SYDNEY: Australia is considering raising taxes on gas exporters, which have made massive profits as prices surge because of the conflict in the Middle East.
Economists and policy experts have long called for an overhaul of taxes to ensure the gas companies pay their fair share and boost government revenue.
Critics point out that some of these firms have been paying very little, if any, tax, and yet make large profits, especially when global energy prices spike.
Australia – one of the world’s major exporters of liquefied natural gas (LNG), along with the United States and Qatar – collects far less revenue from mining and energy firms than other resource-rich economies such as Qatar and Norway.
According to The Australia Institute, Australia and Qatar both exported around 80 million tonnes of LNG in 2023, worth about A$85 billion (US$58.74 billion).
But the government in Qatar collected A$56 billion in revenue and Australia collected just A$10.6 billion.
Despite warnings from companies in the energy sector that higher taxes could discourage investment, damage ties with Asian trading partners, and raise prices for consumers, Australia’s ruling Labor party is considering imposing new taxes in its budget in May.
Australian economist Chris Richardson said the country’s current tax on gas projects, introduced in the late 1980s, has failed to collect adequate revenues because it effectively allows companies to apply large deductions against their profits.
Richardson said the tax included generous rates of interest that companies could apply to their deductions for investments on developing projects.
“If you look at what Australia has raised by way of (the tax) over the years, there has not been a good share in the gains between the developers and the Australian public,” he said.
“That is the fault of Australia, not the businesses. We have been too generous on uplifting (allowing companies to apply interest to their deductions), which has meant there is a bunch of operations that will effectively never pay us anything.”
Critics also say the tax, which involves a 40 per cent rate on profits, is overly complex and has various loopholes, such as allowing companies to understate the value of extracted gas and overstate the value added by liquefaction, which is not taxed.
A few companies – Woodside Energy, Santos and Origin Energy, and global giants Chevron, Shell and ExxonMobil – control the majority of LNG production, exploration and domestic gas supply in Australia.
The conflict in the Middle East has led to a surge in gas prices after Iran severely limited shipping activities through the Strait of Hormuz – through which LNG exports from Qatar and the United Arab Emirates flow – and attacked Ras Laffan in Qatar, one of the world’s largest LNG facilities.
The conflict has affected about 20 per cent of LNG supplies, prompting price spikes in Asia, which is a major buyer of Middle East exports.
The higher prices have led to soaring profits for Australia’s gas giants. Since the conflict started on Feb 28, shares in Woodside Energy and Santos have increased about 26 per cent and 20 per cent, respectively.
Labor has asked Treasury to explore options for a new tax on gas firms and has backed an inquiry, led by the Greens party, that will examine the taxation of Australia’s gas resources ahead of the budget.
Labor MP Ed Husic told reporters on March 30: “If other countries had access to the volumes of gas that we do, you can absolutely bet they would make sure they get their fair share first.”
‘Fair return’ for Australians
Australia’s Treasurer, Dr Jim Chalmers, has remained tight-lipped on reported plans to impose a new tax on gas exporters, telling Parliament on March 23 that any changes would need to be approved by the Cabinet.
“Australians deserve a fair return on the resources they own,” he said.
The Australia Institute, a progressive think-tank, has called for a 25 per cent tax to be imposed on gas exports – a measure that would raise A$17 billion annually.
An opinion poll released on March 23 by the institute found that 61 per cent of Australians support such a tax, while five per cent were opposed, and 34 per cent were unsure.
The Greens and several independent MPs have backed such a tax. Ms Pauline Hanson’s One Nation party, which is surging in opinion polls, has also backed higher taxes but wants to impose the taxes on volume of gas extracted rather than on profits.
But energy producers have attacked proposals for higher taxes, saying that such a move could reduce the size of the sector and lead to lower production.
Australian Energy Producers, a group that represents oil and gas producers, said in a statement on March 30 that higher taxes will reduce investment and increase prices for consumers.
“The oil and gas industry is already Australia’s second-largest corporate taxpayer, contributing A$21.9 billion in taxes and royalties last year alone,” said Samantha McCulloch, the group’s head.
Cecile Wake, the head of Shell Australia, said on March 31 that the government should avoid “easy solutions” such as taxes on windfall profits that could discourage investment.
She said a 25 per cent tax on gas exports would “send a strong negative signal” to Asian trading partners, possibly jeopardising reciprocal trade arrangements, and making it harder for Australia to ensure secure flows of oil.
The bulk of Australia’s LNG exports goes to China, Japan, South Korea and Taiwan, while Australia is a big importer of petrol, diesel and aviation fuel, mainly from places such as South Korea, Singapore, Malaysia, India and Taiwan.
But analysts say Australia could boost taxes without discouraging investors, especially as other comparable exporters such as Qatar collect significantly higher revenue from their resources.
Professor John Quiggin, an economist at the University of Queensland, told ST that Australia’s large gas supplies were “a huge source of revenue that we have not tackled”.
“We have massive resources and we have got nothing,” he said. “The political environment at the moment is that we have to do something about this.”
Richardson said he believed the government should close the loopholes in its current tax system and ensure profits were properly taxed, rather than adopt an export tax. He said Australia exports most of its LNG, so an export tax could discourage exports and production.
“A good rent (profits) tax barely hurts the economy,” he said.
“You don’t want the incentive to be to not export and to not produce. You want to give people an incentive to make a profit.” - The Straits Times/ANN
