Taxing times

One happening this week serves to highlight a significant development for business in Australia – and not just for the energy sector. Any presumption of innocence when malpractice claims arise has gone right out the window.

There have been events too numerous to catalogue here as to why this should be so; the ongoing drama of the banking royal commission is a fine example. Such things have opened the door for politicians and media to throw sticks and mud at the corporate sector without restraint.

For the energy networks, assailed as “gold platers” for some years for implementing opex and capex plans that have gone through the regulatory mill, the latest is the accusation that they have been “price gouging” over their tax liabilities.

This claim has been launched by federal Environment & Energy Minister Josh Frydenberg, who has asked the Australian Energy Regulator to examine the allowance networks can include in their charges relating to tax. He points to information from the Taxation Office that there is a discrepancy between what the AER has set for recovery of this element and the amount the networks actually pay to the ATO.

And then the killer punch on which the media has seized as proof of guilt: “It is totally unacceptable for consumers to be charged for corporate tax liabilities that are not actually incurred,” the minister, who is a lawyer, said in his media statement.

A draft report on the issue is being required of the regulator by “the middle of the year,” which is weeks away, with a final report to the CoAG Energy Council in December.

But the media lynch mob are off and running. “Electricity price gouging: government to crack down on networks,” said one headline. Fairfax Media asserts “$400 million a year power price gouge triggers probe.” One of the largest tabloids headlines: “Power companies in gun for gouging consumers over tax liabilities.”

Energy Networks Australia CEO Andrew Dillon denies there is “gouging”.

“The current benchmark approach to tax allowances is set by the AER to avoid customers in different suburbs paying different charges and the risk of sudden price rises when there is a change of ownership,” he says, adding that “many (past) knee-jerk policy decisions have led to poor consumer outcomes.”  This is well-buried in media coverage where it gets a mention at all. The focus is on how can the bastards be made to pay back what they have pinched.

The AER has published a paper calling for submissions on the issue. In it, the regulator reports that its estimate of energy networks’ tax payable in regulatory determinations for 2012-13 to 2016-17 amounted to $5,050.4 million, of which $3,967.3 million accrued to electricity distribution businesses, $743.4 million to high voltage transmission operations and $339.8 million to gas sector networks.   And $3,223.2 million of the AER estimate of tax payable in this time frame related to networks owned by State governments. The regulator also says it is advised by the ATO that energy networks listed on the Stock Exchange or privately owned paid less tax than estimated by the AER – but the government-owned ones paid more than estimated.

The tax segment, the AER notes, represents about four per cent of the revenue the energy networks are permitted to recoup.

And the tax gatherers’ analysis has focused only on the electricity distribution businesses.

AER adds: “The ATO noted that it had to make assumptions and exclusions in undertaking its analysis, but the full details of (these) were not set out in the (whistle-blowing) note.”

It also says that, in pursuing the issue, “we have encountered significant difficulties in obtaining accurate and consistent information in the public domain on actual tax payments and other relevant tax information for the energy networks.”

It goes on to caution that “the ATO note identified a number of potential drivers that could be contributing to the discrepancy between expected tax costs and actual tax payments.” These include factors that can alter the relevant tax rate (ownership structure), interest expense (gearing) and depreciation expense (diminishing value, self-assessed asset lives, low value pools).

“The AER needs to understand these potential drivers and their impact on observed tax payments” before making a report.

Its current activity, it says, is a step in reviewing the regulatory tax approach to ensure this aspect of determinations “serves the long-term interests of consumers.”

The regulator notes that, if it finds grounds to recommend changing the rules, it will put proposals to the Australian Energy Market Commission – which will pursue consultation in its own right.

In short, should there really be an issue, it will be some time next year before any fix is in place.  The lynch mob, of course, will keep running with pejorative language all along this path.

And the political hares are running, too. Victorian Energy Minister Lily D’Ambrosio is telling Fairfax Media that the Coalition federal government has “known for years that consumers were being ripped off by power companies but they did nothing about it.” And Frydenberg is asserting “network rip-offs in the five years from 2013-14 occurred due to rules put in place under federal Labor in 2012; we are cleaning up Labor’s mess yet again.”

As Fairfax have it, D’Ambrosio wrote a letter to Canberra last month claiming that the corporate tax allowance issue “threatens to slug Victorian consumers with an extra $602.2 million in energy costs” between 2016 and 2020.

And – surprise! – Bill Shorten is out and about calling for “energy companies who have been gouging customers by as much as $400 million a year to cover inflated tax liabilities to refund every cent.” And he doesn’t want any waiting about while the regulator pursues a review. “Australians want action” right now by the Turnbull government against “large corporations treating consumers like mushrooms.”

Even Henry the Eighth held show trials before he lopped off heads.

The networks, meanwhile, will need to get their skates on: the return date for submissions to the AER on its paper canvassing the issue is the end of this month.

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