Petroleum Resource Rent Tax review: final report

28 Apr 2017

When announcing the review on 30 November 2016, the Treasurer, the Hon Scott Morrison said, ‘We will ensure that the Petroleum Resource Rent Tax (PRRT) provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development which is vital to that industry’. The review has used this as a summary of the intent of the PRRT. 

The PRRT, which came into effect in 1988, aims to capture the ‘economic rent’ associated with the development of petroleum resources. The economic rent refers to returns in excess of those necessary to attract commercial investment into the activity. Since these ‘excess’ returns are in part a function of the scarcity of petroleum resources, which are owned by the Australian community, it was considered equitable to share these returns. Because the PRRT is a profit-based tax, it not only captures the upside of rising petroleum prices, but also avoids the problems of an excise or royalty regime which are considered to discourage activity and investment in marginal projects. 

It became clear during the course of the review that there are different views as to what constitutes an equitable return to the Australian community and what constitutes the discouragement of investment, along with the relative weight to be placed on either influence. Any assessment as to whether the PRRT is operating as intended or whether changes are required will ultimately come down to judgements after balancing a range of considerations.

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