It’s no surprise that gas companies are splashing millions of dollars trying to convince us not to extract more tax from them. Few people will hand over money they believe they’ve rightfully earned without putting up a fight.
As Richard Denniss, director of the left-leaning think tank the Australia Institute, puts it, “gas companies are spending more on PR than on the PRRT”. By that, he means gas companies are paying very little petroleum resource rent tax: the main way we’ve tried to claw back some of the big profits – often called “superprofits” – that these companies make when they suck up resources that, really, belong to all of us.
The PRRT came into effect in 1988 as a 40 per cent tax on profits from Australian oil and gas projects.
That should mean that as gas prices have spiked recently (largely because of geopolitical conflicts which have squeezed the supply of gas in the world), the government should be raking in a lot of money. The problem is, it isn’t.
Of course, the gas industry – largely multinationals such as Shell, Woodside and Chevron – are adamant they’re shelling out a huge amount. Their peak body, Australian Energy Producers, says oil and gas companies contributed nearly $22 billion through various taxes and royalties to federal, state and territory governments in 2024-25.
That sounds big, but relatively speaking, it’s not. All the taxes gas companies pay – including company tax, royalties and PRRT – add up to about 30 per cent of their profits. Governments of other major fossil fuel exporting countries typically get between 75 per cent and 90 per cent.
The thing is, gas companies aren’t breaking any rules. They’re simply making the most of the rules – which have ended up with them paying much less than they should.
Part of this is because a lot of gas projects are technically in Commonwealth, not state, waters, meaning they aren’t covered by royalty regimes which are largely run by the states.
These projects instead pay the petroleum resource rent tax. But here’s the catch. The 40 per cent tax they’re supposed to pay is often watered down – or totally cancelled out – over many years.
That’s because gas companies can deduct their expenses: money paid for things such as exploration, construction costs, and building offshore rigs, from their tax liabilities.
Because these costs are often extremely high, can be carried across from one year to the next, and the leftover amount can keep growing (to account for interest and inflation), it means gas companies often end up paying very little to no tax for a very long time.
This was especially true before 2019 when those expenses could be carried forward, increasing at the long-term Commonwealth bond rate (often between 5 and 10 per cent), plus 15 per cent every year.
That, of course, was far too generous and has been reduced, but the effect of compounding means many gas companies continue to benefit from the overly generous arrangements we’ve had in the past.
Gas companies would argue that all this is fair because they, and their shareholders, have footed the cost – and taken on the risk – of investing in gas projects which could yield them very little (or, as it turns out in most cases, a lot!).
They also argue that increasing their tax will lead to lower investment because shareholders and companies will take their money elsewhere: perhaps to another country with gas reserves, or to spend on something else entirely.
But as former competition watchdog chair – and now chair of the green energy advocacy group the Superpower Institute – Rod Sims puts it, that’s a “monumentally stupid” argument.
Some gas projects may become unprofitable if we pursue the 25 per cent tax on gas exports that the Australia Institute – and, somewhat surprisingly, groups ranging from the unions and the Greens, to Clive Palmer and One Nation – are backing.
But it’s a decent idea if our priorities are to have a very straightforward tax aimed at getting gas companies to cough up more and, as the Australia Institute argues, if we want lower domestic prices for gas.
Now, the latter point might be up for some debate. The argument is that by imposing a 25 per cent tax on gas exports, we encourage gas companies to sell more of their gas in Australia, boosting supply and pushing down prices.
But if the export tax ends up discouraging investment (which, to be fair, is part of the appeal for those barracking for the environment and wanting to move us away from gas), we could end up with fewer gas projects in Australia in the longer term.
Norway is often brought up as an example of a country where gas companies threatened to leave if the country raised their taxes: it was Norway or the highway and, when it came down to it, the gas firms decided the latter wasn’t so appealing after all.
But here’s the thing. Norway’s way of taxing gas is a bit more complex than a flat 25 per cent tax on exports. It’s actually a lot closer to the “fair share levy” proposed by Sims and his crew at the Superpower Institute.
This levy hasn’t been gassed up as much by the media or politicians, probably because it’s a bit trickier to explain. But Sims reckons people could warm up to it – and that gas companies would get less heated about it.
As Sims puts it, it’s a way of making the government a “silent shareholder”. That is, the government would have no say in how the project is run, but it would share in the cost of getting a project up, in return for a share of the profits.
Instead of the PRRT, gas companies would pay a 40 per cent levy on their cashflow – meaning what they earn minus what they spend – each year. That means they would only pay tax when they start turning a profit, and there would be none of the carry-forward business that plagues the PRRT and stops it from collecting tax on these companies’ profits.
At the same time, the government would chip in 40 per cent of the costs of getting a project up and running. That means, for any business weighing up whether to invest in a new gas project in Australia, the equation doesn’t change. If a project was profitable before, it’s still profitable with the 40 per cent fair share levy, meaning the incentives to invest in Australian gas don’t change.
As for existing gas projects, which are already turning a profit? We’d start taxing them right away.
They wouldn’t be able to keep carrying forward their losses, but the government would give them a one-time payout (spread across five years to reduce an immediate blow to the budget) for any “depreciation” gas companies haven’t claimed yet.
Basically, it’s a middle-ground way of recognising the investment gas companies have made to set themselves up: it puts existing gas companies in a worse position than if we kept the current system, but by less than some of the other tax options they vehemently oppose.
The fair share levy would raise our cut of gas company profits to 58 per cent, bringing in $13 billion a year on average – still at the lower end compared to most other countries, but a decent change that is harder for gas companies to argue against.
Both the fair share levy and the 25 per cent export tax on gas help us collect more tax from gas giants, which should undoubtedly be paying more for extracting our scarce resources and causing environmental damage.
It also gives us more money to work with, whether that’s to reduce our budget deficit, pay for essential services or invest in our future energy sources.
The 25 per cent export tax is simple and already has the support and understanding of an impressive range of Australians. But the fair share levy is more sensible and harder for the gas giants to trash.
Either way, the longer we wait, the longer we’re missing out. Don’t let gas companies scare you. They’ll keep fighting until they’re gassed out – or until we are.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
Millie Muroi is the economics writer at The Sydney Morning Herald and The Age. She was formerly an economics correspondent based in Canberra’s Press Gallery and the banking writer based in Sydney.Connect via X or email.