A new report released today has found the Palaszczuk Government has severely underestimated the impact of higher royalty taxes on Queensland’s coal export sector.
The report by independent analysts Commodity Insights was commissioned by the Queensland Resources Council (QRC) to review the impact of the government’s decision to add three new coal tax tiers – with significantly higher royalty rates – to the previous regime.
According to the report:
“The royalty revenue forecasts from Treasury are based on extremely conservative and unrealistic, in our opinion coal price forecasts. As a result, they massively understate the revenue collection by the government and the cost impost placed on the sector. The royalties also clearly reduce the competitiveness of the Queensland coal export sector relative to its competitors by sharply increasing the cost structure.”
The Commodity Insights analysis confirms Queensland is the rank outlier in the world in terms of coal royalty rates, with its new top rate of 40 percent now 43 percent higher than the next nearest rate of 28 percent, which is nearly four times higher than the average highest rate globally.
The report found the new top royalty rate for metallurgical coal, by far Queensland’s most valuable export, is now 2.7 times higher than the nearest competitor and almost five times the global average, confirming widespread industry alarm at the new tax rates is well justified.
QRC chief executive Ian Macfarlane said the government’s move to suddenly double the amount of tax to be paid by coal producers this financial year compared to last year – from $7.3 billion to Commodity Insight’s $12.4 billion forecast for 2022-23 – has dramatically increased companies’ production costs and harmed the industry’s ability to compete internationally for customers.
“International commodity prices may be high right now, but as any exporter knows, we need the good times to balance out the bad, when prices are low or even below the cost of production,” he said.
“It wasn’t that long ago, such as in 2020, that coal prices were below the cost of production and some miners were losing money.
On top of that, regardless of where coal prices are on any given day, companies’ fixed costs like fuel, labour and other consumables are rising every year due to inflation, which is a challenge every business is facing.
The new royalty regime is another cost impost that will need to be absorbed if Queensland companies are to remain internationally competitive, which means budget cuts will have to be made elsewhere.
It’s pretty simple – resources companies paying higher tax bills have less money to spend on developing new projects or expanding operations, or on rehabilitation programs, upgrading plant and equipment, investing in low emissions technology or employing more people.
The State Government’s cash-grab to balance its own budget hurts local suppliers and employment opportunities, and means companies will also have less money to support charities and sports clubs, which they do very generously.”
Mr Macfarlane said the ill-considered move by the Palaszczuk Government will hurt regional communities as well as people living in the city – anyone whose jobs and businesses rely on the continuing prosperity of the state’s minerals and energy sector.
“BHP has already paused future investment in Queensland as a direct result of the royalty hike, which is shocking in itself,” he said.
“The Ambassador of Japan to Australia, His Excellency Yamagami Shingo, has also spoken out about the damage the royalty hike has done to Japan’s longstanding trade relationship with Queensland – a concerning development which the government continues to downplay.
We know companies across the resources sector – not just coal companies – are now seriously considering their future investment options in Queensland.
The QRC’s most recent CEO survey shows Queensland’s new royalty tax regime has crushed business confidence and investment and employment plans across all commodities.
The survey shows the royalty hike has hurt Queensland gas, base metals and critical minerals projects as well as coal projects.
When will the State Government admit it’s gone too far with this tax hike and review it, before it does even more damage to an industry that underpins its own state economy?”