A new report says the Federal Government could make nearly $3 billion a year by forcing offshore petroleum companies to pay a flat royalty on the gas they extract and export.

The report, written by UNSW economist Professor Richard Holden, finds that the Petroleum Resources Rent Tax (PRRT) system is “increasingly inadequate”

He suggests it should be replaced with a 10 per cent royalty, which would bring in annual revenue of up to $2.8 billion.

“While the PRRT aims to protect gas and oil producers from occasional volatility in resource prices, in reality, the PRRT is extremely generous towards major oil and gas companies, who poorly compensate the Australian public for the publicly owned resources they are extracting from the ground, and selling for profit,” he found.

“Fossil fuel resources in Australia are not renewable: their extraction can only occur once, and it is vital that companies making a profit off this extraction fairly compensate the Australian public for the resource they are depleting.” 

Treasurer Scott Morrison appointed former treasury official Mike Callaghan to head a review into the PRRT in November, saying at the time that “we think it is a problem”.

But Mr Morrison has changed his tune since then, and now claims Australia is not “missing out” on revenue from the LNG sector.

He agreed with the industry line that any changes to the $200 billion sector could drive off future investment and hamper solutions to Australia’s gas supply crisis.

Now, crossbenchers are looking for a PRRT fix in the May budget.

Nick Xenophon says the profits-based PRRT system is “beyond broken”.

“It must be addressed in the budget and there must also be a focus on ensuring gas supply into the domestic market. In their heart of hearts the gas producers must know they have been living on easy street for too long,” he told Fairfax Media.

Tasmanian Senator Jacqui Lambie says it is “difficult to consider any budget proposal” unless the government comes up with a way to “end the obscene situation of Australia giving away our gas for free in the face of a domestic energy crisis”.

Victorian Senator Derryn Hinch says Australia is “not getting a fair and equitable return” from the LNG boom.

One Nation leader Pauline Hanson says the Federal Government has to prove whether it expects to generate any PRRT revenue from large looming LNG export projects.

The gas industry is currently subject to a profits-based PRRT that allows investors to recoup capital costs before paying.

Companies argue the tax still works as it was designed to the Hawke Labor government introduced it in 1984.

Major gas lobby the Australian Petroleum Production & Exploration Association says it “does not consider a case exists for any changes to be made to the existing PRRT”.

“Critics of PRRT express concerns about its failure to collect revenue at all stages of the investment cycle. These views do not recognise the intense global competition for investment, the economy-wide benefits of the industry, the risks undertaken by investors, the actual rent generated by projects, the timing of the investment cycle and more fundamentally, disregard the intentional design features of the PRRT,” APPEA said.

Professor Holden’s report says: “Several market participants suggested in private conversations that the offshore LNG owners do not expect to pay any PRRT – and no longer even factor in such calculation to their financial analysis”.

A Tax Justice Network spokesperson said: “This does not pass the pub test. No one thinks that oil and gas companies should get our offshore gas for free”.