Is Australia giving away its gas resources, virtually for free?

That question is at the centre of this week’s parliamentary inquiry into the taxation of gas resources.

Over the last decade, Australia has become one of the world’s largest exporters of liquefied natural gas.

But while the gas is extracted from beneath Australian soils, the profits go almost entirely to large multinational companies. Research suggests gas companies have made roughly $A149 billion from exports in just four years. Only a small percentage of this profit has been taxed.

That’s why some politicians, think tanks and environmental groups are pushing for a 25% tax on gas exports.

Modelling by the Australia Institute suggests this tax could raise up to $17 billion a year and potentially lower domestic fuel prices by incentivising producers to sell more gas into the Australian market.

How is gas currently taxed?

Currently, Australia’s main tax on gas exports is the Petroleum Resource Rent Tax.

Profits made by companies running oil and gas projects are taxed at up to 40%. At present, this tax mainly applies to offshore producers.

While this sounds good, the tax is less effective in practice. Energy companies have access to generous tax deductions as well as “uplifts”, which allow companies to use the losses from one year to offset the amount of tax they pay the next year. The rationale for allowing uplifts was to incentivise companies to invest in Australian oil and gas projects by letting them recover costs.

The problem is this system allows oil and gas companies to pay little, if any, tax on their profits. As a result, economists and policy analysts have argued........

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