The Australian Government is being urged to impose a 25% windfall levy on Australian energy production or exports, nominally to combat rising domestic energy costs as a result of the conflict in the Middle East, and to increase government take from 'windfall gas profits'. The Commonwealth Treasury is understood to be modelling options for a new levy on gas exports as part of the upcoming federal budget. How this proposed tax may be levied is not yet clear.

This analysis presents modelling of the impact of the potential windfall levy on post-tax project economics in Australia and has used the results to assess the corresponding implications for Australia’s fiscal attractiveness and competitiveness relative to peer regimes.

All potential windfall tax mechanisms modelled result in an increased effective tax rate, and reduction in investment returns, on a scale that could make Australia’s oil and gas projects uninvestable.

Key findings

• Imposing a 25% export levy on LNG would result in an effective project tax rate of up to 83% and erode up to 94% of project value, making projects 'uninvestable'. 
• The potential impact on planned Final Investment Decisions (FIDs) could put up to 20,000 PJ of gas production and $70 billion in government revenue at risk.
• It would make Australia the least fiscally attractive regime among oil and gas jurisdictions, behind Canada, Indonesia, Malaysia, Nigeria, Norway, PNG, Timor-Leste, Qatar and the United States.
• Examples of other windfall taxes in comparable countries have demonstrated the negative effects on investment in
  oil and gas production.