Australian Gas Companies Set to Pay $16 Billion in Tax, Almost Triple From Previous Year

Safety flares are shown at the Woodside operated North West Shelf Gas Venture in Western Australia, on June 17, 2008. (Greg Wood/AFP via Getty Images)

Australia’s state and federal governments appear to have won a windfall as oil and gas companies are set to pay $16 billion (US$10.7 billion) in tax.

This comes just weeks before Federal Treasurer Jim Chalmers delivers federal Labor’s second budget.

Corporate income tax is set to boost the budget by $8.8 billion, up from $2 billion the previous financial year. Royalties, excise and licence fees will increase to $5 billion from $2.7 billion, while other taxes will add $652 million.

But despite gas companies being among the biggest taxpayers in the country, Samantha McCulloch, who is chief executive of the Australian Petroleum Production and Exploration Association (APPEA), said compounding regulatory interventions—including the possibility of lifting or altering the petroleum resource rent tax—risks future investment, energy security and future revenue.

Petroleum Resource Rent Tax (PRRT) is a tax on profits generated from the sale of marketable petroleum commodities, such as LNG. Of the expected $16.26 billion, $1.85 billion will go towards the PRRT. However, changes to the PRRT are expected to take place following concerns from Chalmers, who said that the tax was not generating enough revenue for the government.

“We have had a considerable number of interventions and reforms across the gas market in recent months. That is making it challenging for what are really capital intensive, substantial investments that are required to bring on new gas supply,” McCulloch told reporters in Canberra on April 21.

Additionally, key trading partners and investors, such as Japan, have voiced concerns over the “political instability” in Australia, McCulloch said.

“We need to remember that some of our key trading partners are not only investors in the oil and gas industry in Australia, but they’re also relying on the supply of essential energy to keep the lights on in Tokyo,” she said.

Industry Minister Not Convinced

However, Ed Husic, the Minister for Industry, said despite the gas industry “doing very well,” he said he is not convinced that any tax changes will prevent future investment in the oil and gas industry.

This follows an 85 percent growth rate in the industry to nearly $93 billion for Australian LNG exports in 2022, reported The Australian.

“It is a bit rich for a lot of these firms to say, ‘well if you make any move here, regulatory uncertainty will force us not to invest’ at a time where gas prices are where they’re at,” the industry minister told ABC radio on April 21.

Meanwhile, Chalmers has kept reforms to tax on the table as a possible budget repair measure and said that the federal government wants to ensure that “the PRRT arrangements are up to scratch.”

Federal Treasurer Jim Chalmers speaks at Parliament House in Canberra, Australia, on July 28, 2022. (Martin Ollman/Getty Images)

However, McCulloch said the PRRT tax was delivering growing returns to taxpayers alongside other payments the industry makes in royalties, corporate income tax and other fees.

“But it’s important to remember direct payments are only one part of the industry’s broad economic contribution—enabling almost $500 billion in economic activity annually, supporting 80,000 jobs, providing essential energy to millions of homes and businesses, including major sectors like manufacturing and transport, and facilitating economic growth,” she said.

“For example, APPEA’s Financial Survey has found the industry’s estimated direct spending on Australian goods and services would grow to $45 billion this financial year, up from $29.9 billion previously.”

Industry Warns Government Against ‘Overreach’

Woodside Energy chief executive, Meg O’Neill, has warned the government against any “overreach” in the budget.

Speaking at the National Press Club on April 19, O’Neill said the gas industry played an important role in maintaining Australia’s strategic partnerships, including regional security.

She argued that the unstable regulatory outcomes would impact the country’s energy industry domestically and internationally.

This comes as the chief executive of Japanese gas company Inpex said recent regulatory changes would “choke investment, strangle expansion of LNG projects and allow Russia, China and Iran to fill the void.”

“This concerns our regional partners, who depend on current Australian gas projects to help them meet their decarbonisation commitments and to keep the lights on in Asian megacities,” O’Neill said.

“We’ve got to have a regulatory framework, and we’ve got to have a comprehensive view from the government that supports that additional gas supply. Our customers are genuinely worried.”

O’Neill said that Woodside paid $2.7 billion in taxes and royalties for the 2021-2022 financial year, with the tax rate effectively at 47 percent.

“It’s going to cause investment again to be under additional pressure, and opportunities we may pursue to bring a new project to bear may be under pressure.”

O’Neill added that Labor’s proposed reasonable pricing provision under the mandatory code of conduct has stalled gas deals as well as created supply issues in the market.

“The challenge with the mandatory code of conduct is it creates a fair amount of uncertainty about how the marketplace is going to operate,” she said.

Meanwhile, McCulloch said that in addition to the tax payments, oil and gas companies were supporting 80,000 jobs along with nearly $300 billion in yearly economic activity.

McCulloch said that between 2010 and 2020, more than $300 billion was invested in LNG projects.

“With changing economic conditions, including higher-than-forecast prices, the taxation profile of the LNG industry is changing, and the sector is on a faster path to make up the losses accumulated during construction, bringing forward time­frames for tax payments.

“This further shows how the tax system—with long-term settings encouraging investment in major multibillion-dollar, high-risk nation-building projects—is working, stimulating investment, job creation and delivering for Australians,” McCulloch said.