Australian liquefied natural gas (LNG) exports peaked at just over A$90 billion in 2022-23 following Russia's invasion of Ukraine, easing to $65 billion in 2024-25. That placed Australia third in value of LNG exports, behind the United States and Qatar .
Author
- Jason Nassios
Deputy Director and Associate Professor, Centre of Policy Studies, Victoria University
More recently, the US-Iran war has delivered a $6 billion boost to Australian LNG exports for the last fiscal year, with 2026-27 forecasts also revised upward by $21 billion, according to government estimates .
That's why many Australians have been surprised to learn that our national gas tax, the Petroleum Resource Rent Tax ( PRRT ), raises only modest revenues each year: about $2.2 billion at its peak, before easing recently to about $1.5 billion.
Right across the political spectrum, pressure for a tax on gas exports is mounting .
This week, the Labor Party's national conference will reportedly seek "a fairer return" on Australia's natural resources - although on Wednesday the federal government once again ruled out any imminent change on a gas tax.
Former Treasury Secretary Ken Henry has been particularly blunt in recent months, urging the government to "just do it" when it comes to reform.
The question is not whether gas companies pay tax. They do, particularly via corporate income tax, which peaked at $12 billion in 2022-23. It has since eased to $10.4 billion .
But is the PRRT, which was specifically designed to tax oil and gas, suited to the modern LNG industry?
What does the PRRT actually tax?
A common misunderstanding is the PRRT taxes LNG exports. It does not.
The tax applies only to the " upstream " stage of production - extracting the oil and gas from the ground. The tax does not apply to the "downstream" or processing activities - liquefaction, shipping and export - which transform gas into LNG for delivery to overseas markets.
When the tax was introduced in 1987 , this design made a lot of sense. Australia's offshore petroleum industry was dominated by oil and pipeline gas projects, which need a lot less processing after extraction. Identifying the value of the resource was straightforward.
Modern liquefied natural gas projects look quite different. They combine offshore extraction, pipelines, liquefaction plants and export facilities, often within a single integrated company.
This raises a difficult question: how much of a project's revenue should be attributed to the gas extracted at the wellhead?
Problem 1: How much is that gas worth?
To work out the value of the extracted gas, Australia's PRRT uses gas " transfer pricing rules ". This provides a framework companies can use to split a project's revenue between the upstream and downstream activities. The resulting figure becomes the basis for the PRRT .
The challenge is that this calculation is inherently complex. If only part of the total revenue is allocated to the upstream stage, then only part of the project's value is taxable by the PRRT.
The result is that large gas export profits do not automatically translate into large PRRT payments.
Problem 2: The deductions go on … and on
The second issue is easier to understand.
LNG projects cost tens of billions of dollars to build. Instead of the government providing a refund to a company when a project makes a loss, like the tax system that operates in Norway , the PRRT allows companies to use the losses from one year to offset tax payable in future years.
Importantly, once the loss is made, its value does not remain fixed, and instead grows over time. The rate at which these losses grow is known as the "uplift rate".
Imagine a company spends $10 billion developing a project. If production does not start for many years, this initial $10 billion loss can grow at 10% a year.
This means a company can generate strong export revenues and substantial profits, while still paying little PRRT, because it is working through a large stock of past losses.
My recent working paper argues that these two features - the narrow upstream tax base and the treatment of past losses - help explain why PRRT revenues have remained modest even during periods of exceptionally high gas prices.
How do other countries tax resources?
Norway is often held up as a benchmark in resource taxation, although the comparison to Australia is not perfect. Norwegian gas is largely exported by pipeline, which has cost advantages compared to Australia's reliance on expensive liquefaction facilities.
Nevertheless, Norway captures a much larger share of the value of its resources through a combination of high petroleum taxes and direct government ownership.
In 2023, the most recent year we have complete data for, the Norwegian government collected 465 billion kroner (A$66 billion) from petroleum taxation, resulting in a total tax rate on oil and gas of about 48%.
This is about as much revenue as local council rates, state land taxes, and stamp duties raised Australia-wide .
In Australia, we raise far less from the PRRT and company tax on our oil and gas industry - about $14 billion in 2023 - resulting in a total tax rate on oil and gas of about 15%.
What are the options for reform?
Several reform paths are now being discussed.
One option is to further tighten deduction rules. Treasurer Jim Chalmers introduced a cap on the use of deductions in 2023, requiring companies to pay PRRT on at least 10% of revenues each year.
Another is a royalty scheme, where companies pay a percentage of the value of the oil and gas they extract to governments, or a flat export tax , like proposals by the Australia Institute and independent Senator David Pocock.
More ambitious proposals would redesign the PRRT itself. For example, the think tank Superpower Institute's proposed levy would tax above-normal profits , while seeking to preserve incentives for future investment.
A final possibility is greater government ownership of the LNG industry, which was successful for Norway. But with the privately owned LNG industry already established in Australia, this option would be difficult to implement.
The real question
Australia's gas tax debate is often centred on whether Australia taxes gas enough. A better question is whether our gas tax, the PRRT, was designed for the industry that exists today.
The answer is no.
It was created for a previous era of oil and pipeline gas.
Today's LNG plants are larger, more integrated and far more complex than crude oil rigs of yesteryear. As a result, a tax that performed reasonably well in its original setting now struggles to capture above-normal profits generated by Australia's petroleum exports.
This presents a strong case for revisiting whether the PRRT remains fit for Australia's modern LNG industry. As Ken Henry put it: "just do it".
Jason Nassios does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
