Former Treasury Secretary Advocates for Full Windfall Tax on Gas Profits
In a bold submission to a parliamentary inquiry, former Treasury secretary Ken Henry has called for the implementation of a 100% windfall profits tax on Australia's gas industry. Henry, who authored the 2010 mining super profits tax review, strongly rejected assertions from major gas corporations that such tax changes would freeze investment in new projects.
Dismissing Industry Warnings as 'Self-Serving'
Henry characterized warnings from gas giants about sovereign risk and investment freezes as "self-serving criticism" primarily coming from multinational corporation CEOs. "Any investment proposal that at least meets its cost of capital in the absence of a windfall gains tax will still do so in the presence of such a tax," Henry wrote in his submission. He emphasized that this economic principle represents a fundamental tautology for those with proper understanding of economics.
The former Treasury secretary argued that the justification for taxing supernormal profits remains valid sixteen years after his original recommendations. Windfall gains, defined as large and sudden profit increases often triggered by external factors like conflicts, have particularly benefited gas companies following Russia's invasion of Ukraine in 2022, which sent global energy prices soaring.
The Socially Optimal Tax Rate
Henry proposed that the "socially optimal" rate for a windfall profits tax would be approximately 100%. He suggested multiple potential uses for the substantial revenue generated, including establishing a sovereign wealth fund, funding nature repair initiatives, and reforming both personal income and corporate tax systems.
"Since the burning of fossil fuels has been a major, and increasing, cause of nature loss, there is a strong case for using some of the proceeds of a windfall gains tax to undertake nature repair," Henry stated in his submission. This environmental consideration adds another dimension to the tax policy debate.
Growing Pressure on the Albanese Government
The federal government faces mounting pressure from various quarters, including Labor-aligned trade unions and crossbenchers, to implement a flat 25% tax on gas exports. The Australia Institute thinktank estimates such a measure could raise approximately $17 billion annually. Recent revelations that Treasury has been modeling windfall profits tax scenarios and potential changes to the Petroleum Resource Rent Tax (PRRT) have fueled speculation about possible budget announcements.
However, the government's appetite for major intervention appears to have diminished amid the global energy crisis. Prime Minister Anthony Albanese, during a recent trip to Singapore, emphasized that the government's energy priority remains "supply, supply and supply," indicating a cautious approach to tax changes that might affect energy security.
Industry Opposition and Economic Concerns
Major oil and gas companies including Chevron, BP, Conoco Phillips, and Shell have submitted defenses of the existing taxation regime to the Greens-led parliamentary inquiry. These corporations warn that tax changes would threaten investment in new projects and potentially render them "uninvestable."
Research commissioned by Australian Energy Producers, the sector's peak body, supports these concerns. BP's submission specifically warned that "implementing new tax changes will undermine the investment case for new and existing supply in Australia through increased cost per barrel of oil equivalent and through increased uncertainty around interpretation of any newly written law."
The parliamentary inquiry will conduct public hearings in Canberra and Perth before reporting its findings on May 7, just five days before the federal budget announcement. This timing ensures the inquiry's recommendations will directly influence budget deliberations and potential energy policy changes.
