Queensland Economic Advocacy Solutions

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Why Adani must not be given a $320 million 'royalty holiday'

As early as today the State Government will deliberate on whether to provide Adani a $320 million ‘royalty holiday’ for the $21.7 billion Carmichael Mine mega project.  To put this deal in context, the $320 million represents approximately 5.1 per cent of the $6.3 billion in coal royalties to be earned across the forward estimates of the State Budget.

The Carmichael Mine is a vital project for Queensland on the basis that it will generate up to 5,000 jobs during construction and more than 4,500 jobs at the peak of operations.  The project when fully operational will be the largest coal mine in Australia and one of the largest in the world with peak export tonnage at 60 MT of thermal coal per year over a 60 year lifespan.

This project should be given every opportunity to succeed, however, Adani should not be granted a royalty holiday.

In Queensland, royalties on petroleum, coal and most minerals are payable on an ad valorem (value) basis. These are essentially calculated as a percentage of the value of the mineral or petroleum as determined by the State Government.  The Queensland Government also charges annual resource rents on mining leases, mining claims, mineral development licences and all petroleum tenures.  Mining companies are also eligible to pay all Local, State and Federal taxes, fees and charges.

In practice Queensland currently earns a 7 per cent royalty on every tonne of coal when the price is below $100 a tonne, rising to 12.5 per cent up to $150 a tonne and 15 per cent after that. Thermal coal is currently selling for approximately $97 a tonne.

To my mind we should not support financial incentives in the form of tax or royalty holidays targeted towards particular projects, industries or enterprises.  By definition this means that remaining taxpayers pay more than they need to and puts the Government in the unsatisfactory position of picking winners.  Put another way, if taxation or royalty relief is available, it should be spread across all taxpayers.  This policy by definition is discriminatory against existing resource projects, lacks equity, and it sets a very bad precedent that will be repeated again and again.

More importantly, Queenslanders are entitled to receive their fair share of these projects and $320 million is a lot of money that could be put to good use in the State Budget rather than in the pocket of Adani.  For example general government debt will peak at $38.4 billion ($77.5 billion if we include GOCs) and State Government infrastructure spend is currently about $6 billion under the peak of what we were spending only several years ago.  Quite simply we cannot afford to give $320 million away. 

Royalties are designed to return some of the proceeds from the extraction of non–renewable wealth to the community.   If you travel to Regional Queensland residents will often tell you they have a love / hate relationship with the resource companies.  There is a very real perception that resource companies are not reinvesting enough in their local communities.   The ‘Royalties for the Regions program’ for example, that ran over four years from 2012–13 to 2015–16, was designed to fund infrastructure projects that addressed local needs. 

Queenslanders should get a fair share from the mineral and energy wealth of our State and we need a State Government, when sitting across the negotiation table from Adani, that will not blink when asking the rhetorical question ”Is $320 million really a make or break issue on a $21.7 billion project?”

I truly hope that it is not and that this project does go ahead but not with what will in effect be a subsidisation from the taxpayers of Queensland.

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