down all the nooks and crannies to find out what all the issues are," he said.

Securing the vote of Senator Patrick and Senator Griff would mean the government could avoid demands from independent Derryn Hinch to carve out the banks from a tax cut.

The Business Council of Australia on Thursday conceded the tax cuts were a hard sell but essential to guarantee Australia's international competitiveness.

"It's probably not the most politically popular, but it is the right thing to do," BCA president Grant King told a Senate inquiry.

A poll due to be released next week by Per Capita shows two thirds of voters remain opposed to company tax cuts, including a majority of Coalition supporters.

BCA chief executive Jennifer Westacott agreed broad tax reform was necessary, but that company tax cuts were the only plan on the table at the moment.

"It is very difficult getting significant tax reform through," she said.

With Cole Latimer

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