What Is Queensland Doing With All Its Mining Royalties?

A coal train is seen moving parallel to the A4 Highway in the Clermont and Blackwater region in Queensland, Australia, on April 29, 2019. Lisa Maree Williams/Getty Images

Commentary

Queensland Treasurer Cameron Dick is launching a $1.5 million (US$1 million) advertising campaign to fend off the Queensland Resource Council’s pursuit of him over his increases to the state’s coal royalties.

He probably thinks it is money well spent.

However, the Queensland Labor government should be embarrassed by the whole policy. The coal royalty reflects poorly on the state both in its conception and its execution and elevates state sovereign risk to South American levels.

And the additional revenues raised appear to have been squandered to keep the government in power after the next election, due in October 2024.

Originally calculated by Treasury to add $765 million to state government coffers in 2022-23, the increase added $5.7 billion—750 percent higher.

Coal and oil royalties are calculated to contribute $18 billion to state revenues this year, 20 percent of current year revenues, and $10.4 billion higher than forecast.

This led Queensland to post a staggering surplus of $12.3 billion for this financial year. But the effect is fleeting, with the bottom line turning red to the tune of $2.2 billion next financial year.

No competent bureaucracy could be this far out in its figuring, and there is no justification for such a fat margin.

Queensland Treasurer Cameron Dick announced the approval for the proposed merger between QSuper and Sunsuper on March 15 2020. Jono Searle/Getty Images

But the problems run much deeper than poor forecasting.

Queensland’s coal miners already paid substantial royalties with a top rate of 15 percent when the price of coal was over $150 a tonne. Without consulting with the industry, the Labor government hiked royalties to 20 percent over $175 per tonne, 30 percent over $225 per tonne, and 40 percent over $300 per tonne.

These are the highest coal royalties in the world.

Queensland is one of the world’s leading coal exporters, with the most product being metallurgical coal and destined for use as a reducing agent in the world’s blast furnaces where iron ore is turned into steel.

As such, this coal is at the heart of the energy transition, and the world needs more of it, not less. Yet the result of Palaszczuk government’s manoeuvres will not only lead to a reduction in coal mines in Queensland but fewer mines of any sort.

Eyeing the Profit

From a financier’s and shareholder’s point of view, mining is a risky business. Establishing a mine takes more than 10 years, and a good one will operate for many decades.

During that time, the price for the product will fluctuate, generally by 100s of percent in both directions. Costs will also fluctuate (but with an upward bias) due to shortages and inflation.

Investments cyclically gyrate between profit and loss, and owners hope for a reasonable return over the cycle and are frequently disappointed.

There is so much risk here that the last thing investors need is a capricious and greedy government.

It’s an unjust government as well.

Investors buy shares in resource companies with an eye to the cycle. Many of the current shareholders in these companies would have bought on an accurate prediction of where prices were heading and a model showing them how that would reflect in the price of the companies.

A general view of Yallourn Power Station's open cut brown coal mine in Yallourn, Australia, on Aug. 16, 2022. Asanka Ratnayake/Getty Images

And then the Queensland government intervenes, stealing their profit and punishing them for their acuity.

When I say investors, we’re talking superannuation funds, mums and dads, and some entrepreneurs who lose not just capital but income.

Encompassed in the treasurer’s $5.7 billion are someone’s retirement income and someone else’s rent or school fees.

It’s also money that the miners don’t have for reinvestment. So it’s also someone’s future job and the state’s future coal royalties.

It’s also income tax that won’t be going to the Commonwealth government.

This is short-termism on steroids, with everyone betrayed.

The treasurer argues these are Queensland’s resources, and indeed they are, but they are no good to Queensland if they are left in the ground, and a deal’s still a deal. When you agree on a price to sell your assets, you’re not entitled to unilaterally vary the terms of the contract halfway through.

The state of Queensland has a voracious appetite for income.

Projects routinely run well-over budget and fail to be delivered on time—the latest example being the renovation of the Gabba cricket ground for the Olympics. The original project cost was $1 billion, and less than 12 months later, it was revised up to $2.7 billion.

Government budgets also expand to accommodate more and more extravagant promises.

As Opposition Leader David Crisafulli points out in his speech-in-reply to the budget:

“By the end of the coming financial year, the government will have received over $60 billion more than was predicted in Treasurer Dick’s first budget in 2020.”

That’s $15 billion a year on average, and yet, after the windfall, they’re still in deficit.

The pattern continues. Some of this year’s budget will go to subsidise households for an increase in electricity, sold to them mostly by government-owned power generators, and for free kindy for the state’s kids. Bribes to key constituencies rather than considered economic planning.

Holding Onto Power

What the Labor government has done is trade a sugar hit now and an election win in 12 months for long-term sustainable income in the future.

The treasurer’s advertisements will claim that the royalties are being spent in the regions and on “inland energy.” This takes us deep into the state’s mismanagement of its energy infrastructure, another sovereign risk.

To support intermittent renewables, the state needs to invest in electricity storage, and after almost a decade in power, it has at last identified and started to progress one significant project—the Borumba pumped-hydro dam.

Snowy 2.0 pumped hydro project in New South Wales' Kosciuszko National Park, Australia, in this undated photo. New South Wales Department of Planning, Industry and Environment

Borumba is projected to cost $14 billion before the inevitable overruns. The treasurer claims $6 billion of the royalties will go towards it.

While Queensland desperately needs storage, this is a very expensive project.

What the taxpayers get is a “battery” capable of providing 48 GWh of electricity at a capital cost of $295,833 per MWh.

It is certainly cheaper than real batteries—there are two in the budget at a capital cost between $813,250 and $897,000 per MWh. But it is almost 10 times per MWh the cost of Snowy 2.0, which is already 500 percent over budget itself, but is designed to provide 325 GWh of storage—seven times as much.

Detail after detail reveals the Queensland budget as a Potemkin Village. The media statements are released, and the state moves on without checking to see whether anything has been achieved.

In 2020, 1,450 extra police were promised, yet in 2023 there are 72 fewer police than the year before.

Some hospitals have no emergency centres and close at 5:00 p.m.

Tough-on-crime laws result in more crime.

Debt is projected to increase. From 65.5 billion today, it increases by 43 percent to $94.8 billion in 2027.

And so on.

If the treasurer were serious, he might take a leaf from the book of the miners. With what is left of their “super” profits, they are busy paying back debt and investing in things that make a return.

Unfortunately, the only return the Queensland Palaszczuk government looks to be investing for is a short-term political one.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.