Budget will grab $2.4 billion from LNG super profits

Treasurer Jim Chalmers will raise an extra $2.4 billion in taxes over four years from offshore gas companies and use the money to fund services and cost-of-living relief including help with energy bills.

Chalmers will on Sunday announce changes to the nation’s fossil fuel super tax, capping the amount of income from liquefied natural gas projects that can be offset at 90 per cent.

Treasurer Jim Chalmers has decided to cap the amount of income that can be offset for LNG projects.Credit: Michele Mossop, Alex Ellinghausen

The LNG industry is forecast to hit $91 billion in export earnings this financial year – three times more than in 2020-21 – on the back of a ban on Russian energy exports following its invasion of Ukraine.

The changes in Tuesday’s budget have been recommended by a Treasury review of the petroleum resource rent tax (PRRT), which was initiated by the former Morrison government.

“It’s been clear for some time that the PRRT isn’t up to scratch – that’s something most Australians would agree with, including the former government that initiated the review,” Chalmers said.

“These sensible changes see the offshore LNG industry pay more tax, sooner.”

The Treasury review highlighted the fact that the PRRT was better suited to targeting revenue from oil projects than LNG.

Under the previous rules, most LNG projects were not expected to pay any significant amounts of PRRT until the 2030s.

Without the changes, the tax was expected to raise $2.6 billion this financial year, but would thereafter decline steadily over the next four years to about $2 billion by 2025-26.

Chalmers said the changes would ensure Australia remains a reliable trade and investment partner for other countries, and would deliver a “fairer return to the Australian people from the resources they own”.

“These changes will make a meaningful contribution to the budget that we hand down on Tuesday night, helping to support our efforts to get the nation’s finances back on track, fund vital services and provide responsible cost-of-living relief,” he said.

Chalmers has previously said a package of cost-of-living measures, including a $1.5 billion intervention in the energy market to shave hundreds of dollars off power bills, will be a centrepiece of the budget.

The treasurer said the review also highlighted other shortcomings of the PRRT and identified areas where it can be improved and updated.

He said the government would proceed with eight of the review’s 11 recommendations, as well as eight others made by the Callaghan review that were accepted but not implemented by the previous government.

“This package, which includes integrity reforms, is expected to increase tax receipts by $2.4 billion over the forward estimates,” Chalmers said.

The changes come after this masthead revealed on Thursday that Chalmers was considering major changes to the PRRT.

In response to that article, the Greens and independent senator David Pocock welcomed the prospect of a tax hike on gas but said it wouldn’t go nearly far enough.

Coalition resources spokeswoman Susan McDonald said during the week the government must ensure any tax changes did not reduce industry investment.

“Labor needs to be careful not to follow their first instinct and raid the piggy bank to cover up their excessive spending,” McDonald said.

In a speech to the National Press Club last month, Woodside chief executive Meg O’Neill said overreaching on tax reforms could risk undermining future revenue.

“We urge the government, in any changes to the tax framework, to consider the long term and preserve Australia’s ability to attract the next generation of investment, jobs and energy supply,” O’Neill said.

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