Australian Gas Firms May Escape New Tax Despite Public Anger

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(Bloomberg) — Australia is set to spare powerful liquefied natural gas exporters from new taxes, even as global supply disruptions drive up prices and profits and the national budget is set to remain deep in deficit across the forecast horizon.

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The center-left government of Prime Minister Anthony Albanese has decided against including new export taxes in next month’s budget, according to reports in the Australian Financial Review and Australian Broadcasting Corp., citing unidentified sources familiar with the issue. Officials are wary of raising taxes after assuring Asian buyers that Australia would remain a reliable supplier during shortages linked to disruptions in the Strait of Hormuz, the reports said.

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Australia is one of the largest exporters of LNG, shipping almost 80 million tons of the fuel overseas last year — mainly to Japan, China and South Korea. But rising prices at home and the limited tax paid by producers has fueled a backlash, with citizens protesting and minor party senators holding hearings this week to demand the sector pay more.

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“The underlying question of whether Australians receive a fair share of the resource windfall will be a hot button issue for as long as gas prices, and hydrocarbon producer profits, stay elevated,” said Morningstar market strategist Lochlan Halloway. Still, “the government has good reason to be cautious,” he said. 

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Australia’s exporters are set to benefit from a surge in oil and gas prices due to the near-closure of Hormuz following the US-Israeli attack on Iran at the end of February. Not a single shipment of LNG has passed through the strait — a conduit for 20% of global supplies of the fuel — since the war began, and spot prices are up about 70% from two months ago.

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Attacks by several senators on the gas industry in recent months have gone viral, fueling public anger and highlighting that Australia taxes exporters at significantly lower rates than rivals such as Qatar and Norway — a flashpoint as households grapple with a cost-of-living squeeze driven by renewed inflation pressures compounded by soaring fuel costs. 

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The gas industry has argued higher taxes will damage the country’s relationship with key regional partners and make Australia unattractive for new investment, putting its future energy security at risk.

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“Assertions that the industry is not paying its fair share, or that the tax system does not respond to higher prices, are demonstrably wrong,” said Samantha McCulloch, the chief executive officer of industry group Australian Energy Producers.

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Japan — which imports the majority of Australian LNG — makes more revenue taxing its imports of Australian gas than Canberra gets from its levies on the industry, according to research by the Australia Institute, a left-wing think tank. Each week the implementation of a 25% export tax is delayed, Australia loses A$350 million ($250 million), it estimates.

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Albanese and his ministers have visited and spoken to various Asian nations in recent weeks to reassure them of steady LNG supplies, and in turn to get guarantees they will continue to sell Australia needed diesel and other fuels.

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However, an export tax would not directly lead to higher prices for end-users in Asia, as the rates buyers pay is based on the spot market or long-term contract terms, not specifically costs in Australia. What it would do would be to compress the profits of the miners and exporters in Australia.