By Rebecca Todesco, Editor, Mining Magazine
The decisions and legislations of state governments can have a significant impact on the mining and resources industry. New South Wales is no exception, with coal royalty hikes and the 2023–24 State Budget announcement shaking up the state’s mining industry over recent months.
With the current coal cap due to expire on 1 July 2024, and in the lead-up to the 2023–24 State Budget, the New South Wales Government opened consultation on the coal cap in place and called on mining industry leaders to have their say on coal’s future in the state.
As part of the consultation process, the State Government wrote to relevant parties and invited them to give their feedback on the future of the cap.
The government sought input from these industry parties to help it:
- Review the impacts of the Coal Market Price Emergency directions on the coal industry and electricity market
- Understand the likely impact on domestic coal and electricity prices from when the directions are due to expire on 1 July 2024
- Consider whether potential alternative policy options are necessary to minimise the impacts on electricity bills once the directions expire
- Understand the effects of a possible new coal royalty rate system, or adjusting existing royalty rates, to respond to market conditions
At the conclusion of the consultation period, the New South Wales Government announced in early September the updates that would come into effect following the coal cap expiration.
It was announced that under the new scheme, coal royalties would increase by 2.6 per cent from 1 July 2024, replacing the emergency domesticcoal cap and reservation measures the previous government had introduced in December 2022.
When the updates were announced, the State Government said it intended to use the funds raised from the new measures to rebuild the state’s essential services, as well as providing families with cost-of-living relief.
Coal royalty raise rebuttal
The updates to the coal royalties scheme were not welcomed within the industry, however, with the New South
Wales Minerals Council’s CEO, Stephen Galilee, saying that the increase in coal royalty rates would “impose a significant additional impost on coal producers at a challenging time of lower coal prices and increased operating costs”.
“It puts an uneven and unfair burden of budget repair on our coal producers and coal mining communities,” Mr Galilee said.
“The coal industry directly employs nearly 30,000 people in New South Wales and supports 180,000 indirect jobs. Nearly 7,000 New South Wales businesses are part of the mining supply chain.
“Coal remains New South Wales’s most valuable export commodity by far and continues to deliver over 70 per cent of electricity used in homes and businesses across New South Wales.”
Mr Galilee said the announced royalty increase will mean the state’s coal producers will pay at least 30 per cent or more in royalties than they do under the existing royalty arrangements, continuously throughout the commodity price cycle, including when coal prices are low.
“A 30 per cent increase in taxes is not insignificant and has the potential to impact future investment decisions and jobs in the New South Wales coal mining industry.
“When coupled with the cyclical nature of coal prices, it’s difficult to see how this increase in royalties will not impact future jobs and investment,” Mr Galilee said.
Throughout the State Government’s consultation process, the New South Minerals Council remained a firm advocate for wanting to retain the preexisting royalty structure and rates. According to Mr Galilee, one of the reasons for this stance is the fact that New South Wales’s coal royalty rates are already higher than the rates for other minerals.
Mr Galilee also said that the coal royalty rates could have a negative impact on the state’s attractiveness as a mining jurisdiction.
“It’s important to understand that mining in New South Wales doesn’t operate within a vacuum. New South Wales competes for mining investment with other states and international mining jurisdictions.
“Any additional costs on production have the potential to reduce our competitive advantage.”
Mr Galilee said a perfect example of this is the surprise high royalty hike that happened in Queensland beginning 1 July 2022, which he believes has hurt that state’s standing with key overseas investment markets.
“At the time, the out-going Japanese Ambassador said the royalty hike in Queensland sent shock waves through Tokyo.”
Despite the announcement, Mr Galilee commended the State Government on its consultation process in the lead up to the coal cap updates.
“We appreciate the time the government took to consult with our industry here in New South Wales, rather than ambushing us with a significant royalty increase, as happened in Queensland after their state election,” he said.
“That being said, the increase in coal royalty rates by the New South Wales Government will put an increased burden on coal producers as coal prices have been falling and increased operating costs.”
New South Wales Budget reconstruction
When delivering the updates to the coal royalties, the State Government’s decision to raise coal royalty hikes was also intended to mitigate a $1.3 billion write-down in royalties revenue that was predicted for the 2023–24 State Budget.
The 2023–24 State Budget was announced in September 2023 and includes initiatives and funding that is intended to assist coal-producing regions and furthering opportunities for the state to leverage its critical minerals potential.
Mining royalties are forecast to deliver the New South Wales Government $13.2 billion over the next four years, including $2.7 billion from the higher royalty rates.
Mr Galilee said that the royalty rise – the single biggest revenue decision taken by the New South Wales Government in the 2023–24 State Budget – confirms the important role mining is playing in repairing the state’s budget position.
“The industry takes its royalty and taxation obligations seriously. Coal royalties raised over $4 billion in the last financial year, more than double two years ago.
“Our coal industry is very aware of our need to contribute to the New South Wales Government’s ongoing budget reconstruction, however, there comes a point where treating our coal sector like some sort of ‘magic pudding’ will impact our attractiveness for investment.”
Mr Galilee said that taxes paid by the coal sector in New South Wales have also been increasing, with coal mining royalties at record levels. He also said that it was disappointing that the government is deciding to scrap several key mining- related funding programs, especially on the back of the extra billions to be delivered in mining royalties.
“These cuts will negatively impact mining communities, taking away important infrastructure spending designed to improve and upgrade facilities in regional mining towns that contribute so much to the community.
“Scrapping the Critical Minerals Activation Program and the Coal Innovation Program will make it more difficult to pursue long term economic development opportunities for regional mining communities, including opportunities relating to emissions reductions.”
In response to the 2023-24 State Budget Mr Galilee said, “It’s very disappointing that the human face of the New South Wales mining industry seems to be so often forgotten. “Mining communities deserve much better than this, including a fair share of the mining royalty revenue that their hard work delivers.”
Mr Galilee attributed the billions delivered in royalty revenue to date to the working people of the state’s regional mining communities.
“Without our mining workers, their families and their communities, there would be no mining, and no royalties.”