As the federal budget approaches, a heated debate is unfolding over how Australia taxes its massive gas reserves. It all sits in a background of a suspected slashing in the budget and cost of living concerns. 

The federal government has confirmed that a gas tax will not be applied to existing contracts in order to preserve relationships with Asian trading partners. 

While the government remains hesitant to disrupt gas market forces, Dr. Greg Jericho, Chief Economist at the Australia Institute, argues that the current system is fundamentally broken and failing the Australian public. 

“The government might think that it can fob the public off, but I don't think this anger is going anywhere.”

The current landscape of the Australian gas industry sees companies taking resources for free, with approximately 80% of gas being exported overseas. 

Dr. Jericho argues that the Petroleum Resource Rent Tax (PRRT), which was designed to capture “super profits” from oil and gas in the Bass Strait, is failing to do its job. 

“As soon as the industry became about LNG exports out of Gladstone and from the Northwest Shelf, it really was no longer fit for purpose.

“Industry revenue and profits are rising, but the level of tax from that Petroleum Resources Rent Tax is not increasing at the level that it should,” he said. 

In an attempt to evade recent pressures, the gas industry has made significant efforts to advertise the tax they do currently pay. 

“They want to count company tax. They want to count royalties. Now, royalties are just a cost of business… they like to claim that is a tax, but it's not,” Dr. Jericho said. 

“They want to cherry-pick a couple of really good years where they have actually had to pay some tax because of the Russian invasion of Ukraine where gas prices went up so high that even their accountants and tax lawyers weren't able to hide their profits.”

While industry players often warn of domestic gas shortages, Dr. Jericho dismisses these claims as a "false fear." He argues that with 80% of gas being sent abroad, "it's impossible to say we've got a shortage."

Instead, the issue is that companies prioritise exports to maximise profit.

The Australia Institute proposes a 25% tax on gas exports would raise $17 billion in revenue every year.

Dr. Jericho suggests this tax would create a natural incentive for domestic supply. 

"The tax would only apply to exports; it would actually make it more advantageous for companies to supply gas to Australia... they would also do so at a cheaper price because they're not paying tax on domestic gas production."

Australia’s return on its resource’s pale in comparison to other gas-rich nations. Jericho highlights that Qatar exports a similar amount of LNG but receives significantly more revenue. 

In contrast, some companies operating in Australian waters, such as Inpex, have reportedly paid no company tax or PRRT while their Japanese owners on-sell Australian gas to other countries for a profit.

Jericho describes the current situation as a "rigged game," and notes that the Australian public is beginning to agree. 

Despite the major political parties remaining "wedded to the corporate sector," polling suggests that between 65% and 70% of Australians across the political spectrum – including Labor, Liberal, Green, and One Nation voters – support the 25% tax.

While the government may use geopolitical tensions like the Iran war as an "excuse" to avoid immediate action, Jericho warns that the pressure is unlikely to dissipate. 

As the next election approaches, Jericho suggests that politicians who ignore this groundswell of support do so at their own peril. 

When such a broad majority of the public demands change, Dr. Jericho says, "it becomes very dangerous for political parties to not act."