Ken Henry Challenges Gas Giants’ Claims on Windfall Tax
Former Treasury secretary Ken Henry has urged the Albanese government to disregard what he describes as “self-serving” arguments from gas corporations regarding the risks of imposing windfall profits and export taxes. His comments come as the government considers such interventions ahead of the upcoming federal budget.
In a submission to a parliamentary inquiry examining the gas taxation framework, Henry advocated for a 100% windfall profits tax. He dismissed concerns that such measures would increase perceptions of Australia as a sovereign risk or deter investment in new projects.
“Any proposal to generate more tax revenue from windfall gains accruing to foreign owners of capital will draw self-serving criticism from those supplying the capital, for the most part, the CEOs of multinational corporations,” he wrote.
“Any investment proposal that at least meets its cost of capital in the absence of a windfall gains tax, or any of the other options for taxing supernormal profits, will still do so in the presence of such a tax. For those with an understanding of economics, this is merely a tautology.”
Background and Historical Context
Ken Henry was the author of the 2010 review recommending the then Rudd government introduce a 40% mining super profits tax. In his recent submission, he argued that the rationale for that short-lived tax, which was diluted under Julia Gillard and later abolished by Tony Abbott, remains valid 16 years later.
Windfall gains refer to large, sudden profit increases often triggered by external events such as geopolitical conflicts. For instance, gas companies saw a significant revenue surge following Russia’s illegal invasion of Ukraine in 2022, which caused global prices to escalate sharply.
Socially Optimal Tax Rate and Potential Uses
Henry suggested that the “socially optimal” rate for a windfall profits tax is approximately 100%. He proposed that the resulting revenue could be allocated to a sovereign wealth fund, support nature restoration efforts, and finance reforms in personal income and corporate taxation.
“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,” he said.
Political and Industry Responses
The federal government faces increasing pressure from Labor-aligned trade unions and crossbenchers to introduce a flat 25% tax on gas exports. The Australia Institute thinktank estimates such a levy could generate $17 billion annually.
Last month’s revelations that Treasury was modelling a windfall profits tax alongside changes to the Petroleum Resource Rent Tax (PRRT) intensified speculation that the government might leverage the 12 May budget to increase revenue from gas producers.
Although the government has not dismissed potential changes, enthusiasm for major interventions appears to have waned amid the global energy crisis triggered by the Iran war. Officials are cautious about creating perceptions that Australia might jeopardize liquefied natural gas supplies to Asian partners while simultaneously seeking to secure petrol and diesel imports.
During a recent visit to Singapore, Prime Minister Anthony Albanese emphasized the government’s energy focus.
Asked about a potential new gas tax, he stated the government’s priority was “supply, supply and supply”.
Industry Submissions to the Inquiry
Major oil and gas companies including Chevron, BP, ConocoPhillips, and Shell have submitted responses to the Greens-led inquiry defending the current taxation regime, including revenue raised under the PRRT. They warned that alterations could jeopardize investment in new projects.
Research commissioned by the industry peak body, Australian Energy Producers, claimed that a 25% export levy would render projects “uninvestable.”
“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. This may further increase the risk that projects become uneconomic. Industry will not sanction nor operate uneconomic assets indefinitely and the result may be reduced production or projects being shut in early,” BP wrote in its submission.
Inquiry Timeline
The parliamentary inquiry will conduct public hearings in Canberra and Perth next week. It is scheduled to report its findings on 7 May, five days before the federal budget announcement.
