Beer, HECS, and the broken tax

Before explaining how the PRRT became broken, it is worth establishing exactly what the numbers say. All of the following are confirmed from government sources.

Let those figures sit for a moment. Australia is one of the world’s largest exporters of liquefied natural gas. In the financial year just ended, it exported approximately A$66 billion worth of LNG. The special tax designed to ensure Australians receive a fair share of that wealth is expected to collect A$1.5 billion — less than the beer excise, and heading downward.

But beer is not the only comparison. The gap between the PRRT and other taxes Australians pay is even more striking when you look at university debt repayments.

In 2023–24, HECS and HELP debt repayments — the compulsory repayments made by Australians who attended university and now earn above the threshold income — totalled more than four times what gas companies paid in PRRT. In the seven years to 2022–23, the government collected A$14.96 billion more from university debt repayments than it collected from the petroleum resource rent tax. That is a 168 per cent premium — students pay 168 per cent more in HECS repayments than gas companies pay in PRRT.

Or put differently: the Australian government collects more from asking graduates to repay their education costs than it collects from asking multinational gas companies to pay for extracting a public resource.

In Norway, they tax the fossil fuel industry and give kids free university education. In Australia, we subsidise the fossil fuel industry and charge kids a fortune to go to uni.Richard Denniss, Executive Director, The Australia Institute

And it is not only graduates who pay more. PRRT revenue in 2023 — the year the gas industry made record profits of A$55 billion due to Ukraine war windfall prices — was lower than PRRT revenue in 2001. The industry’s revenue had grown enormously. The tax collected from that revenue had shrunk.

The Petroleum Resource Rent Tax was introduced in 1988. It was designed as a profits-based tax — a ‘resource rent’ mechanism — intended to capture the ‘super-profits’ generated by extracting oil and gas from Australian Commonwealth waters. In principle, this is sound economics. You tax profit above a normal rate of return — the extra profit that comes from owning a resource the public gave you access to — without discouraging investment.

When it was designed, Australia’s offshore petroleum industry was primarily an oil industry. The economics of oil extraction are well-suited to a profits-based tax: capital costs are front-loaded, production follows relatively quickly, and profits arrive within years of initial investment.

Gas is different. Particularly LNG — liquefied natural gas, which must be chilled to −162 degrees Celsius for shipping. LNG projects require enormous upfront capital investment, often measured in tens of billions of dollars. The infrastructure — pipelines, liquefaction plants, storage facilities, export terminals — must be built before a single cargo can be shipped. A decade or more can pass between the first dollar of exploration spending and the first dollar of export revenue.

The PRRT allows companies to deduct the costs of their projects against any potential tax liability. This is not unusual — most profit-based taxes allow cost deductions. The problem with the PRRT is what happens to deductions that cannot be used in a given year.

If a company’s deductible expenses exceed its assessable receipts in any year, the excess is ‘uplifted’ — carried forward to future years with interest added. The uplift rates are generous: for general project expenditure, the long-term government bond rate plus five percentage points. For exploration expenditure, the long-term bond rate plus fifteen percentage points. These rates can effectively double the value of deductions every four years.

Here is what this means in practice: a company spends A$30 billion building an LNG facility. It cannot deduct all of that against revenue immediately, because it is not yet earning revenue. So the deduction is carried forward — and uplifted at 15 per cent above the bond rate — year after year, growing in value while the company is still building. By the time gas is flowing and revenue is arriving, the accumulated deductions can be larger than the revenue itself.

The end result: years of high revenue with minimal taxable profit, because the compounding deductions wipe out the PRRT liability. This is legal. This is how the tax was designed. The design just assumed the projects were oil projects with short lead times, not LNG projects with decade-long construction phases.

There is a second, distinct problem specific to integrated LNG projects. The PRRT applies to the ‘upstream’ extraction of gas — not to the liquefaction process, which is considered a downstream value-adding activity. This creates a problem: what is the gas worth at the point it is extracted, before it is turned into LNG?

In a simple oil project, you just use the sale price. But in an integrated LNG project — where the same company extracts the gas, builds the liquefaction plant, and ships the LNG — there is no arm’s-length sale of the gas before liquefaction. The company is effectively selling to itself.

The tax system invented a ‘gas transfer price’ to solve this. But the formula used — known as the residual pricing method — involves 14 detailed steps and has been criticised as systematically understating the value of the gas at the taxing point. By some estimates, the formula means that only about half of the economic rent from integrated LNG projects ends up being taxed. The Callaghan Review — a government-commissioned review — found that if a simpler ‘netback’ pricing method were used, an additional A$89 billion could be raised between 2023 and 2050.

In 2024, the Albanese government passed changes to the PRRT through parliament. The primary change was a 90 per cent deductions cap — limiting the proportion of taxable income that can be offset by deductions to 90 per cent in any given year. Previously there was no cap, and companies could carry deductions sufficient to eliminate their entire PRRT liability in profitable years.

Labor’s position was that the changes would make the offshore LNG industry ‘pay more tax, sooner’. The revenue forecast: A$2.4 billion in additional PRRT revenue over four years.

There is a test for whether any tax change is meaningful: does the regulated industry oppose it?

The gas industry did not oppose it. The Australian Petroleum Production and Exploration Association — APPEA, the peak industry body — released a media statement calling for the changes to be passed on the day they were announced. When the industry whose profits you are taxing publicly supports the reform, the reform is not asking much of them.

The subsequent evidence confirmed this. Budget 2025 revealed that the PRRT changes would raise A$4 billion less over the forward estimates than the government had projected in 2023.

We are now getting less for our gas and still not a single cent of PRRT from offshore LNG, we are the second biggest exporter in the world, it is a total scam on Australians.Senator David Pocock, Response to Budget 2025

The PRRT trajectory: A$1.98 billion in 2025–26, falling to A$1.68 billion in 2026–27, and A$1.45 billion by 2028–29. Beer excise rises with inflation twice a year. PRRT falls year after year.

There is an irony so stark it almost requires repeating twice. Australia not only fails to collect meaningful revenue from gas extraction — it actively subsidises the industry doing the extracting.

The Australia Institute’s annual fossil fuel subsidies report found that Australian governments provided A$14.9 billion in fossil fuel subsidies in 2024–25. The federal share was A$12.6 billion, driven primarily by the Fuel Tax Credits Scheme, which refunds fuel excise to large diesel users including mining companies.

To be clear on the arithmetic: the government collected A$1.5 billion from the PRRT in 2025–26 while providing A$14.9 billion in fossil fuel subsidies across the same financial year. The net position is that the gas and fossil fuel industry is a substantial recipient of public funds, not a substantial contributor to them.

Subsidies in the forward estimates — the government’s own published projections — reached a record A$67 billion. That is 14 times the balance of Australia’s Disaster Ready Fund.

There is a further dimension to the PRRT failure that is rarely discussed in mainstream media coverage of the gas industry.

LNG infrastructure has a finite lifespan. Offshore platforms, pipelines, subsea equipment, and onshore facilities must eventually be decommissioned — dismantled, removed, and the environment restored. This is expensive, technically demanding, and legally required.

The mechanism is the PRRT itself: decommissioning costs are classified as deductible expenditure against any PRRT liability, further reducing future resource tax revenue. Companies that paid minimal PRRT during the productive life of their projects will be able to reduce their already-minimal future PRRT liability using their closure costs.

The industry extracts. It pays almost no resource tax. It leaves. The cleanup is partly on Australians.

The evidence that the PRRT is broken is not contested by serious economists. The Callaghan Review, commissioned by the government itself, identified the structural problems. The 2017 PRRT Review found the system was poorly suited to LNG. Treasury’s own budget papers acknowledged no LNG project had paid any PRRT.

The Australia Institute has calculated that replacing the PRRT with a flat 25 per cent tax on gas export revenue — significantly lower than Norway’s 78 per cent — would raise more than A$17 billion per year. The Australian Council of Trade Unions has formally proposed this. The Greens support it. Independent economists have endorsed an inquiry.

Senator Pocock has introduced a motion in the Senate to establish a formal inquiry into why the PRRT collects less than beer excise.

None of this is radical. A 25 per cent resource tax would still leave Australia collecting less from its gas industry than Norway, Qatar, or Saudi Arabia collect from theirs. It would still represent a more favourable rate than most comparable countries apply. It would simply be a tax that does what the current one does not: collect meaningful revenue from the extraction of a public resource.

The gas industry consistently argues that it pays its fair share. The Australian Energy Producers — the industry peak body, formerly APPEA — stated in July 2025 that the oil and gas industry paid a record A$21.9 billion in taxes and royalties in 2024–25. This figure is deployed repeatedly in media coverage and industry submissions.

It requires one clarification to understand what it means. The A$21.9 billion includes all taxes paid by all companies: company income tax (paid on all profits across the business), payroll tax, fringe benefits tax, excise, and state royalties. The PRRT — the resource-specific tax designed to ensure Australians benefit from gas extraction — accounts for approximately A$1.5 billion of that A$21.9 billion.

A gas company that earns revenues in other industries, employs many workers, and operates domestically would pay substantial company income tax, payroll tax, and superannuation regardless of whether the PRRT existed. Those payments are not a contribution from the gas industry to Australians for the right to extract public resources. They are ordinary business taxes.

The PRRT is the specific tax for the specific purpose. It collects A$1.5 billion. Beer collects A$2.7 billion.

In February 2026, a Senate Estimates exchange became the most-watched parliamentary clip in recent Australian memory. 8.7 million views for a question about beer and gas tax. The virality is itself a signal: Australians understand, intuitively, that something is wrong.

The PRRT was designed to capture the wealth Australians generate by owning a resource and allowing it to be extracted. It collects less than beer excise. It collects a quarter of what HECS collects from university graduates. It collects less than it did in 2001, in a year when the industry made record profits. The government reformed it. The industry cheered. Budget 2025 showed it would raise A$4 billion less than promised.

Meanwhile, the government provides A$14.9 billion per year in fossil fuel subsidies and university students repay their education debts at 168 per cent the rate gas companies contribute their resource tax.

The beer comparison is not a gimmick. It is a distillation of a policy failure so thorough, and so consistently maintained across governments of both parties, that it now produces the mathematically absurd result it described.

Article 3 of this series asks a simple question: what could Australia have built, if it had taxed gas the way Norway taxed oil? The answer is worth knowing.