The former Treasury secretary Ken Henry says “self-serving” claims from gas giants about the risks of a windfall profits and export taxes should be ignored by the Albanese government as it weighs up the intervention ahead of next month’s federal budget.
In a submission to a new parliamentary inquiry examining the gas taxation regime, Henry made the case for a 100% windfall profit tax as he rejected the assertion that any changes would heighten perceptions of Australia as a sovereign risk and freeze investment in new projects.
“Any proposal to generate more tax revenue from windfall gains accruing to foreign owners of capital will draw self-serving criticism from those supplying the capital, for the most part, the CEOs of multinational corporations,” he wrote.
“Any investment proposal that at least meets its cost of capital in the absence of a windfall gains tax, or any of the other options for taxing supernormal profits, will still do so in the presence of such a tax. For those with an understanding of economics, this is merely a tautology.”
Henry was the author of the 2010 review that recommended the then Rudd government introduce a 40% mining super profits tax.
In his submission, he argued that the justification for the short-lived super profits tax – which was watered-down by Julia Gillard and abolished under Tony Abbott – still existed 16 years on.
Windfall gains are large and sudden increases in profits often caused by external factors, such as a conflict. The gas companies, for example, experienced a surge in revenue after Russia’s illegal invasion of Ukraine in 2022 sent global prices spiralling.
Henry said the “socially optimal” rate for a windfall profits tax was “approximately” 100%, suggesting the revenue could be invested in a sovereign wealth fund, used to fund nature repair and reform personal income and corporate taxes.
“Since the burning of fossil fuels has been a major, and increasing, cause of nature loss, there is a strong case for using some of the proceeds of a windfall gains tax to undertake nature repair,” he said.
The federal government is under growing pressure from Labor-aligned trade unions and crossbenchers among others to introduce a flat 25% tax on gas exports, which the Australia Institute thinktank estimates could raise $17bn a year.
Revelations last month that the treasury was modelling a windfall profits tax and changes to the Petroleum Resource Rent Tax (PRRT) fuelled speculation the government was poised to use the 12 May budget to extract more revenue from gas producers.
While the government has not rule out changes, the appetite for major interventions appears to have diminished amid the global energy crisis sparked by the Iran war.
The government does not want to create the perception that is threatening future supplies of liquified natural gas to Asian trading partners at the same time as it is trying to shore up supplies of petrol and diesel from them.
Asked during last week’s trip to Singapore about the prospect of a new gas tax, the prime minister, Anthony Albanese, said the government’s energy priority was “supply, supply and supply”.
Oil and gas companies including Chevron, Bp, Conoco Phillips and Shell have used submissions to the Greens-led inquiry to defend the existing regime – including amount raised under the PPRT – and warn changes would threaten investment in new projects.
Research commissioned by the sector’s peak body, Australian Energy Producers, claimed the introduction of a 25% export levy would render projects “uninvestable”.
“Implementing new tax changes will undermine the investment case for new and existing supply in Australia through increased cost per barrel of oil equivalent and through increased uncertainty around interpretation of any newly written law. This may further increase the risk that projects become uneconomic. Industry will not sanction nor operate uneconomic assets indefinitely and the result may be reduced production or projects being shut in early,” Bp wrote in its submission.
The inquiry will hold public hearings in Canberra and Perth next week before reporting its findings on 7 May – five days prior to the budget.
