A new gas tax would worsen Australia’s supply problem
- Written by Business Council of Australia Chief Executive Bran Black
Australia should reject an additional tax on gas for a very simple reason: it will deliver less gas.
It would also weaken our sovereign capability, push the energy transition in the wrong direction, make us less likely to secure investment and undermine our credentials as a reliable trading partner.
Last quarter, renewables supplied more than half of the electricity in the national electricity market. That's a genuine achievement. But intermittent power needs firming, and gas is what makes the renewable boom possible.
At the same time, the Australian Energy Market Operator (AEMO) warns that new gas supply is needed, particularly as production from southern-state fields is forecast to decline by nearly 50 per cent over the next five years. Structural shortfalls of about 12 petajoules on the east coast and 4 petajoules on the west coast are also forecast from the end of this decade.
To put this in perspective, the east coast shortfalls are the equivalent of the gas used in 375,000 homes, and the west coast shortfalls are the equivalent of the gas used in 125,000 homes. This all means investment decisions need to be made now.
An additional new tax would therefore not solve the supply problem - it would make it worse.
And it would run directly counter to the objective shared by the Future Gas Strategy, the Gas Market Review and AEMO: bringing on new supply to support affordability, reliability and the transition.
Many of the misleading calls for an additional tax rest on comparisons with Norway. But that comparison does not withstand scrutiny.
Norway's system is fundamentally different to our own. It combines significant state ownership of companies, loss refundability and fast-tracked approvals.
The Norwegian government shares the upside and downside of projects, including capital costs and risk. For example, while the headline tax rate of 78 per cent gets lots of attention, losses are refunded.
If a company invests $100 million in exploration and makes a loss, as many projects do in early stages, it can receive over $70 million back in cash from the taxpayer.
Our nation relies on private capital to fund large, long-lived energy projects$400 billion in LNG investment since 2010 alone. That capital depends on stable, predictable policy settings to make investments that will last for decades.
It follows that you cannot take Norway's tax rate without also taking into account its state ownership, institutions and risk-sharing model.
And the reality is that Australia is already a comparatively high-tax jurisdiction.
The BCA's Global Investment Competitiveness Index shows Australia ranks just 38th on business taxation out of 42 economies. Oil and gas projects currently face effective tax rates of up to around 58 per cent.
The sector is also already making a substantial contribution. In 2024-25, oil and gas companies are expected to pay around $21.9 billion in taxes and royalties, and Petroleum Resource Rent Tax receipts are projected to deliver around $6.8 billion over the forward estimates, increasing as projects mature and profitability rises.
In short, Australia currently has a system that captures value when prices are high.
The effect of adding a 25 per cent export tax is not marginal; it is decisive. Taxation at those levels means projects simply do not proceed. Capital does not adjust, it exits.
This is the reality: a tax of this scale is not a revenue measure.
It is a de facto ban on new Australian LNG investment.
Those advocating for the proposed change understand this. Many have been clear that they want Australia to exit the gas industry altogether.
These arguments are not merely speculative.
We have seen this play out in the United Kingdom. The Energy Profits Levy, introduced as a temporary measure, has been repeatedly increased and extended.
The result has been a contraction in North Sea investment, cancelled projects, and declining exploration activity. One major operator has cut its UK investment outlook by around 70 per cent.
Fatih Birol, head of the International Energy Agency, has warned against sudden tax changes, noting that energy investors are ‘‘like butterflies, if they are scared, they fly away''.
Australia cannot afford to scare capital away - not now. This debate is not just about supply.
It is about sovereign capability in an increasingly uncertain world, and the quality of our regional partnerships, which would be weakened by an additional tax on gas.
Australia's LNG relationships with Japan, Korea and Singapore are not simply commercial contracts. They are part of a broader regional energy system on which we also rely, especially in times of fuel stress.
Indeed, I have sat in boardrooms in Japan and Korea where it was made plain that an additional tax would put the trust that underpins this system at risk and send capital to other, more welcoming markets such as the US and Canada.
We support genuine evidence-based reform. We support efforts to ensure Australian consumers have access to affordable gas. But that requires new supply, ongoing investment, and policy settings that encourage rather than deter capital.
Australia needs new gas supply, not policies designed to shut down an essential industry that are dressed up as tax reform.
