Will The Australian Government Make More If They Taxed Gas Companies Properly?

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Gas companies are enjoying huge profits thanks to the human misery brought about by the Russia-Ukraine war. But would the government, and the rest of the Australian population, benefit if these companies were appropriately taxed?

The prices of liquefied natural gas (LNG) have largely been unaffected by price shocks since most of it is sold according to long-term fixed contracts. However, about 40% of the total LNG exports are on short-term contracts.

These short-term contracts benefit when supplies drop and prices rise. Many gas companies enjoy huge profits because of this, which spells out windfall profits. According to Centre for Future Work policy director Greg Jericho, “As Australians feel the impact of soaring living costs – especially from energy price rises – it’s worth asking: how much more revenue would the government have had we had one in place? If gas companies make big profits, shouldn’t the Australian taxpayers, who own the resources, also be getting a windfall bonus?”

Jericho claims that if gas companies paid for a windfall tax, the proceeds would have been enough to cover public and private school spending or to fund public hospitals and aged care.

Mark Ogge, principal advisor at the Australian Institute, “Energy prices spiked worldwide following Russia’s invasion of Ukraine and the resulting restrictions on Russia’s gas exports. This has, in turn, increased the value of Australian LNG exports and the profits of LNG companies. We estimate the war-related windfall gain to LNG companies in 2021-22 at between $26 billion and $40 billion.”

The gas industry saw $40 billion in revenue with virtually no additional costs since they exported the same amount as the previous year. The prices just increased. Ogge claims that if the windfall profit were taxed 100%, at least $20 billion would be raised from a tax on war-related profits. $20 billion would be enough investment for the government’s Rewiring the Nation initiative.

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