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Queensland

Sep 12, 2012

The coal industry’s new enemy: Campbell Newman

Queensland's coal royalties decision is just one face of the sovereign risk confronting miners as governments struggle with budget logic. In the end, no one wins.

Alan Kohler

Business Spectator editor-in-chief

At least Queensland coal miners now have a face to put on their dartboard — that of Premier Campbell Newman.

Yesterday’s decision in the Queensland budget to increase coal royalties more than expected has put the mining industry into a frenzy of outrage, since the plunging price of coal has already reduced profits to the point where miners are being laid off.

How a state so blessed with fossilised forests that it can supply the world’s turbines and blast furnaces with coal as well as the world’s stoves with gas from the cracks in the coal beds, managed to lose more than $6 billion this year is a source of wonder, but there it is. Years of growing expenditure at 7.5% a year, or almost three times the inflation rate, will do that.

The answer is to sack public servants and tax the coal miners, since they have the money. Or at least they did. The faster than expected slowdown of the Chinese economy has cut the prices of coal and iron ore and mine workers are joining public servants on the dole: what the cycle gives, the cycle takes away.

But beyond exasperation lies “sovereign risk”. First there was the RSPT, followed by debacle, followed by the MRRT, which at least will have the benefit of not raising any money, followed by the carbon tax, followed by its “fine tuning”.

The rules of the federal mineral resources rent tax allow taxpaying companies to claim ad valorem royalties, so in theory the Queensland coalminers who are due to pay the $1.6 billion extra the Queensland expects to collect over the next four years will be able to get it back from the Commonwealth. But they weren’t expecting to have to pay that anyway.

Sovereign risk used to be defined simply as the risk that a government will not be able or willing to meet its debt obligations, or that a central bank will alter the foreign exchange rules to similar effect.

But these days the term is being more broadly defined for the benefit of corporations to include unexpected changes in taxation and other regulations. That’s because of the growing competition between nations and states for capital investment, which firms are only too happy to exploit.

Coal appears to be pretty evenly spread over the Earth’s surface so that the countries with the largest land mass have the most coal: Australia has 8.9% of it according to the World Energy Council, China 12.6%, Russia 14.4% and the United States 22.6%. Kazakhstan and Ukraine have quite a lot of it as well, as does South Africa.

Will Australia’s coal miners tire of the ever-hungrier mouths fastening onto their teats and decamp to Kazakhstan? Unlikely, although President Nursultan Nazarbayev is no doubt a man one can do business with, unlike Campbell Newman, who must face the inconvenience of proper elections.

But they might think twice about building another mine here, and the companies spending $100 billion or so on plants near Gladstone to liquefy gas from the coal beds for the Asian market are probably wondering when they will get hit as well.

Meanwhile, Queensland’s austerity budget brings to an end an unhappy round of state budgets for 2012-13 that add up to a total of $8.4 billion in deficits.

It is a marvellous thing how rising property and commodity prices, leading to rivers of stamp duty and royalty revenue, creates the need for more, better paid, policy advisers advising state ministers on policy — after all, a minister’s worth can only be measured by the number of advisers he or she can muster for a meeting. Unfortunately they are hard to get rid of when the real estate and resources parties end, as they have done.

Happily the state deficits will offset to some extent the fiscal crunch at the federal level in 2012-13, when Wayne Swan is due to remove 3% of GDP as he attempts to restore his budget to surplus.

Thus Australia is Europe writ small: fiscal austerity, monetary stimulus. Nil all.

*This article was originally published at Business Spectator

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21 comments

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21 thoughts on “The coal industry’s new enemy: Campbell Newman

  1. GeeWizz

    Under the Gillard/Rudd Mining tax agreement the Federal Government promised to compensate the mining companies for any increases in state royalties.

    That means it won’t cost the mining companies a cent, but it will cost the incompetent federal government billions because of their flawed mining tax policy which is probably unconstitutional.

    BTW, good to see Clive Palmer out there attacking the LNP, just goes to prove the lefties who said Clive was running the state have absolutely no clue.

  2. SBH

    Alan, how is the community helped by your inaccurate use of the term “sovereign risk’. When did it stop being the risk of action by a central bank which made loan repayments by government less likely and become analogous to any risk at all created by government?

  3. SBH

    moderation? you’re kidding!

  4. Scott

    @Geewiz

    I think the miners can only use the state royalties as a deduction to their MRRT liability…i.e if the have to pay $200 million to the Feds and the state royalty is $150 million, their net MRRT liability is $50 million.

    Problem is that if they don’t have any MRRT liability (i.e they don’t hit the threshold for profit), they will still have to pay the increased state royalty. So the bigger miners will be fine (as the royalties will help reduce their MRRT liability), but the smaller miners will have to reduce costs in other areas, by laying off workers and closing mines.

    We just can’t help trying to kill the golden goose.

  5. Steve777

    I thought it was only ‘sovereign risk’ if a Labor government did it. I looked up the definition: “Sovereign Risk: anything that a Labor government does that business leaders don’t like, particularly if involves taxation or regulation”.

  6. GeeWizz

    Under our constitution the mineral belong to the states.

    Queensland has ever right to increase mining royalties for the minerals that they own.

    Federal Labor were 2 smart by half trying to get their cut of the deal which is probably unconstitutional and therefore illegal anyways.

  7. Scott

    @Geewiz

    Sure, QLD are entitled to do so. But is it a good idea? I don’t think so. QLD would have been better to try to increase investment in Coal mining and make it easier to attract workers, which would have fed into royalties, stamp duty and payroll tax.

    The Goose has shown signs of weakness lately. Do you try and squeeze a couple more eggs out before the goose dies, or add a little TLC and try to get the goose back to full health?

  8. SBH

    Where does the ‘constitution’ say that wizz? When you find it let Twiggy Forrest know because he couldn’t find it when he wanted to go to the High Court over that very issue.

    You’re not just making stuff up again are you?

  9. Merve

    I will just sit here quietly and wait for Tony Abbott to jump up and down about the big bad mining taxes in Queensland and Western Australia his colleagues are raising. How many jobs and how much investment are they costing us, Tony?

  10. Steve777

    The minerals belong to the ‘Crown’, i.e. the Australian people (current and unborn), not ‘the States’ (nor the Federal government nor the Queen). The Constitution does not mention minerals, so prima facie, the power to legislate in relation to minerals and mining within State boundaries remains with the States. However, many of the Commonwealth’s powers are relevant to minerals and mining and any legislation of the Commonwealth based upon these powers will override any inconsistent State legislation. The Commonwealth has full jurisdiction in the ACT, NT and also offshore below the low water mark.

    So, the minerals in Qld belong to the people of Queensland but also to the people of Australia. Common sense and good will (not much of either around these days) will mean that miners, Queenslanders and Australians all get their fair share.

    Queensland is within it’s right to increase royalties as it did. Whether that is a good idea is another question. And it appears that the Federal government severely stuffed up in its negotiations with the miners to find itself in the position of having to refund increases in state royalties.

    As to constitutionality of the MRRT – I’m not an expert but there are enough powerful, well funded interests opposed to it who I am sure have considered this possibility so if there was any serious question I’m sure that someone would have mounted a legal challenge.