The Australian Government is reportedly considering a gas export levy and changes to the Petroleum Resources Rent Tax (PRRT) ahead of the May Budget.
The Senate has established a Select Committee on the Taxation of Gas Resources to inquire about oil and gas tax settings, expected impacts of the Middle East conflict on the Australian sector’s profitability and how any extra revenue could fund cost-of-living relief and reduce fuel import dependence. It is due to report on May 7, just ahead of the Federal Budget on May 12.
CME strongly opposes increases to existing taxes or the introduction of new levies targeting so-called windfall profits in the oil and gas sector.
Our key messages:
- The prospect of additional taxes on Australia’s oil and gas sector is deeply concerning and will undermine Australia’s long-term energy security by reducing investment. Australia is already struggling to compete for global capital due to lengthy and uncertain approvals processes, high capital and operating costs and net zero policies that impose greater costs than competing jurisdictions.
- The Australian oil and gas industry is already the country’s second biggest taxpayer after mining and paid a record $21.9 billion in taxes and royalties in FY25.
- A 25% export levy would be significantly out of step with established state gas royalty rates and risks jobs and investment.
- WA’s North West Shelf royalties are a 10% royalty on wellhead value (i.e. un-processed product) for a primary production licence and 12.5% of the wellhead value for a secondary production licence.
- A percentage of revenue export levy poses far larger costs on resource producers than taxes on profits as they are paid regardless of profitability. Increases in revenue-based coal royalties in Queensland have resulted in job losses and severely reduced new investment in the sector.
Background:
The ABC reported in mid-March that the Department of Prime Minister and Cabinet had asked Treasury to model “new levy options” to tax windfall gas and thermal coal profits ahead of the federal budget in May. This includes exploring reforms to the Petroleum Resources Rent Tax (PRRT).
This follows advocacy from a range of actors including the ACTU, Australia Institute, the Greens, Independents and One Nation for Australia to introduce a gas export levy, notionally at 25 per cent. Using DISR’s Resources and Energy Quarterly statistics, the Australia Institute estimates a 25% gas export levy on LNG sales would have raised $56 billion over the three years from FY23 to FY25.
The SuperPower Institute (TSI) has also argued that Australia significantly undertaxes fossil fuel companies relative to other countries. Their graph on page 32 fails to properly highlight that extensive Government ownership means these countries can effectively charge what they like – akin to taking their equity share.
Key arguments and CME responses:
Argument: Australia gives our gas away for free/gas producers pay no royalties
Onshore gas projects in Australia do pay royalties (based on revenue) to the relevant State Government while offshore gas projects pay the PRRT (based on cash flow profits) to the Commonwealth.
Argument: We should have a super-profits tax on our natural gas
Australia does have a super profits tax – it’s called the PRRT. The PRRT is a super-profits tax of 40 per cent on a project’s cash flows, is paid before company taxes and raises additional revenue during periods of elevated international gas prices.
History shows that PRRT payments increase with higher oil prices – PRRT data in the Corporate tax transparency report 2023–24 | Australian Taxation Office
Argument: Australia raises less tax from the PRRT than beer excise – how is that fair?
The PRRT is a super-profits tax of 40 per cent. It taxes cash flows above and beyond companies’ operating and capital expenditures. If receipts are small then by implications the sector is not earning super profits above and beyond what is required to recoup their return on investment. Zooming out and examining taxation beyond just the PRRT, the Australian oil and gas industry is already the country’s second biggest taxpayer after mining and paid a record $21.9 billion in taxes and royalties in FY25.
Argument: Big companies are benefitting at the expense of households
The idea that Australia’s energy producers are profiting at the expense of Australian consumers isn’t true – our exporters are receiving higher prices from overseas customers, while Australian households are facing higher prices for petrol and diesel – a completely different product – driven by international supply issues.
In fact, there is no evidence to date of wholesale domestic gas prices in Australia increasing, despite sharp increases in Asian LNG prices. This demonstrates the importance of maintaining investment in the LNG projects that form the backbone of Australia’s domestic gas production.
Argument: Other countries raise way more in gas taxes
Other countries like Norway and Qatar have Government ownership of oil and gas companies, meaning they have paid the upfront investment to build production and are effectively receiving their equity share of the dividends.
Norway also offers an annual cash refund up to the value of 71.8% for exploration costs to reduce investor risk and encourage oil and gas exploration and development.
In contrast, in Australia private companies are left to take on all of the risk and front up all of the capital, and lower receipts under the PRRT largely reflect the high capital costs private companies are incurring to sustain operations.
Argument: Increasing taxes won’t discourage investment
The UK imposed a significant windfall tax of 38% (taking effective tax rates to 78%) on North Sea oil and gas in 2022 in the wake of the Ukraine crisis, which has been extended to 2030. Offshore Energies UK notes that this has put off new investment and exploration, with production falling by 40%. No new exploration wells were drilled in UK waters in 2025 – the first time that has occurred since 1964.
Increases in QLD’s tiered coal royalty rates to between 20 and 40% for prices greater than $175/t have contributed to multiple mine closures (QCOAL’s Cook Colliery, BHP Mitsubishi Alliance (BMA), Anglo American and Bowen Coking Coal). BMA has also ceased all growth investment in the state.