The Government has announced major investments in renewable energy to help Australia meet emissions reduction commitments and in response to the physical impacts of climate change. Changes to the Petroleum Resources Rent Tax are intended to ensure Australians “receive a fairer return on the sale of our natural resources, sooner”. The Government has further announced funding of $3 billion in direct energy bill relief for households and businesses.
Investing in clean energy
The Federal Government has announced major investments into Australia’s clean energy sector. Key measures include:
- Hydrogen Headstart: The Government will provide $2.0 billion to accelerate development of Australia’s hydrogen industry, catalyse clean energy industries, and help Australia connect to new global hydrogen supply chains. Funding includes:
- $2.0 billion for the establishment of a new Hydrogen Headstart program, which will provide revenue support for investment in renewable hydrogen production through competitive production contracts, including funding for the Australian Renewable Energy Agency and the Department of Climate Change, Energy, the Environment and Water to support the development and operation of the program;
- $5.6 million in 2023-24 to analyse the implications for Australia of intensifying global competition for clean energy industry, and to identify actions before the end of 2023 to further catalyse clean energy industries, ensure Australian manufacturing competitiveness and attract capital investment; and
- $2.0 million over two years from 2024–25 to establish a fund to support First Nations communities to engage with hydrogen project proponents and planning processes.
- Powering the Regions Fund: From 2022-23, the Government will allocate $1.3 billion over 5 years to support the decarbonisation of existing industries, develop new clean energy industries and support sovereign manufacturing capacity essential to the energy transition. Funding includes:
- $450.3 million over 4 years from 2023-24 to establish the Safeguard Transformation Stream to support decarbonisation investments at trade-exposed facilities covered by the Safeguard Mechanism;
- $400 million over 4 years from 2023-24 to establish the Industrial Transformation Stream to support reduction of emissions at existing industrial facilities, or clean energy development, in regional Australia; and
- $400 million over 3 years from 2023–24 to establish the Critical Inputs to Clean Energy Industries Stream to support the sovereign manufacturing capability of industries that produce inputs (primary steel production, cement and lime, alumina and aluminium) that are essential to the development of Australia’s clean energy industries.
- Supporting Australian Critical Minerals: The Government will provide $80.5 million over 4 years from 2023–24 to support the Australian critical minerals sector. Funding includes:
- $57.1 million over 4 years from 2023–24 to undertake international engagement to promote Australian critical minerals projects and build diverse and resilient supply chains with key international partners
- $23.4 million over 4 years from 2023–24 for critical minerals policy development and project facilitation, including activities to showcase Australia’s environmental, social and governance credentials to international markets.
- Australian Energy Regulator: The Government will provide $80.0 million over 4 years from 2023–24 (and $11.1 million per year ongoing) to support the supply of cheap, clean and reliable energy across Australia. Funding includes:
- $35.6 million over 4 years from 2023–24 (and $8.8 million per year ongoing) to the Australian Energy Regulator (AER) to continue compliance and enforcement activities to regulate and monitor energy markets;
- $28.4 million over 4 years from 2023–24 to support the delivery of new cross-government energy market reforms and national energy projects as directed by Energy Ministers through the Energy Special Account; and
- $10.9 million over 4 years from 2023–24 (and $2.4 million per year ongoing) to the AER for new legislated functions that will support Australia’s energy transformation and reduce emissions.
- National Reconstruction Fund: The Government will provide $61.4 million over 4 years from 2023–24 (and $1.2 million per year ongoing) to establish the National Reconstruction Fund Corporation (NRFC), which will manage $15.0 billion of investments. The NRF will earn estimated receipts of $188.7 million over the forward estimates from investments in loans, equity investments and guarantees.
- Guarantee of Origin Scheme: From 2023–24, the Government will provide $38.2 million over 4 years (and $6.5 million per year ongoing) to establish a Guarantee of Origin Certificate scheme to certify renewable energy and track and verify emissions from clean energy products.
- Working with the Australian Resources Industry: The Government will provide $38 million over 5 years from 2022–23 for a partnership with the Queensland Government to support technology projects that reduce emissions, the review and decommissioning of offshore petroleum, and a Future Gas Strategy.
- Product Stewardship for Oil Scheme: The Government will reform incentives for oil recycling by raising the Product Stewardship for Oil (PSO) levy by 5.7 cents from 1 July 2023. This measure is estimated to increase receipts by $161.0 million and increase payments by $22.0 million, including GST payments to the state and territories of $10.0 million over the 5 years from 2022–23.
Petroleum Resources Rent Tax
The Government will introduce a cap on the use of deductions to offset assessable income of liquefied natural gas (LNG) producers under the Petroleum Resources Rent Tax (PRRT). The cap will bring forward PRRT receipts from LNG projects which are yet to pay PRRT. This is estimated to increase revenue by $2.4 billion over the 5 years from 2022-23. Additionally:
- The cap will limit deductible expenditure to the value of 90 per cent of each taxpayer’s PRRT assessable receipts in respect of each project interest in the relevant income year and apply after mandatory transfers of exploration expenditure.
- The amounts that are unable to be deducted because of the cap will be carried forward and uplifted at the Government long-term bond rate.
- The cap will only apply to PRRT projects that produce LNG. Projects would not be subject to the cap until 7 years after the year of first production or from 1 July 2023, whichever is later.
- The Government will also make supporting changes to the PRRT Gas Transfer Pricing arrangements:
- From 1 July 2023, the Government will update the PRRT general anti-avoidance rule and the arm’s length rule to clarify their application to the Petroleum Resource Rent Tax Assessment Regulation 2015.
- From 1 July 2024, the Government will modernise the PRRT for emerging developments in LNG project structures, better reflect the contributions and risks of the notional entities that comprise the LNG value chain, align the regulations with current transfer pricing practices and provide appropriate integrity rules for the regime.
- The Government will consult on final design and implementation details for the deductions cap and on the draft PRRT regulation later in 2023.
Energy bill relief for households and businesses
As part of a wider package of cost-of-living measures, the Government is partnering with the States and Territories to offer up to $3 billion of direct energy bill relief to vulnerable households and small businesses. Significant funding in energy costs will be provided for households and businesses:
- Energy Price Relief Plan: The Government will provide $1.5 billion over 5 years from 2022–23 to reduce the impact of rising energy prices on Australian households and businesses by providing targeted energy bill relief and progressing gas market reforms. Funding includes:
- $1.5 billion over two years from 2023–24 to establish the Energy Bill Relief Fund to support targeted energy bill relief to eligible households and small business customers;
- $14.7 million over 5 years from 2022–23 (and $2.7 million per year ongoing) to the Australian Competition and Consumer Commission to enforce a temporary gas price cap of $12 per gigajoule;
- $9.5 million over 3 years from 2022–23 for the Australian Energy Regulator to monitor coal and gas markets across the National Electricity Market; and
- undisclosed funding to support the New South Wales and Queensland governments to implement a cap of $125 per tonne on the price of coal used for electricity generation.
- Household Energy Upgrades Fund: The Government is establishing the $1.3 billion Household Energy Upgrades Fund to provide concessional finance to more than 170,000 households for home upgrades that save energy. Funding includes:
- $1.0 billion in funding to the Clean Energy Finance Corporation to provide low-cost finance and mortgages in partnership with private financial institutions for home upgrades that save energy;
- $300.0 million over 4 years from 2023–24 held in the Contingency Reserve to support upgrades to social housing, in collaboration with states and territories, that save energy; and
- $36.7 million over 4 years from 2023–24 (and $2.1 million per year ongoing) to develop further initiatives to improve energy performance, including expanding and modernising the Greenhouse and Energy Minimum Standards program and the Nationwide House Energy Rating scheme.
Compared with prior expectations, electricity bill increases are now expected to be around 25% smaller on average nationwide in 2023–24 as a result of the Government’s actions.
Digest what was (or wasn’t) in the Federal Budget, what that means, and whether we now anticipate significant tax reform.