At least $20 billion could be raised through a so-called windfall profits tax on Australia's gas industry, with around two-thirds of voters supporting such a move, a new report finds.
The Australia Institute think tank has calculated that gas price rises, mainly linked to the war in Ukraine, boosted profits on Australian exports by between $26 to $40 billion.
The value of Australian Liquefied Natural Gas (LNG) exports jumped from just over $30 billion in 2020-21 to just over $70 billion last financial year, according to the latest figures from the federal government's Resources and Energy Quarterly.
This occurred despite only a small increase in production, with a 44 per cent jump in the oil price that most Australian LNG contracts are linked to and a doubling in the Asian LNG spot price behind most of the gains.
Compared to prices over the past decade, the Australia Institute estimates that Australian LNG producers received a smaller, but still significant, $26 billion increase in profits.
"LNG companies are making windfall profits selling the same amount of gas to the same customers with virtually no increase in their costs," argued the institute's executive director Richard Denniss.
"The Australian people are paying too much for own gas at home and not getting a fair share of the returns from the gas we export overseas.
"A windfall profits tax would help solve the gas domestic supply and extortionate price issues by removing the incentive to export gas in preference to supplying Australian customers."
The institute argues that 100 per cent of the extra profits should be taxed, citing former Australian treasury secretary Ken Henry who told the ABC earlier this year that there was "no economic case" why windfall profits could not be taxed at such a rate.
"This year alone, a windfall profits tax could have funded the Australian government's entire $20 billion investment in Rewiring the Nation and still compensated Australian households and businesses for soaring energy bills largely caused by the behaviour of these same LNG companies," added Mr Denniss.
UK-style tax could 'reduce damage' to households
The UK passed a temporary 25 per cent tax on oil and gas sector windfall profits, although it allowed companies to receive 91 pence of tax relief for every pound spent on new oil and gas extraction as an incentive to boost production.
Researchers from Victoria University's Centre of Policy Studies (CoPS) investigated the economic impact if Australia adopted an extra 25 per cent tax on LNG producers and passed the proceeds on to compensate households.
"We found a UK-style energy profits levy on Australia's largely foreign-owned LNG producers could effectively help households cope with higher costs of living caused by energy price inflation," said lead author and CoPS research fellow Dr Locky Liu.
"Our modelling suggests a temporary 25 per cent LNG profits levy, modelled on the UK government policy response, would reduce the damage in household consumption by about two-thirds, reorienting part of the windfall gains from largely foreign-owned LNG producers to domestic households."
However, even those in the government who have been most critical of the gas sector and domestic pricing, such as Industry Minister Ed Husic, have ruled out a tax increase.
"Tax is not the way that we're looking to sort this out," he said.
"We will be working with the gas companies to deliver better outcomes for manufacturers, come hell or high water."
Gas industry says tax payments set to triple
The industry group representing oil and gas companies, the Australian Petroleum Production and Exploration Association (APPEA), argues there is no need for an additional windfall tax.
"The industry is already subject to a profits tax as well as other taxes and royalties — and recently released forecasts show that same taxation system will deliver an extra $9 billion revenue from gas exporters alone this financial year, with revenue almost tripling to $13.8 billion," APPEA's chief executive Samantha McCulloch told ABC News in a statement.
The major LNG producers that are members of the organisation have estimated they will pay a total of almost $14 billion in taxes and royalties in 2022-23, up from less than $5 billion in 2021-22.
The bulk of that increase is a jump in corporate tax, which is levied on all incorporated businesses, from $1.7 to $8.7 billion, as higher prices boost profitability.
LNG producers expected to pay almost $2.5 billion in royalties, up from $1.6 billion last year, $1.1 billion in excise and $1.6 billion in federal Petroleum Resource Rent Tax (PRRT).
Not all gas fields are covered by the PRRT, but tax experts also argue generous deductions for investment and the ability for companies to lower the gas price that they pay tax on compared to the global market prices they receive has slashed the revenue raised from what is ostensibly a 40 per cent tax on profits.
A comparison with Norway's special tax on oil and gas companies, intended to raise their effective marginal corporate tax rate to 78 per cent, highlights the kind of extra revenue that might be raised.
The Norwegian government recently handed down a draft budget where it forecast raising a total of $1.38 trillion krone, or approximately $AU208 billion, in oil and gas revenues in 2023, up from $1.17 trillion ($176 billion) in the current year.
The Norwegian government raises roughly half of this revenue through its ownership stakes in the projects, with the rest coming from a combination of normal corporate taxes and the special tax on oil and gas.
Australia's gas industry has required more investment to build multiple liquefaction terminals around the country to export LNG, and many fields are subject to state royalties.
"Profits can also be reinvested in new supply — over $300 billion has been spent on export projects since 2010 — to continue to deliver energy security and more economic returns to Australia," Ms McCulloch argued.
Ms McCulloch also noted in a recent press release that the tax write-offs generated by that investment were diminishing faster due to the industry's increased profitability.
"The taxation profile of the LNG industry is evolving with changing economic conditions, including higher than forecasted prices," she argued.
"The industry is on a much faster track to make up the losses accumulated during the construction of these complex and capital-intensive projects, bringing forward time frames for tax payments."
Russia the 'key factor' in gas prices
The federal Department of Industry, Science and Resources, in its latest September Resources and Energy Quarterly, predicted that the value of Australia's LNG exports could rise to $90 billion in the current financial year, before falling back to $80 billion in 2023-24.
However, it also noted that prices could end up considerably higher or lower than its forecasts based on the status of Russian gas exports to Europe, which are currently severely curtailed.
"The status of gas flows along the Nord Stream pipeline will be the key factor shaping the outlook for global gas prices," the report noted.
"The significance of Nord Stream to European — and thus global energy — security cannot be understated.
"The gas curtailed by Russia could amount to 21 per cent of the annual LNG trade — or 66 per cent of Australia's annual gas production.
"The unambiguous effect of such a disruption will be to raise the value of uncontracted LNG until new US and Qatari supply comes online beyond the outlook period."
Both the US and Qatar are planning to build more LNG export facilities, but such projects take at least several years from a final investment decision to becoming operational.
Polling finds public support for tax
Coinciding with the release of the research, the Australia Institute also released polling conducted in June that showed two-thirds of the 1,001 people surveyed supported the introduction of "a windfall profits tax on the oil and gas industry to support Australian households".
Just 12 per cent of people opposed that statement, with 21 per cent either undecided or unsure.
Unsurprisingly, such a proposal was most popular with those who identified as Labor or Greens voters, but 64 per cent of Coalition voters also agreed with the tax.
Only among One Nation voters did support drop below 50 per cent, although even in that group it was almost twice as common as opposition to it.
