Prosper Australia today released new research examining Australia’s resource royalties. Australian states could capture an additional $14.5 billion in revenue each year by moving to a more flexible royalty model with variable rates that adjust to market conditions.

“Australians own the rights to mineral and petroleum resources, but the states as our sales agents are giving resource companies a cushy deal at our expense by pricing these resources at rates far lower than their value to companies” said Dr Tim Helm, Director of Research & Policy at Prosper Australia.

“Our proposed model builds on Queensland’s coal royalty, which flexes with market prices to capture a larger share of profits during boom times. That is a smarter model than the fixed-rate royalties used by other states, which leave those windfalls to the resource companies”.

“We estimate that this more commercially hard-headed resource pricing approach could raise states an average $14.5 billion per year in additional revenue.”.

Current royalty frameworks, which take a fixed share of the resource price regardless of profitability, fall short of delivering fair returns on Australia’s natural resources. Prosper Australia’s report suggests that a variable royalty approach that includes higher royalty rates during periods of increased market demand would better reflect the true value of resources sold – securing a more substantial revenue stream for states.

“This is a pragmatic alternative to resource rent taxation, and could be enacted straight away without complex royalty redesign or rate-setting processes” said Dr Helm.

“This simple tweak to royalties, based on Queensland’s successful system, could significantly increase royalty revenue in other states while reducing pressure on Australian businesses and workers,” said Dr Helm. “Updated royalty rates would enable us to reduce reliance on less equitable taxes, like payroll taxes, which currently total $34 billion annually and impact over 100,000 businesses.”

Royalties are one of three main resource pricing models used globally. Norway’s petroleum pricing arrangements are considered best-practice amongst comparable overseas resource-rich countries.

“If we went further and priced our resources like Norway we estimate the states could raise as much as $66 billion per year in additional public revenue. This equates to a staggering $7,000 per household, enough to fund abolition of state payroll taxes and stamp duties.”

“We recognise the political barriers to implementation of alternative models. However, it is always worth understanding the economic potential of capturing a fair share of value for the owners of Australia’s resources – the Australian people.”