Coal and gas export levy ‘simpler’, says energy expert

An energy expert says a temporary windfall profits tax on the coal and gas sector would be most easily implemented if it took the form of a levy on ­exports.

An LNG ship leaves Darwin harbour. Picture: Justin Kennedy

Energy expert Bruce Mountain says a temporary windfall profits tax on the coal and gas sector would be most easily implemented if it took the form of a levy on ­exports.

The director of the Victoria ­Energy Policy Centre said the revenue raised should be redirected to consumers through a lump-sum payment, rejecting claims this would undermine the Reserve Bank’s inflation strategy.

He said the intervention would not need to be as far-reaching as Britain’s, where prices have ­increased five-fold since Russia’s invasion of Ukraine.

Mr Mountain said a simple levy on exports would encourage producers to sell to the local market, reducing the need for complex policies such as domestic price caps.

“They could structure it as a tax on the profits or they could structure it as a type of royalty on the volume exported,” he said.

“I expect, in principle, that a bigger levy on the gas (and coal) exported would be a more preferable and a simpler mechanism, rather than a tax on the profits of the exporter because that will be far more complex and (the companies are) going to seek to duck and dive in order to minimise their profits.”

Mr Mountain said redirecting the revenue to small businesses and households through lump-sum payments would be the “simplest mechanism to implement”.

“I don’t believe it is inflationary and you’ve got to think about the source of the money,” he said.

“It’s money going out of the economy, in the form of levy on the gas and coal exports that otherwise would find its way into the economy.”

If the government shuns cash payments to households and businesses, Mr Mountain said, there would have to be a European-style cap on electricity prices.

“But that’s very complicated to implement and will take a long time to implement so I think they should avoid that,” he said.

Britain’s Energy Profits Levy, passed into law in July, slaps oil and gas companies with an extra 25 per cent profits tax on top of the sector’s headline rate of 40 per cent.

This takes the combined tax on profits for the sector to 65 per cent, with the measure to raise about £5bn in its first 12 months. The measure will be phased out when gas and oil prices return to historically normal levels.

Under Britain’s policy, an ­investment allowance of 80 per cent applies to companies that ­invest in opening up further ­reserves to increase gas supply.

Grattan Institute energy director Tony Wood said it would be too complicated to include a provision within a super profits tax package to encourage gas producers to open up more reserves.

He said the federal levy could be designed to apply to commodities once they reach a certain price, meaning it would be paid only when exporters were making ­extraordinary profits.

Mr Wood said the revenue should be used to subsidise the costs faced by electricity retailers, bringing bills down for consumers.