Gas export tax won’t harm trade or diplomacy despite industry scare campaign claims

Will a gas export tax harm our diplomatic relationships? 

No.

How does a gas export tax work?

As the name suggests, a gas export tax is only applied to gas exports. A gas export tax will push the prices paid by Australian households and industry down.

Gas companies like to avoid tax, and a gas export tax is easy to avoid by not exporting so much gas and diverting a small percentage of current exports to Australian gas customers.

A 25% gas export tax could see Australian wholesale gas prices fall by up to 25% as gas exporters compete with each other to avoid paying the export tax by diverting supply to the untaxed Australian market.

Increased supply of gas to the Australian domestic market will lower Australian domestic gas prices and end the farcical situation where Australians have been told that Australia had a ‘gas shortage’ while Australia was simultaneously one of the world’s largest gas exporters.

Would a gas export tax increase the price of Australian gas exports?

No. Commodities like gas, oil and coal are not like manufactured products. Gas is sold into a world market at the world price. No one in the world pays a ‘premium’ for Norwegian gas because the Norwegians impose a 78% tax and Australian gas does not currently sell at a discount on world markets because we have been giving our gas away for free. The gas export tax will be absorbed by the gas company rather than given to shareholders as even higher dividends.

In the words of Jens Stoltenberg, Norway’s former Prime Minister and current finance minister:

we invite foreign companies to invest, to produce, and then, of course, they can sell the oil and gas. But partly, we taxed them quite heavily. It’s 78% tax rate. And they told us that was impossible, but they come and invest. [LAUGHTER] And we taxed them, and they stay, because they earn money even with a tax rate of 78%

Would it upset our trading partners?

No. Australia is one of the world’s largest exporters of liquified gas (methane) and a gas export tax would not change the price foreign buyers pay for our gas exports or the ability of the gas export companies exporting from Australia to supply gas to foreign customers.

Not only would a gas export tax have no impact on the ability of gas export companies to meet their existing contractual obligations, Australian gas production already far exceeds the volume of ‘contracted’ gas supplies.

In fact, last year Australia sold more ‘uncontracted’ or ‘spare’ gas on what is called the ‘spot market’ than all of the gas used in Australia by all households, all industries and all electricity generators.

Would it upset the gas export companies?

Yes. Some gas exporters like INPEX and Santos have been very effective at not paying tax and a simple 25% tax on their export revenues would be very hard to avoid, no matter how good their accountants and lawyers were.

As most of the gas export companies are foreign owned it is safe to assume that these foreign companies will ask foreign governments to demand Australia not make gas export companies pay more tax.

But foreign companies being sad about having to pay some tax in Australia is quite different to foreign countries losing trust in Australia as a reliable trade partner.

Do gas companies really get away with paying no tax?

Yes.

For instance, Santos Ltd has paid zero company tax on $47 billion in sales over the last 10 years. INPEX exports more gas than is used in New South Wales, Victoria and South Australia combined, yet it pays no royalties, no PRRT and pays virtually no corporate tax.

The Australian Taxation Office has labelled the gas industry “systemic non-payers of tax”.

Why treat gas exports differently to other industries?

The gas export companies have been getting the biggest free ride in the Australian resource sector. Through a combination of geography and poor Commonwealth policy, gas exports from ‘offshore’ production sites have access to a loophole you can drive a supertanker through.

Gas extracted ‘onshore’ is owned by the State Governments and royalties are usually paid on this gas. But while the states do usually charge royalties on the gas they own, so called ‘offshore’ gas, gas which is found under the ocean but inside Australia’s territorial waters, is owned by the Commonwealth. And the Commonwealth has chosen not to impose a royalty on gas in most Commonwealth waters.

Instead of imposing a simple royalty (like the states) or a simple tax on revenue (like Norway) successive Commonwealth governments have chosen instead to rely on the highly complicated, and highly ineffective Petroleum Resource Rent Tax (PRRT) which the commonwealth budget papers show collects less each year than beer excise or HECS repayments.

But didn’t the Government recently reform the PRRT?

They certainly changed it, but whether that change constituted reform (change for the better) is in the eye of the beholder.

It’s true that after the Albanese Government announced changes to the PRRT in 2023 the gas industry put out a press release welcoming the change. It is true that the revenue projections from the PRRT have actually declined in the forward estimates since the changes were announced and it’s true that the budget papers still forecast that beer excise and HECS will continue to contribute more to the Commonwealth than the PRRT.

It’s up to each individual to decide if such changes constitute reform.

But won’t a gas export tax harm investment in new gas projects? 

Maybe. But as the graph above shows Australia already produces far more gas than is needed in Australia and the amount of ‘uncontracted’ gas sold on the spot market is far larger than all of the gas used in Australia.

There is no ‘shortage’ of gas in Australia and any new gas projects approved today would be years away from supplying any gas. And the Albanese Government recently committed Australia to the Belem Declaration to transition away from fossil fuels.

So even if the gas industry were to change their investment behaviour the impacts would be years away, and those impacts would be consistent with the Albanese Government’s commitment to the Australian people and the world community to transition away from fossil fuels.