Offshore LNG industry to pay more tax after Petroleum Resource Rent Tax review

In its response to a Treasury report on gas transfer pricing and the earlier Callaghan review of the Petroleum Resource Rent Tax, the government will limit the deductions the offshore LNG industry can claim.

Both reviews found the PRRT regime was ill-suited to the LNG industry, compromising the government's ability to raise revenue from the sector.

Dr Chalmers said the government accepted 16 of the recommendations made by both reviews, including eight accepted by the previous government but not implemented.

The package of changes is expected to raise $2.4 billion over the next four years, which the Treasurer said would make a "meaningful contribution" to the budget's bottom line.

He said the reforms would help ensure the nation got a better return on its gas resources.

"It's been clear for some time that the PRRT isn't up to scratch," Dr Chalmers said.

"That's something most Australians would agree with, including the former government that initiated the [Callaghan] review."

Under the reforms, the government will set a 90 per cent cap on the proportion of PRRT-assessable income that can be offset by deductions.

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The government said under current rules, most LNG projects were unlikely to pay any significant amounts under the PRRT until the 2030s.

It said the reforms being announced would improve the return to the country with limited impact on investment and risks to future gas supply. They will come into effect from July 1 this year.

"These sensible changes see the offshore LNG industry pay more tax, sooner," Dr Chalmers said.

"They also deliver a fairer return to the Australian people from the resources they own, provide certainty to industry, and ensure Australia remains a reliable trade and investment partner."

Concerns over the cost and availability of gas erupted last year amid warnings of a possible shortfall in the domestic supply of the fuel.

Supply concerns have since eased and the Australian Energy Market Operator has forecast "existing, committed and anticipated natural gas production will meet customer demand until 2027". However it said there could be supply risks this winter "under certain conditions".

The federal government has drawn criticism from the fossil fuel industry over its actions to limit the increase in household energy bills.

Late last year the government introduced a temporary $12 per gigajoule wholesale price cap.

Though household energy bills have jumped since, including a record 26 per cent rise in gas charges, Treasury analysis found wholesale gas prices fell significantly following the introduction of the measure, limiting the scale of retail price increases.

The gas industry criticised the cap, arguing it would stifle investment and inflate costs for consumers.

But the claims were rubbished by Australian Competition and Consumer Commission boss Gina Cass-Gottlieb.

Ms Cass-Gottlieb said the regulator had "substantial data that it both covers costs and reasonable return on costs in relation to existing supply".

The cap was originally for 12 months but late last month the government announced it would be extended to mid-2025 to shield households and businesses from a jump in charges when the temporary cap expires.

Under the government's plan, gas producers will also be required to abide by a mandatory code of conduct (the Gas Code) aimed at levelling the negotiating playing field between gas users and the industry.

"The Gas Code will ensure sufficient supply of Australian gas for Australian users at reasonable prices, give producers the certainty they need to invest in supply, and ensure Australia remains a reliable trading partner," the government said.

It said the code would be supported by a strong enforcement regime overseen by the ACCC, and is set to be reviewed after two years.

The government said it will consult on the final design and implementation details for the deductions cap and draft gas transfer pricing rules.

The PRRT reforms will also include changes to its anti-tax avoidance provisions to bring them into line with those applying to income tax.

"This ... will help ensure that companies cannot enter into artificial tolling arrangements to reduce PRRT liabilities," the government said.