There’s a lot of misdirection – to say the least – about the tax that Australia extracts from its big extraction industry of gas. The industry has been advertising strongly to turn public support its way. But what’s the truth? Here’s what we found.
Australia is one of the world’s largest exporters of liquefied natural gas (LNG), yet the profits from this multibillion dollar sector remain a source of debate as the nation collects a far smaller percentage of this resource wealth in taxes and royalties than its international peers.
Qatar, a country with gas exports similar to Australia, takes a percentage of fossil fuel profits around 60 per cent higher than Australia and generates roughly five to six times more fiscal revenue, or tax, from the industry. Norway taxes super profits, the extra income of oil and gas, at 78 per cent to fund one of the largest sovereign wealth funds in the world.
Australia taxes the profits only of the super profits of offshore oil and gas at the rate of 40 per cent, and underperforms in contributing to national wealth. Gorgon LNG, for instance, costs $70 billion to build, started production in 2016, and only paid its first tax in 2025.
Meanwhile, Japan collects more tax revenue from imported Australian gas than the Australian government itself collects from its own operations.
For over two decades, as global energy prices have surged, think tanks and economic reviews have indicated that Australia lags globally in capturing direct economic rent from oil and gas, multinational companies have used investment deductions and loopholes to delay or avoid paying royalties or income taxes, and the nation has been deprived of billions in public revenue.
At the centre of the issue is the Petroleum Resource Rent Tax (PRRT).
An outgrown tax system, a corporate exploit
The PRRT is an Australian federal profits-based tax levied on the extraction of oil, gas, and condensate, designed to ensure the public receives its share of profits from the extraction of state-owned resources.
Designed in the 1980s for offshore oil extraction that uses which require far less infrastructure than modern gas processing, the PRRT imposes a 40 per cent tax on the net economic rent of super/excess profits, but it began to lose its effectiveness when applied to the massive LNG boom in the late 2000s and early 2010s.
When the tax was originally applied to oil, PRRT extractions generated on average around 0.2 per cent of the GDP. And in 2001, tax collections peaked at nearly $2.5 billion or slightly over 0.3 per cent of the GDP, according to data collected by the Australian government.
Since then, Australia has undergone a massive infrastructure build-out, natural gas production has more than tripled, and demand for exports to Asian markets has increased, yet PRRT revenues failed to keep pace.
Despite overwhelming industry growth, the Australian Taxation Office reports PRRT collections stagnating around $1.5 billion, which now equates to about 0.08 per cent of GDP, representing a steep decline in relative economic return to the nation.
The deduction loophole
This disparity is attributed to flaws within the PRRT’s design, which has allowed multinational corporations to legally minimise or completely avoid paying resource taxes on publicly owned materials.
Unlike standard royalties that tax every barrel produced, the PRRT was only designed to tax super profits after a company has fully recovered all of its capital and exploration costs. Offshore rigs and multi-billion dollar LNG processing facilities, including Chevron’s $70 billion Gorgon offshore rig and Shell’s approximately $15 billion floating LNG facility, are fully deductible.
Both Chevron and Shell avoided PRRT liabilities for years, primarily by compounding unused deductions, which can be carried forward annually at generous interest or uplift rates above inflation.
This is designed to compensate companies for the high risks associated with major developments—it also allows oil and gas companies to inflate their expenses over time to delay paying resource taxes, leading to billions of dollars in accumulated tax credits as PRRT collections remain low despite periods of high production and export value.
Both Chevron and Shell went PRRT tax-free for around a decade until 2023, when the federal government attempted to address this offsetting loophole by introducing a 90 per cent cap on PRRT. The new legislation ensures 10 per cent of revenue is subject to the 40 per cent tax, a move the treasury department initially expected to bring forward an additional $2.4 billion over the first five years. The companies only first capped PRRT payments under the new laws in August 2025.
In a dissenting report, Senator David Pocock said this tax remains ineffective, saying the Treasury projected the increased revenue to just $500 million more a year, “which is just half of one per cent when considered alongside the roughly $93 billion worth of export revenue from offshore LNG in 2022 alone”.
Independent economists also argue that 90 per cent is too generous, allowing companies to avoid paying the full super profits tax and collecting significantly less than a stricter cap would.
Australia in comparison
During the global commodities boom leading up to 2016, when oil prices unexpectedly skyrocketed, Australian oil and gas producers reported average annual revenues of $33.5 billion and annual profits of $8.2 billion.
Meanwhile, total average annual revenues from the resource Commonwealth tax system on oil and gas were $2.7 billion, according to a report by the Australian government’s Treasury Department. That amounts to just a 10 per cent share of the value of final oil and gas products.
During the same period, the report found that Norway exported NOK 555 (A$81.65) billion in oil products a year on average, of which the government reclaimed NOK 349 (A$51.34) billion in taxes and payments – that is 63 per cent of total industry revenues, over 50 per cent higher than Australia’s share, to be then invested back into Norwegian citizens.
The PRRT is just one of three components contributing to Australia’s Commonwealth tax system on oil and gas, but it is the primary reason Australia’s resource tax collection remains low.
Beginning in the mid-1990s, Norway’s system of reclaiming resource rents remained effective, allowing the government to convert public wealth into collective welfare. In comparison, Australia’s PRRT lost effectiveness due to structural flaws, including uplift rates and capital deductions, causing the public to miss out on potential wealth streams.
By capitalising on provisions within the PRRT system, a gap has formed between massive corporate profits and minimal tax turnover. The ATO has called the oil and gas industry “systematic non-payers” of tax. According to an article by The Australia Institute think tank, the Australian government receives more money from beer excise, a volumetric tax applied to the alcohol content of beer, than taxes paid by Chevron, Exxon, Woodside and Shell combined.
The think tank also said that the government receives more money through income taxes paid by teachers than taxes paid by the gas industry.
The battle over reform – what The Australia Institute says
In response, major think tanks, including The Australian Institute, are proposing solutions to increase taxation on oil and gas corporations, including applying stricter deduction limits, modifying uplift rates to prevent inflated costs, taxing exports directly, and automatically increasing government revenue when commodity or corporate profits spike.
The Institute is also petitioning policymakers to use the opportunity to increase taxes on oil and gas to spark a transition to renewables.
On the other side of the argument, resource companies, including the Chamber of Minerals and Energy WA, strongly oppose any further tax increases, arguing that doing so could increase sovereign risk as demand for oil and gas remains high, impact domestic energy supply, and threaten future capital investments if companies choose to move operations elsewhere.
