As regular Australians struggle, gas companies are making massive profits and paying minimal tax. It is perverse | Rod Sims
We now know that the Albanese government will very likely introduce an extra levy imposed on gas producers’ high profits. The prime minister’s department has requested Treasury modelling of additional levies on gas companies in response to the Iran crisis that is driving up energy costs for Australians. The department was reported as saying that energy producers “should not benefit from high international prices at the expense of domestic customers”. Precisely. There can be no going back now from such a statement.
But this is also a time for longer term thinking. We cannot have a temporary extra tax. We must deal with Australia’s chronic undertaxing of those utilising the gas resources that belong to all Australians. Indeed, there will never be a better time for the federal government to adopt a fair share levy (FSL) – as set out by the Superpower Institute, which I chair – to ensure gas companies pay their fair share of tax to boost Australia’s prosperity and provide cost-of-living relief to Australians. The levy is based on the taxation model used by Norway, and similar to one used by the UK.
Other major fossil fuel exporting countries typically share between 75% and 90% of fossil fuel profits. Australia shares only 27%, through a combination of the corporate tax, royalties, and the petroleum resource rent tax (PRRT). With profit defined in cashflow terms, as in Norway, Australia shares even less: just 18%.
The fair share levy would on average result in Australia sharing just under 50% of profits; much more, but still at the lower end of world standards.
Then there are the immediate benefits to households. While Australian households and businesses are being stung by extremely high fuel prices caused by the crisis, gas companies are reaping extraordinary profits from this same crisis. This is perverse. If some of the revenue raised was returned to households, this would provide significant and immediate cost-of-living relief.
If Australia already had a fair share levy in place, government revenue would have increased by $1.6bn since the start of the Iran crisis. There would be more revenue raised in four weeks than the PRRT has averaged over a whole year. The PRRT is widely acknowledged as a deeply flawed tax; it is worth noting that in 2016 Treasury commented that firms can “defer the payment of PRRT indefinitely”.
Australia’s gas belongs to all Australians. But we’re letting largely foreign-owned companies extract and often export these resources while paying some of the lowest taxes on gas in the world.
At the peak price point during the Russia-Ukraine war, the fair share levy would have raised $27bn, nearly 14 times as much as the PRRT. Given the long-term damage already dealt to Qatar’s LNG industry, such price levels could well be seen again. These numbers are incredibly significant for both households and a federal budget under great stress.
Research conducted by Redbridge Group on behalf of the Superpower Institute shows overwhelming support for a fair share levy: 87% of voters agree or strongly agree that Australians deserve a better return from the sale of our gas exports, with just 3% disagreeing.
There will of course be outrage expressed by the gas industry and their supporters, who will say that a levy will increase gas prices and deter investment. It will do neither; the unique design of the fair share levy addresses these problems, as shown in economic studies and in practice in Norway.
Under the levy the government shares in investment costs as well as taking its share of the upside. Norway, using the same design with the much higher levy rate of 72%, certainly has no lack of investment incentive. Australian investment will be likewise unaffected. Concerns over investment in gas will instead be affected by views on the climate science, and the expected pace of the transition, as they should be.
To be clear, other types of government levies can have negative effects. For example, impositions that raise costs could cause gas prices to rise. And a temporary levy could deter future investment as investors would have to allow for the risk that such interventions could occur more often. A stable, long-term commitment to the fair share levy provides investment certainty.
Let’s understand that those opposed to having the gas industry pay its fair share of taxation will express outrage whether the government opts for a temporary, small impost, or a permanent fix to what is the biggest hole in Australia’s tax system. If the government is going to be criticised whatever they do, they might as well do the job properly.
