The prospect of a 25% gas export tax has generated more political heat than analytical light. Opposition Leader Angus Taylor yesterday claimed it would “end the industry” and halt investment.
In our view that is a step too far: Saying it is catastrophic. Nonetheless it would impact gas companies, even if it would depend on how exactly it is designed. Because those details determine the actual earnings impact.
The Context: A Sector Enjoying Exceptional Conditions
Australia is currently among the world’s top two LNG exporters (following Qatar’s output disruptions from the Iran conflict). Gas export revenues are projected to approach A$107bn this year, more than double the A$50bn forecast prior to the war — implying a windfall in the range of A$28bn to A$57bn for producers, according to modelling by the Green Institute. The Gladstone free-on-board price reached A$31.74 per gigajoule in March 2026, against a domestic spot price of A$11.05 per gigajoule — a differential of 186%.
Against that backdrop, the Senate agreed in late March to establish a select committee to examine the tax treatment of oil and gas, with Labor senators supporting a Greens motion. The Department of Prime Minister and Cabinet has separately asked Treasury to model “new levy options” ahead of the May federal budget, including reforms to the Petroleum Resource Rent Tax (PRRT). No concrete changes have been legislated. The political debate, however, has moved well ahead of the policy detail.
The Current System and Its Acknowledged Flaws
The PRRT is a profit-based tax on offshore petroleum projects. In principle, it captures a share of above-normal returns once producers have recovered their costs. In practice, it has generated approximately A$1.5bn per year in revenue — a figure that even its supporters acknowledge is inadequate given the scale of Australia’s LNG export sector.
The structural problem is that the PRRT was designed for oil projects, not gas projects. Deductions are generous, uplift rates are high, and accumulated tax credits across the sector run to an estimated A$284bn, which producers can apply against future liabilities. Many LNG projects have never paid PRRT and (on current projections) likely never will.
Australia captures less than 30% of profits from its fossil fuel companies, compared to 75–90% in most comparable resource-exporting nations. That is a defensible critique of the status quo, and it comes not from ideologues but from economists including former Treasury Secretary Ken Henry.
The Question Taylor Doesn’t Answer
The central problem with Taylor’s claim is that it treats all gas taxes as equivalent. They are not. Economic theory — and Henry made this point explicitly — distinguishes between taxes on economic rents and taxes on gross revenues. A windfall gains tax (or a well-structured resource rent tax) applies only to returns above the opportunity cost of capital.
Because these returns are by definition above what is needed to incentivise investment, taxing them does not reduce investment. Henry’s formulation was characteristically direct: a tax rate of even 100% applied to a windfall gain “would have no impact on the underlying level of activity.” This is standard public economics, not a fringe position.
The ACTU’s proposal, however, is a flat 25% levy on gross LNG export revenues — a revenue-based tax rather than a rent-based one. That is a materially different instrument. Applied to revenues regardless of costs, it taxes projects with thin margins as heavily as those with fat ones, and it does affect marginal investment decisions. BP’s submission that such a tax would make Australia “the least fiscally attractive regime among peer oil and gas jurisdictions” is a claim worth taking seriously — at least as it applies to this specific design.
The conflation of these two designs is where Taylor’s argument breaks down. A well-designed rent tax (targeting only the windfall component, preserving normal returns) does not end the industry. A blunt revenue levy might genuinely discourage marginal projects, though even then the evidence from Norway — which captures approximately 78% of profits through a combination of rent taxes, state equity, and loss refundability — suggests that high resource taxation and robust investment are not incompatible when the system is designed coherently.
The honest answer, then, is that whether a gas tax would harm the industry depends entirely on what kind of tax is introduced. Taylor has chosen not to make that distinction, which is a political choice rather than an analytical one.
The ASX Stocks in the Firing Line If A Gas Export Tax Was Introduced
For investors, the practical question is which companies face earnings risk if some form of increased taxation is legislated.
The two most directly exposed large-caps are Woodside Energy (ASX:WDS) and Santos (ASX:STO). Both are heavily weighted to LNG export revenues, and both have benefited materially from the current price environment — Woodside jumped 7.2% and Santos hit a 52-week high of $8.06 on 19 March 2026 alone, as the Middle East conflict tightened global supply. A flat revenue levy would reduce net realisations per unit of production. Even with a 25% levy, both companies would likely remain profitable at current prices; the question is how much of the current windfall is retained.
Beach Energy (ASX:BPT) is somewhat less exposed, with a domestic gas and oil portfolio concentrated on the east coast rather than LNG exports. A revenue-based export levy would affect it less than Woodside or Santos, though PRRT reforms (which apply onshore through state royalties rather than the federal system) could still affect its economics.
Karoon Energy (ASX:KAR), which produces oil from Brazilian assets as well as Australian offshore production, has limited direct LNG exposure but would be affected by any broader PRRT reform that tightens deduction rules.
The smaller end of the market (junior gas developers and explorers) faces a different risk. Not an earnings hit on existing production (they have none), but a potential reduction in the attractiveness of new project development if investors price in a higher ongoing tax burden. This is a real concern and the most credible version of Taylor’s “end of investment” argument, though it applies to greenfield development rather than the existing operating industry.
The Political Calculus
The Albanese government has not committed to a specific tax change. Resources Minister Madeleine King has echoed industry concerns about investment certainty, particularly given that Australia is simultaneously using its LNG reliability as diplomatic leverage in Southeast Asia. The May budget is the next pressure point, but a full structural reform of the PRRT before then appears unlikely. A more probable near-term outcome is a modest tightening of deduction rules (building on the 2024 deductions cap) rather than a new flat levy.
The Senate inquiry adds pressure but does not guarantee legislative change. The Greens can propose but cannot legislate without Labor’s support, and Labor’s internal tension (between its resources-state base and its urban climate constituency) has historically produced incremental rather than structural shifts in gas taxation.
The Conclusion: Taylor Is Half Right, and Half Wrong
A poorly designed gas tax — specifically a flat levy on gross export revenues — would reduce investment attractiveness and could deter marginal new projects. Taylor is correct on that narrow point. But his claim that a 25% tax would be “the end of the industry” overstates the case considerably, particularly given that producers are currently generating windfall profits at a scale that has no precedent in the sector’s history. A well-designed rent tax that targets only above-normal returns would, by definition, leave normal investment economics intact.
For investors holding Woodside or Santos, the key risk is not existential but financial: any levy reduces the earnings that have driven both stocks to multi-year highs. The magnitude of that reduction depends on design, and design is precisely what remains unresolved. That uncertainty is a legitimate reason for caution, but it is not the same thing as the end of the industry.
