Last year on budget night, Queensland caught the coal industry off-guard, announcing three new upper-level tiers to the state’s royalties regime. 

Queensland’s previous royalty schedule had only two brackets: seven per cent up to $100 a tonne, then 15 per cent for coal sold above $150 a tonne. The changes brought in progressively high rates for prices above that: 20 per cent over $175 a tonne; 30 per cent over $225 a tonne, and 40 per cent over $300 a tonne.

Treasury forecasts expected $1.2 billion additional revenue.  The coal industry huffed and puffed about competitiveness and sovereign risk, threatened coal mine closures, job losses and on and on. 

Ironic, given this is the future coal mining must face up to – steaming coal immediately, metallurgical coal a little further out. 

Coal prices broke records in 2022, averaging $US377 per tonne due to constrained supply from bad weather, boycotts of Russian coal and the destruction of Ukraine’s production. 

As the miner’s earnings went through the roof, the new, higher royalty rates kicked in. 

Skip forward 12 months: actual income from coal royalties in 2022-23 is $15 billion – about $10 billion more than expected. 

QLD Treasurer Cameron Dick was understandably cocky on budget night, saying: 

“We can deliver our state’s biggest cost-of-living program, our state’s biggest building program and deliver lower debt for one simple reason – progressive coal royalties.”

“Our decision to take on the mining lobby, to stand our ground and to fight for the people of our state has delivered a rich reward.”

It’s a sad indictment of the rentier politics in Australia that modest royalty reform like Queensland’s is characterised as ‘bold’ or ‘risky.’ From an economic perspective this is just sound tax policy. 

Australia’s non-renewable fossil fuels and mineral wealth are part of our sovereign endowment. This is our Commonwealth, the ultimate ownership of resources by government enshrined in the Constitution.  

Think of it as the capital base of a trust fund. 

Our non-renewable resources generate a return when we extract them – then are gone forever.  We, or more exactly the government on our behalf, have a solemn duty to tax this activity wisely. 

Spending from this capital base includes an obligation to ensure it benefits all, including those not yet born. 

Australians instinctively understand this, and we have used state royalties and resource rent taxes to invest in education, infrastructure and similar public goods.

Mining taxes are distinctly different to labour and capital taxes.  Done properly, they don’t carry the economic risks of deterring investment and activity that taxes on normal business profits do. 

Mineral resources have no cost of production (we ‘discover’ rather than make them). After the investment in exploration, plant and costs of digging is repaid in full, the return is properly called a resource rent. The value of these rents fluctuates with price – if the price rises then the amount of rent or superprofits rise without any additional costs to mining. It’s a windfall.

Resource rent taxes don’t make it more costly to mine or change the incentives to invest in mines. It simply divvies the gains more fairly between the miner and us. 

Taxing resource rents allows the state to reduce their tax take from workers and normal businesses and invest in our country.

Photo by Curioso Photography on Unsplash