# Australia's Gas Export Revenue Problem: Why Royalties Beat New Taxes
Richard Denniss, chief economist at the Australia Institute, argues that Australia loses most revenue from natural gas exports to foreign shareholders rather than retaining wealth for domestic investment in education, infrastructure, and social services.
Denniss proposes a gas export tax as the solution. His argument centers on a straightforward problem: liquefied natural gas (LNG) exports generate billions annually, yet the Australian government captures minimal public benefit. Foreign companies control most LNG operations and pocket the profits, leaving taxpayers with little return on the nation's depleted resources.
The economics matter for education funding. When resource revenues decline or fail to reach public coffers, governments face budget constraints that directly affect school funding, university grants, and vocational training investments. Australia's history shows that resource wealth, when properly captured, funds essential services and economic development.
Denniss's export tax proposal contains logic. A dedicated tax on LNG exports would create a direct revenue stream tied to resource extraction. The more gas leaves the country, the more revenue enters the public purse. This model works in principle because it targets the point of export, making it difficult to evade through accounting maneuvers.
However, the counterargument about royalty reform deserves weight. Royalty systems operate differently from export taxes. Royalties function as a lease payment for extracting a publicly owned resource. They apply upstream, at the point of production, rather than downstream at export. This distinction matters operationally.
Effective royalties would charge companies per unit of gas extracted, adjusted for market prices. A well-designed royalty system captures value closer to the ground, reducing opportunities for companies to shift profits to lower-tax jurisdictions. Export taxes face different vulnerabilities. Companies can adjust transfer prices between extraction and export, potentially understating the export value subject to tax.
Australia's current royalty arrangements for coal and gas remain relatively modest compared to peer nations. Norway's sovereign wealth fund, built on oil revenue, demonstrates how aggressive resource capture through effective royalties generates long-term public wealth. Norway's royalty framework retains far more value domestically than Australia's current system.
The practical choice between export taxes and royalty reform involves trade-offs. Export taxes generate immediate revenue and appear simple to implement. Royalty redesigns require legislative changes and face industry resistance but offer structural advantages for capturing genuine economic rents.
The optimal approach might combine both mechanisms. Higher royalties at extraction, layered with export levies during peak price periods, would diversify revenue sources and reduce vulnerability to single-policy workarounds.
What matters most for Australia is reversing the current outcome where foreign shareholders capture most LNG wealth. Whether through Denniss's export tax, reformed royalty systems, or hybrid approaches, the debate reflects a broader recognition that resource revenue should benefit the public. Educational institutions, infrastructure projects, and social programs need stable funding sources. Australia's natural gas represents a finite asset. Capturing fair value for public purposes becomes an intergenerational equity question, not merely an economic efficiency debate.