A bad gas tax won’t fix anything.
The Albanian government made one big mistake during the war in Ukraine.
It failed to control LNG export group East Coast LNG, which sent European gas prices back up to Australia.
Because gas prices kept the cost of electricity low, this created a major inflationary trend that continues today.
Are we going to see the action again?
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So far, the answer is “no”. The domestic gas price is different from the global price – as Asian prices have risen to $30 per gigajoule (Gj), the domestic gas price has fallen to $9Gj.
The main reason is the change in political opinion about the East Coast gas cartel after the horror of the Ukraine War.
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Because utility bills played a large part in the decline in living standards, families are now more aware of the cartel’s role, and are even more unhappy when the government refuses to intervene to stop it.
Polls today suggest that more than 80 per cent of Australians support strong intervention, which is the kind of consensus you don’t find on the question of whether the world is round.
Perhaps the most obvious political symbol of this is the rise of One Nation, which has fought through anti-gas measures.
The East Coast LNG exporter knows it is living on borrowed political time.
Policy change
Since the start of the Iran War, world prices have risen while domestic prices have fallen. The cartel controls more than 90 percent of the reserves, so it can steer prices any way it wants by opening or closing the local supply spigot.
It has clearly chosen to protect Australia from global shocks this time around.
However, this is not free. In order to keep domestic gas prices stable, various gas cartel members have argued that Australia should not impose a high interest rate tax on itself during the Iran conflict.
Such a tax has been the subject of heated debate in Canberra, with a 25 per cent foreign tax supported by a number of different parties and coordinated by the Albanian government.
This would raise $17 billion and war profits upwards.
Foreign LNG company threatens blue kill.
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Wrong tax
This is the problem. Such a tax does nothing to prevent cartels from driving up local prices.
In fact, if they are taxed on war profits, as they should be, the car may go back to the last war and let the domestic price of gas rise to Asian export parity (minus the 25 percent tax levy).
This will reverse the inflationary pressure of the war in Ukraine, and most of the collected tax revenue will have to be returned to debt relief. We can avoid the impact of inflation, but we will not get any tax.
Better taxes
A better way to do this is to change the export tax structure from 25 percent of the profit from LNG to 100 percent of the tax above the fixed price.
A 100 percent export tax automatically makes the initial purchase a domestic purchase, while the amount of tax collected increases significantly.
For example, a price of 7Gj dollars will still give more than 20 percent profit to the East Coast gas producers while taking billions of dollars into the Treasury.
This could also reduce electricity prices as gas prices drop further.
Even the limit price of $ 10Gj, which is a lot of money for the LNG company since it produces gas with a total cost of $ 4-5Gj and about $ 1Gj in cash, will have the same results. A stable domestic gas price of $10Gj would keep electricity bills stable while collecting billions for the Treasury.
Threats
This group will threaten the strike of investment and production. But it won’t do it.
In fact, it will do the exact opposite, it wants to increase the volume excessively to make money at the limit price.
Australia has allowed a bad gas company to destroy living standards for over a decade.
Time to break it down.
David Llewellyn-Smith is Senior Strategist at MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the publisher and global economics editor of The Diplomat, a leading political and economic scholarly site in the Asia Pacific. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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