Both major political parties continue to dance awkwardly around the urgent need for genuine tax reform, as it becomes more apparent that their commitments are not fully funded by the existing tax collections. Another important unaddressed issue is the growing inequity of our system.
One of the most concerning elements that has remained unresolved by governments of both persuasions over the past decade has been the taxation of the mining industry, especially given the multibillion-dollar profits companies have made.
The issue has re-emerged in recent weeks with the release of the Albanese government’s Future Gas Strategy. It promises a sustained role for gas in the energy transition without raising the issue of how the corporations mining and developing Australia’s extensive gas resources should give back to the country.
The Australia Institute has drawn attention to the fact 56 per cent of this country’s gas exports have been given to multinational corporations royalty-free. The independent think tank says that over the past four years, $149 billion of Australian gas exports have come from projects that paid $0 in royalties. That is, nothing paid back to this country from the proceeds of gas sold overseas from six of this country’s 10 LNG export facilities. Specifically, the institute’s researchers estimate state and federal governments are missing out on about $13.3 billion of royalty revenue from gas exports over the past four years. Moreover, they have pointed out that gas companies are also not paying the petroleum resource rent tax (PRRT) on offshore LNG exports. Receipts from the PRRT have been kept low because gas companies have benefited from large write-offs on the construction costs of their projects.
Independent Senator David Pocock has referred to this lost tax revenue as “daylight robbery” by “leeches” in the gas industry.
The whole gas debate has been distorted by misinformation. This includes concerns about gas shortages constraining Australia’s manufacturing and other industries, when in reality some 82 per cent of gas mined in this country is exported with only about 6 per cent going to manufacturing. As I have mentioned in this column previously, the development of renewable gas can contribute significantly to the reliability of gas supply at low cost with zero emissions. It offers a drop-in alternative to natural gas that requires no adjustments to household appliances, nor industrial processes, nor equipment.
The issue is much broader than just tax, as the government also directly subsidises fossil fuel companies to the extent of tens of billions of dollars, totally at odds with domestic targets for emissions reduction. This is in defiance of Australia’s global responsibilities to climate transition as the world’s third-largest exporter of fossil fuels, and such subsidies must be terminated if we are to avoid the full consequences of the climate catastrophe.
The overarching consideration is surely that these are national resources owned collectively by all Australians who should reasonably expect they would share in the benefits of their mining and development. Although this was clearly a consideration of the Henry tax review and the Rudd government’s subsequent attempt to introduce a mining super-profits tax, it was soon lost in the Gillard government’s deal with the mining industry. Another opportunity has been squandered in the sporadic development of the PRRT.
Budgets are all about priorities. The full cost of leaving a significant sector or activity undertaxed must be assessed in terms of how areas for priority spending are left underfunded, such as the defence, education, health or care sectors. Considerable inequities can also emerge, as recent data from the Australian Bureau of Statistics suggests that the personal taxation of teachers has raised almost double the amount of money paid by the gas companies in tax over the past five years. The Australian government collects twice as much from HECS–HELP loan repayments as it collects from the PRRT. In the financial year 2022-23, the government raised just $2.3 billion from the PRRT, and collected $4.9 billion in student loan repayments.
Surely this raises the question, at a time of serious skills shortages in key sectors, as to why the government wouldn’t seek to improve the effectiveness of the PRRT and offer HECS–HELP-free entrance to university qualifications for teachers, nurses, midwives and social workers? While I have typically resisted proposals to hypothecate specific tax revenues to specific spending programs, it’s important to highlight the practical consequences of choices that government makes. There have been many suggestions as to how to reform the PRRT, including the government’s stated intention to cap the write-offs that the gas companies can generate.
It’s interesting to compare Australia’s taxation of the gas industry with the practices of other major global players such as Norway, Britain, Qatar and Saudi Arabia. The best is Norway, which has accrued budget surpluses and built the world’s largest sovereign wealth fund from its taxation of windfalls from North Sea oil and gas. Beyond the “insurance” such a fund offers against future business-cycle downturns, it is also able to fund key government spending priorities, such as free university education. Norway collects a marginal tax rate of 78 per cent of net income – comprising a corporate tax rate of 22 per cent and a special tax of 56 per cent.
British taxes are heavy on both domestic and continental shelf oil and gas activities, comprising three main parts: a ring-fence corporate tax, currently at 30 per cent, a supplementary charge that has been as high as 32 per cent and a petroleum revenue tax related to specific fields that has been as high as 50 per cent. Qatar collects about 20 times the tax revenue from its gas industry that Australia does.
In another study, The Australia Institute has argued the top five gas producers paid no tax for about seven years on revenues of some $138 billion and, because of the weaknesses of the PRRT, many expect never to pay it. The gas organisations of course deny this, but their arguments are contestable.
It is easy for tax issues to quickly become quite emotional, especially when it comes to questions of the distribution of the burdens of taxation. This is particularly true when a major sector is identified as a non-payer, such as multinational gas companies, in the context of Australia’s tight budgetary situation and social welfare commitments, as well as the government’s climate policies.
The opposition is no help in lowering the emotional tone, given its basic negativity on just about all issues and its overarching strategy to bring down the Albanese government by whatever means. The irony is the opposition should be able to cut through all this, not with its delusional nuclear strategy, but by ditching the excesses of the Abbott government. The Coalition could return to one of its basic values, namely a commitment to rely on market forces within the appropriate regulatory framework, to the maximum extent possible. In this case, it could advocate a genuine market-based price on carbon that would more effectively and efficiently drive the climate issue, and related taxation.
Unfortunately, the opposition remains a captive of its ill-considered past and donors. Many still believe it was Abbott’s rejection of a “carbon tax” that won him the election in 2013, and still ignore the damage done to this country’s emissions reduction capacity by his dismantling of the architecture those leaders had put in place.
It is most unfortunate that the government now is clearly giving mixed messages on climate. On the one hand it is focusing on the urgent need to decarbonise the economy and the transition to a clean and reliable energy future – which should curb the enthusiasm of the gas industry – while at the same time assuring that industry’s profitability with a Future Gas Strategy that includes no mention of taxation, while sustaining subsidies to fossil fuels. This is completely at odds with the government’s fundamental climate message, and with this country’s future wellbeing.
This article was first published in the print edition of The Saturday Paper on
June 8, 2024 as “Make the gas giants pay”.
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