Federal Labor is delivering a “very mixed message” on renewables investment, industry groups warn, with changes to capital gains tax threatening to deter future foreign spending on large-scale clean energy projects – and particularly wind farms – at a time when deep and patient capital is critical.
The federal budget on Tuesday revealed the Albanese government is forging ahead with a range of proposed reforms to capital gains tax (CGT) geared at broadening the types of assets subject to the levy on foreign investors – and with a retrospective sting in the tail.
The reforms, originally proposed in the 2024-25 Budget, bring energy infrastructure under the regime, including wind turbines, solar panels, battery energy storage systems (BESS), transmission towers, transmission lines and substations.
And while renewable energy assets will have a “time-limited, targeted concession” – a grace period until 2030 with a 50 per cent discount rate on CGT – this is of little comfort to projects trying to attract overseas capital or lock in finance in the final stretch to the federal renewables target of 82 per cent by 2032.
The implications are particularly concerning for Australia’s wind energy development pipeline, which – as Renew Economy reported yesterday – has struggled to get financing over the last year, with only a spate of smaller projects reaching final investment decision in the last six months.
As Hamilton-Locke partners Matt Baumgurtel, Adriaan van der Merwe and Lily Clements-Markham write in a budget wrap, renewable assets “sit squarely in the crosshairs” of the CGT reforms, “potentially deterring the foreign capital that the transition critically depends upon.”
“The concession removes a near-term deterrent that would otherwise have been quite acute,” the Hamilton-Locke article notes.
“However, it falls short of what the sector was hoping for – which was either an exemption or a permanent concession for renewables infrastructure. The 2030 concession sunset means that this tax deterrent on long-duration infrastructure investment is only deferred, not eliminated.”
Also of concern is the retrospective aspect of the reforms which, according to an explainer from Corrs Westgarth Chambers, would “enable the ATO to assess the foreign investor on transactions going as far back as 12 December 2006.”
“This is surely unintended and creates significant sovereign risk for Australia as an attractive destination for foreign investors,” the Corrs Westgarth Chambers blog said in April. “We would like to consider the ATO would not seek to disturb historical sales.”
It is unclear what the retrospective component will mean for investors in renewable energy projects, apart from adding fresh uncertainty to an industry already exposed to numerous headwinds just as it needs to scale up and accelerate.
According to the Clean Energy Investor Group (CEIG) – which has sounded the alarm on the proposed tax changes since 2024 – there is plenty at stake from “rewriting tax laws for international investors,” who provide around 75% of clean energy investment in Australia.
“No tax should be retrospective, and yet, that is what clean energy investors are facing off the back of this budget,” CEIG CEO Richie Merzian said in a video statement on LinkedIn on Wednesday.
“Clean Energy investors want to see a budget that is prospective with a transition period that aligns with the long term nature of clean energy investments and the government’s own net zero plans the zero plans.
“By introducing a retrospective tax on clean energy with a short discount period of only four years, this budget is ultimately increasing the cost of investing in clean energy in Australia,” Merzian says.
“It is increasing the cost of capital. It is deterring future clean energy investment, and ultimately, Australians will pay through their household power bills.”
In a statement issued on the eve of the federal budget, the Investor Group on Climate Change warned that proceeding with the “poorly drafted reforms to the CGT regime” would send “some very mixed messages to investors… at a critical moment in Australia’s energy transition.”
“With the Iran war disrupting energy supplies, it beggars belief that the government’s proposed changes to capital gains tax is putting up a ‘keep out’ sign for global investment into the renewables that bring down power prices for Australian households and businesses,” IGCC executive director of policy, Frankie Muskovic, said in a statement.
