One of the reasons that Australia is referred to as the " lucky country " is because we are blessed with a vast treasure trove of minerals that we export to the world. In the early days, Australia was said to be " riding on the sheep's back " because at that stage of our development wool was the wonder product that we had exploited because of our vast grazing acreage.
China's change from an agrarian to a manufacturing country saw the price of iron ore and coal rise to unprecedented heights and across the world new mines came into being to tap into that money stream. When demand tapered off the price retreated but we are still reliant on those minerals for a major part of our national income.
Today, natural gas is fast becoming the major commodity that we supply to the world and we are on track to become the world's biggest exporter of LPG by 2020. We have massive reserves, but it is quite possible that new discoveries may extend our export market well into the next century but we do recognise that all minerals have natural limits. One day that gas will run out.
Traditionally, we extracted a premium for the use of our natural resources by way of a " Royalty " levied on the tonnage of coal or iron ore extracted. This was seen as a form of compensation to the public by way of taxation for the reduction of what was public ownership of our natural minerals. It seems strange that this does not apply to the extraction of natural gas. Instead, the compensation is based on a percentage of the profit gained from the sale of that commodity.
That is very different from a Royalty. The extracting company is entitled to claim all exploration costs in establishing extraction facilities and the ongoing costs involved with the shipment of that gas to its end user. This can be contentious when the extracting company is partly owned by the same nation that is the end user of this gas. There is suspicion that Australia is losing billions of dollars in credits that would be forthcoming if a royalty system was in place rather than this profit share arrangement.
The taxation office has been calling on the Australian government to implement a Petroleum Resources Rent Tax ( PRRT ) as the method of gaining a meaningful royalty reward from this natural resource. There is a degree of urgency because of the expectation that natural gas will continue to grow in size and may eventually become the prime form of export from this country.
There is also a need to establish a severance between the terms that apply to bulk natural gas and the fracking process that is delivering gas locked in rock deposits in many parts of the country. Fracking is widely opposed because of potential harm to the water table and we do have a need to ensure that we can isolate sufficient gas for our domestic needs at a reasonable price to power the national infrastructure.
Applying a PRRT has many advantages. We live in a fast changing world and it is evident that other minerals may come into bulk use in the future. It is essential that we have a price structure in place to ensure that a consistent reward for any public amenity automatically comes into play. Otherwise what is happening with natural gas may happen again and rob the Commonwealth of legitimate revenue.
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