North Shore MPs pushed for a gas tax the PM says won't work. Who's right?

The views of northside MPs Zali Steggall and Nicolette Boele on a 25 percent “gas tax” have been brushed aside by PM Anthony Albanese, who said on Wednesday any such tax was dead in the water.

Was it ever possible, though, or just a pipe dream held by MPs with little power to influence policy?

What happened: Seemingly out of nowhere, Australians recently began mulling over the idea of a tax of 25 percent on all revenue from exported gas.

Who kicked off the gas chat?

The Australian Council of Trade Unions raised the idea of a 25 percent gas tax last August.  Much of the current advocacy for the policy, however, comes from the Australia Institute, a progressive public policy think tank in Canberra. 

How would it work? 

The gas in question is extracted from offshore projects, the majority of which sit off the coasts of Western Australia and the Northern Territory. 

Currently, Australia taxes oil and gas via the Petroleum Resource Rent Tax (PRRT), introduced in 1988 under PM Bob Hawke. 

It is meant to tax 40 percent of all profits from gas extraction, but there is a widespread belief that tax law in Australia means this profit is low or non-existent in the early years of a new project.

Due to the vast costs associated with setting up gas projects, and the fact companies are legally entitled to write off expenses over a period of time, it can mean companies make smaller — or no — profits while the capital expenditure is clawed back. And that means not much PRRT gravy for Australia.

The current tax system used was designed in the 1980s with onshore oil projects in mind: typically much smaller and cheaper than today, even after inflation is factored in. 

Gas companies also pay a company tax rate of 30 percent on profits, as do all businesses in Australia with a turnover above $50 million (the rate under this threshold is 25 percent).

Those against a gas tax say that by writing off costs associated with the business, major energy companies are only doing what every other company and individual does.

Those in favour of a gas tax claim Australian taxpayers are subsidising major energy companies as they establish offshore gas operations in the years before profits are turned. They also say the natural resources industry should be taxed more heavily than general business.

In the 2023-24 financial year, the petroleum industry paid $1.4 billion PRRT on $69 billion worth of exports.

The Australia Institute claims that replacing an export tax based on profit with one based on revenue would lead to more gas staying in Australia, which would lower prices.

Alison Reeve, Energy Director at the Grattan Institute, said criticism of PRRT was well founded. 

“The way that tax is designed, [it] does not collect very much money,” she said. 

A no from Albo: In a speech given to key mining industry figures on Wednesday, Prime Minister Albanese gave a clear answer on any proposed tax.

“I can confirm that the budget will not undermine existing contracts on gas exports,” he said. In his reasoning, he argued gas exports are “directly linked to our national fuel security” and that “the middle of a global fuel crisis is the worst possible time to jeopardise these partnerships, or the investment that underpins them”. 

This hint of fractured business and political relationships plays into what some see as fearmongering from those against taxing gas corporations more heavily. In this scenario, the tax burden becomes too great and the companies walk (or row) away.

Reeve said this was unlikely, given the size of the investments such companies had made in infrastructure for Australian projects. 

“They can stay with their investment here and pay the tax, or they can sell their investment to someone who's happy to buy it and still pay the tax,” she said.

“You are not going to get a situation where someone shuts down that facility and stops producing … that wouldn't be doing the right thing by your shareholders.”

Thumbnail: Dan Himbrechts via AAP, Gabriel Xavier via Unsplash