What Australia's new gas tax will mean for new projects, the economy and the climate

• On Sunday Chalmers flagged changes to the petroleum resource rent tax (PRRT) – a tax on the profits from oil and gas exports – that he says will mean the offshore LNG industry “pays more tax, sooner”.
• Bad resource tax design works against this because it means those resource profits are immune from tax.
• Read more:
  Australia already has a UK-style windfall profits tax on gas – but we'll give away tens of billions of dollars unless we fix it soon

Dusting off review recommendations

• The changes come in response to recommendations from two reviews: the Callaghan Petroleum Resource Rent Tax review released in 2017 by then-treasurer Scott Morrison; and a subsequent Treasury review released on Sunday.
• The Callaghan report recommended changes to the tax only be applied to new projects, to maintain the stability of the sector.
• Currently, an entity’s liability is levied at 40% of the taxable profit made from its interest in the project.
• His government accepted eight of the 11 recommendations from that review and eight recommendations from the Callaghan Review (recommendations accepted but not implemented by the previous government).

Modest, balanced or weak reform?

Labor’s proposed changes are too modest and are only expected to net the government about $2.4 billion over the next four years. The proposed tax scheme will cap deductions to limit the proportion of PRRT assessable income that can be offset by deductions to 90%. It will also mean that producers will start paying petroleum resource rent tax immediately rather than in 2030 as is the current expectation.

How have the reforms been received?

• She called on the government “to work constructively and cooperatively with the opposition”.
• The Greens want the government to eliminate the $284bn of accumulated credits that allow gas companies to reduce their tax liability.
• LNG exports are worth more than $90 billion per year, yet this step will yield only $600 million annually.
• Local liquified natural gas producer Santos and multinationals including Shell, Chevron, and ConocoPhillips may also be affected, media reports suggest.

Real change is desperately needed

• Significant change to the petroleum resource rent tax is desperately needed to address budget repair and blowouts.
• In the decade before the Gladstone LNG port opened, when Australia’s gas exports soared, company taxes and the resource tax paid by the industry were approximately 15% of revenue.
• In 2022, Australia exported a record 81.4 million metric tonnes of LNG, earning the industry $92.8 billion (when expected revenue was $44 billion).