A damning investigation has found multinational companies are claiming billions of dollars in questionable deductions while exploiting the nation's natural riches, using accounting tricks allowed to flourish under a hands-off government approach that is dudding Australian taxpayers of royalties.
And in a stunning disclosure, the probe by Auditor-General Grant Hehir found nearly two decades had passed since a federal government audited the self-assessed royalty payments from the North West Shelf, a giant project located in the lucrative oil and gas region off the West Australian coast and jointly owned by Woodside, Shell, Chevron and BHP Billiton.
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Some of the Auditor-General's most damning criticism was reserved for a single $705 million cost deduction that helped reduce royalties owed to the taxpayer by $88 million. Mr Hehir argued the $705 million deduction may not have been technically valid.
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| Auditor-General Grant Hehir warns his review may only scratch the surface. |
Mr Hehir warned his review may only scratch the surface.
"There has been limited scrutiny of the claimed deductions...the available evidence indicates that the problems are much greater than has yet been quantified," he found.
Among the most concerning findings were:
- It has been 17 years since the government audited the self-assessed royalty payments from North West Shelf;
- One of the meters relied on to measure gas output, and therefore royalties due, was broken for five years;
- The Royalty Schedule which governs payment calculations has not been updated in 10 years, and;
- The West Australian government engaged audit firm Ernst & Young to conduct a 2014 "external review" of deductions even though the firm is also the long-time auditor of the North West Shelf's financial accounts.
"There are some significant shortcomings in the framework for calculating North West Shelf royalties," he found.
North West Shelf has already paid $8.6 million in underpaid royalties as a result of the Auditor-General's investigation.
Mr Hehir also made a withering assessment of the hands-off approach of bureaucrats in the federal Department of Industry, Innovation and Science and the state Department of Mines and Petroleum, which oversees the royalty system.
"Given the actual and potential size of allowable deductions being claimed by NWS producers on a monthly basis, it would be reasonable to expect [the departments] to have developed and implemented a robust compliance strategy and included strong controls around verifying the validity of deductions being claimed," he wrote.
He said there were no agreed procedures and no assurances sought that deductions are being claimed correctly.
Mr Hehir recommended the state and federal governments work together to ensure deductions claimed by the North West Shelf producers in 2015 are valid, as well as work to "verify the validity" of deductions claimed prior to 2014.
A Woodside spokeswoman said the company had "robust compliance processes with regard to royalty obligations" and had assisted audits in an "open, transparent and cooperative manner".
Woodside pointed to a reference in Mr Hehir's report about underpaid royalties totalling "$11.6 million" but that total was in direct relation to a 2014 external audit, which the Auditor-General described as "limited in scope".
Resource tax expert Diane Kraal, a lecturer from Monash University, said it was hard to know just how much has been lost from the North West Shelf without a forecast for how much royalty revenue had been expected.
In its response to the Auditor-General's report, the federal department agreed the system could be 'improved" but argued it was nonetheless "robust".
For historical reasons, the North West Shelf pays royalties but also comes under the petroleum resource rent tax (PRRT).
Newer LNG export projects like Chevron's massive Gorgon and Wheatstone ventures are not required to pay royalties at all but are only assessed for the profits-based PRRT.
Fairfax Media has revealed over recent months that just 5 per cent of 150 oil and gas ventures are paying any PRRT, despite Australia being poised to eclipse Qatar as the world's single biggest exporter of LNG by 2020.
The industry has built up a mountainous $187 billion in exploration and development tax credits, which continue to rise sharply and will be used to insulate companies from paying PRRT for years to come.
Last week, Craig Emerson, one of the architects of the PRRT in the Hawke government backed calls for a parliamentary inquiry into why the boom in LNG exports shows no sign of delivering any meaningful contribution to the wealth of Australia.
On Monday, Greens senator Peter Whish-Wilson accused the government of getting things "arse-about" by focusing on tax paid by backpackers before the giant fossil fuel companies.
"They have been trying to penny-pinch from backpackers and some of the lowest-paid workers in the country, and yet they have been blind to potentially multi-billion-dollar rorts from massive multinational corporations," he said.
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