Gas tax is all hot air
Labor says no to a gas export tax — but is the policy the Greens want actually capable of doing what they claim?
The government has moved quickly to reassure the gas industry that Labor's newly drafted platform language around a "fair return on natural resources" will not translate into an export tax. The Greens are furious. The industry is relieved. And somewhere between the two reactions lies the actual policy question, which is whether an export tax would work in the way its proponents claim.
A revenue tax is not a resource rent tax
The Greens are calling for a minimum 25 per cent tax on gas exports, arguing that multinational corporations are extracting Australian resources without paying their fair share. That intuition has genuine popular appeal, and it is not without a policy logic. Resource rents, in theory, can be taxed without distorting production — you are taxing the return above the normal cost of capital, not the activity itself. Norway has run this model for decades and the comparison gets invoked frequently.
But the theory requires precision in the execution. Norway's petroleum taxation system is designed carefully to preserve investment incentives while capturing economic rent. A flat export tax, applied to revenue rather than economic profit, does something quite different. It taxes the gross value of what is shipped, regardless of what it costs to extract it. In a high-cost environment — deepwater, remote, technically complex — that means projects that are marginally viable before the tax become unviable after it. Investors do not absorb that loss. They go somewhere else.
The intervention designed to bring prices down contributed to the conditions that kept them up.
Australia already has evidence of what happens next
There is domestic precedent for what happens when that mechanism runs. Australia's gas market interventions in recent years, including export controls and price caps, were designed to protect consumers from high prices. What they actually did was reduce the return on new gas development, which reduced investment in new supply. The Centre for Independent Studies documented how political pressure and regulatory interference left Australia, one of the world's largest gas exporters, facing domestic gas shortages and elevated household prices. The intervention designed to bring prices down contributed to the conditions that kept them up.
This connects to a broader principle worth keeping clear: raising the tax rate on an activity and raising revenue from that activity are not the same thing, because producers respond. They defer projects. They restructure operations. They shift capital to jurisdictions with better fiscal terms. As we have covered at The Bearing, higher rates do not raise revenue in proportion because behaviour changes in response to the incentive. The Greens' modelling of a 25 per cent export tax almost certainly assumes a relatively stable production base. That assumption is the load-bearing one, and it is the one most at risk.
The international pattern points one way
The international pattern is consistent. Canada's LNG investment surge followed decades of relatively stable fiscal terms. The United States became the world's largest LNG exporter partly because its fiscal and regulatory environment was predictable. Qatar has maintained production investment through terms that, whatever their other characteristics, are understood by investors in advance. Countries that have moved to increase tax burdens on existing gas projects mid-stream have found that future investment relocates, not immediately, but durably.
None of this means the current arrangements are beyond scrutiny. The Petroleum Resource Rent Tax has a long history of collecting less than its architecture suggests it should, and the reasons for that gap are worth examining seriously. There is a legitimate question about whether the community is receiving appropriate value from resources it owns in common. That question deserves an answer that engages with the actual design of the tax system, not a flat export levy that would suppress investment while potentially failing to raise the revenue it promises.
"Now is never the right time" has some sting — but not enough
The Greens' frustration with the government's position is politically coherent, even if the specific instrument they are advocating is poorly suited to the stated objective. Senator Hodgins-May's point that "now is never the right time" for reform has some sting to it — the gas industry's timing objections do tend to arrive on schedule whenever reform is discussed. But the answer to that pattern is a better-designed reform, not a cruder one.
The government's instinct to hold the line here appears, on the evidence, to be the less damaging choice. Not because the gas industry should be exempt from scrutiny, but because an export tax of the type proposed would most likely reduce supply, leave revenue below projections, and leave households paying more for energy — which is exactly what it was supposed to prevent.
Frequently Asked Questions
Why would a gas export tax raise domestic energy prices instead of lowering them?
A flat export tax reduces the return on new gas development, which discourages investment in new supply. Less supply in the domestic market tends to push prices up, not down — so the tax ends up worsening the affordability problem it was designed to fix.
How is the Greens' proposed gas tax different from Norway's resource tax model?
Norway's system taxes economic profit above the normal cost of capital — the genuine 'rent' — while preserving incentives to invest in new production. The Greens' proposed 25 per cent levy is applied to gross export revenue, regardless of production costs, which means marginal projects become unviable and investment relocates.
What happened when Australia last intervened in the gas market?
Export controls and price caps introduced in recent years were intended to shield consumers from high energy costs. They reduced the return on new gas development, cut investment in new supply, and contributed to domestic gas shortages — leaving household prices elevated despite the intervention.
Does Labor support taxing gas companies more?
Labor's 2025 platform includes language about a 'fair return on natural resources,' but the government has explicitly ruled out a gas export tax of the kind the Greens are proposing. The platform language has not been accompanied by any concrete new revenue measure.
Why do higher tax rates sometimes raise less revenue than expected?
Producers respond to higher tax burdens by deferring projects, restructuring operations, or shifting investment to jurisdictions with better fiscal terms. Revenue projections that assume a stable production base do not account for this behavioural response, so actual collections frequently fall short of modelled figures.