Increased tax a move to 'shut down' local oil and gas: Report

New analysis demonstrates that imposing an additional 25% tax on Australia's oil and gas industry would harm future energy supply and impact the long-term potential for gas to support the decarbonisation process.

Wood Mackenzie's Analysis of proposed LNG export windfall levy report finds that the proposed tax would push effective project tax rates to over 80% and slash project value by up to 94%, destroying Australia's ability to attract investment in critical new energy supply.

This comes as the government is being urged to impose a 25% windfall levy on Australian energy production or exports, to combat rising domestic energy costs because of the conflict in the Middle East, the report said.

Treasury is understood to be modelling options for a new levy on gas exports as part of the upcoming federal budget, but the specifics of how the proposed tax may be levied are not yet clear.

Current fiscal terms allow the government to capture a substantial share of profits from Australian oil and gas projects, with a current effective tax rate of as much as 57.5%.

The current corporate income tax (CIT) and Petroleum Resource Rent Tax (PRRT) framework is also inherently a progressive, profit-based tax that captures additional tax revenue for government when prices increase, the report said.

Commenting, Australian Energy Producers chief executive Samantha McCulloch said calls for higher taxes ignore the significant contribution the industry already makes to the Australian economy.

"The oil and gas industry is already Australia's second-largest corporate taxpayer, contributing $21.9 billion in taxes and royalties last year while supporting jobs, regional communities and economic growth," she said.

"It is no coincidence that the loudest calls for these massive new taxes are coming from those who want to see Australia's oil and gas industry shut down.

"At a time of global instability, Australia should be attracting investment in new supply - not driving it away."

She said the proposed tax will also lead to higher energy costs.

"At a time of heightened global uncertainty, the priority must be strengthening energy security by encouraging investment in new supply - not imposing new taxes that will leave Australia more exposed to future shocks," McCulloch said.

"The consequences are clear - less investment, less supply, and higher energy costs for Australian households and businesses."