High coal royalties, low returns: threat to jobs and services

The state government needs some lateral thinking on coal royalties. Sometimes keeping an election promise costs more than breaking it. There is no absolute virtue in sticking to a plan when it is the wrong plan.

Voters know politicians break promises. What they won’t forgive is a promise definitely made in bad faith. If circumstances genuinely change, people may grudgingly accept a broken promise as the price of good government.

That’s the dilemma facing David Crisafulli. Early on, it seemed sensible to hold the line on Labor’s royalty regime for his first term, as promised. But the facts have shifted - and not in Queensland’s favour.

Coal is being squeezed between rising costs and falling prices. ABS data show the cost of mining inputs has jumped about 25 per cent since 2020, the last cyclical low in the price of coal when all coal miners were making losses. While prices are currently about 50% higher it is still not enough, after royalties, to put many miners into profit. Shareholders are left with nothing.

Mining is cyclical, and investors can see through lean years to fat years ahead. But Labor’s punitive royalties - up to 40 per cent - change the calculation.

Companies will not sink new capital into Queensland when they can make better returns across the border or overseas. New South Wales top rate is only 10.8% by comparison.

That’s the risk Labor ignored. They behaved as though miners in Queensland were price-setters and had nowhere else to go. In reality, miners are price-takers and it is a global market.

There is no shortage of coal, and there is no shortage of places to mine it. Capital will move to where governments reward it appropriately for investing.

Crisafulli can either take a big slice now of a disappearing pie, or he can take a smaller sustainable slice of a growing pie which will give much more for generations into the future.

The royalties are needed to fund services and pay back debt, but Crisafulli can only do that if the industry remains strong. If royalties drive mines to the wall, the state’s revenue shrinks, Queensland’s economy slows, and pressure builds on exactly the services voters care about - hospitals, police, and schools. His key KPI of reducing the number of victims of will also be hit.

The political danger is greatest in central Queensland, in seats like Rockhampton and Mackay, won by the LNP for the first time at the last election. Those seats are heavily dependent on mining and ancillary services. If mines close and unemployment rises, anger will be directed straight at George Street.

The damage wouldn’t stop there. International investors already worry about Australia’s sovereign risk. Our punitive, unpredictable royalty regime confirms their worst fears. And when capital dries up, Queensland misses out not just on coal, but on future opportunities in critical minerals, gas, and other resources.

This crisis should spark a wider rethink. An independent inquiry could benchmark Queensland’s entire mining industry against competitors worldwide. How do our royalties compare? What about approval times and regulation? Are there infrastructure issues to attack? What about energy prices?

The inquiry should also examine geostrategic threats. China has already manipulated the nickel market, flooding supply out of Indonesia forcing BHP to mothball its WA nickel operations. It is targeting iron ore next. Does anyone seriously think coal won’t be in its sights? If we want to keep our resource industries resilient, we need to plan ahead.

There’s another consideration. Under the Commonwealth Grants Commission, any extra money Queensland raises from royalties is redistributed to other states - especially Victoria, the worst-run state in the country, which refuses to develop its own mineral wealth. So when royalty income rises, much of the money doesn’t stay here. That needs to stop.

Handled properly, this crisis could become an opportunity. By opening up the royalty debate, Queensland can shine a light on the risks and opportunities in the whole mining sector. We can solve our state-level problems and push the Commonwealth to fix theirs.

And at the end of the process, not only would we have a royalty system that actually works, but Queenslanders would have a clearer sense of the industry that still pays the bills to put food on their plates.