host has big climate finance problems

Fortescue

20/05/2026 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Antony Currie

MELBOURNE, May 20 (Reuters Breakingviews) - Australia may be about to score a decisive own goal in its energy transition battle. Just over six months ago, before agreeing to be co-organisers in Turkey, the left-leaning Labor government was lobbying to host this year's United Nations climate change conference, COP31, in Adelaide. That was largely motivated by wanting to lure more cash for the energy transition from overseas investors. Yet Prime Minister Anthony Albanese's administration's proposed capital gains tax changes would scare foreigners off.

Their involvement is crucial: they provide some 70% of the capital for renewables Down Under, per the Clean Energy Investor Group. The government's goal of solar, wind and hydro providing 82% of electricity by 2030, up from a quarterly peak of some 50% currently, requires around A$20 billion ($14.2 billion) a year.

Granted, the rules need changing. At present it's a steal investing Down Under as a foreigner: the current regime, dating back to 2006, only taxes gains on land sales and sales of mining, prospecting and quarrying rights, not what's on the land.

Closing that loophole is hardly controversial, but Canberra's solution is. Unveiled in proposed legislation last month and reiterated in the annual federal budget last week, the fiscally squeezed government wants to not just broaden what's covered beyond land, but also impose a 30% tax rate and allow it to apply to transactions from the past two decades. Making policy retroactive undermines investors' faith in the rule of law and is likely to prompt them to take their money elsewhere.

Usually such changes only apply to future deals, as was the case last week when Albanese's team proposed removing tax breaks on Australians' investment properties. Respect for signed contracts, meanwhile, is a reason his government has given for not imposing a windfall tax on natural gas exports. Sure, renewables owners have a four-year grace period to offload their assets at a 15% levy, but that'll probably spark fire sales and may well hinder projects still being developed.

The incoming 30% rate is problematic, too: it puts overseas investors at a severe disadvantage to local players like Macquarie Asset Management and Fortescue FMG.AX Chair Andrew Forrest's Squadron Energy, which only pay around 15%; the $3.2 trillion superannuation industry forks over even less, just a tenth of their gains.

And it's not as if those pension funds – the fourth-largest pool of such capital in the world and rising – can pick up the slack if foreign investors abandon Australia's renewables sector. The government-mandated annual returns performance test, for example, encourages benchmark-hugging and investing in existing assets. As a result, at present super funds account for at best 5% of the country's renewables investment, per the Association of Superannuation Funds of Australia.

There's a two-part solution: first, ditch the retroactive element of the sweeping capital gains tax changes completely. Second, extend the lower levy grace period for renewables to at least 15 years. If he doesn't overhaul his tax overhaul, Albanese has no chance of hitting his 2030 electrification target.

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CONTEXT NEWS

The Australian federal government in its annual budget on May 12 reiterated its intention to reform the capital gains tax regime for foreign investors. At present taxes on capital gains are only levied on land sales and sales of mining, prospecting and quarrying rights.

The government, which first proposed the changes in its budget in 2024, finally published proposed legislation for comment in April that would broaden the tax to cover assets on the land, impose a 30% levy and make it retrospective to when the capital gains tax regime was first implemented in 2006.

This year's budget also reduced by A$2.2 billion ($1.56 billion) federal funds available to support a raft of energy transition-related schemes, including green hydrogen and programmes designed to incentivise local battery and solar-panel supply chains.

Overseas investors dominate Australia's renewables financing... https://www.reuters.com/graphics/BRV-BRV/zjpqmzonnpx/chart.png

...but face paying more tax than domestic rivals https://www.reuters.com/graphics/BRV-BRV/zgvolxzaxpd/chart.png

(Editing by Una Galani; Production by Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))