Increasing coal export royalties - A fair and equitable way to capture windfall profits from the fossil fuel industry.

The fossil fuel industry has made hundreds of billions of dollars out of their cosy relationship with governments. Granted permission to extract and sell coal, these large multinational fossil fuel corporations pay just over 7% in royalties back to the people of NSW – keeping the rest as mega-profits for themselves. These companies have a track record of taking more than their fair share and leaving communities suffering and stranded with poisoned groundwater, devastated landscapes and a stranded workforce when it suits their business models.

Globally, the hyper-inflation of fossil fuel prices driven by price-gouging opportunism and war profiteering from Putin’s invasion of Ukraine has delivered record windfall profits to these already obscenely wealthy corporations. In the last year, NSW coal exports totalled over $70 billion dollars, but the people of NSW will only see about 7 cents in every dollar, or about $6 billion dollars of that amount.

Rather than going toward schools, hospitals and public infrastructure, billions of dollars went into the pockets of multinational mining corporations. The Greens believe there should be more money for schools and hospitals and less for mining billionaires. 

Year after year, corporate tax transparency reports find the enormously wealthy fossil fuel companies are paying little to no income tax, and they’ve been getting an extremely comfortable deal with governments’ royalty rates at the same time. NSW is missing out on tens of billions of dollars. By introducing a progressive royalty structure similar to the one in Queensland, we would have raised an extra $20 billion last year. We need to stop being ripped off by these mega-corporations and instead take this money and use it to invest in our community.

The simple fact is, these mining resources belong to every NSW resident, but right now the vast majority of that wealth is going into the hands of mining billionaires. We need a little more for us, and a lot less for mining billionaires.

A progressive tax structure will be familiar to everyone in Australia. It operates on a principal of fairness, where the more you earn the higher the percentage you contribute from that income. By maintaining the current lower rate, and escalating the royalty rates as the coal price increases above the long-run average, we can guarantee that no jobs will be lost by increasing the royalty. The additional amount will be taken solely from the pure profit these mining companies are making from inflated prices. Even at the maximum rate, for the most inflated coal prices, these mining companies will still be making profits 3-4 times as high as they typically would – for no additional cost of production.

The fossil fuel industry was in uproar when Queensland implemented their progressive royalty rate last year, and warned there would be mine closures and jobs lost. But that was of course a lie. There have been no jobs lost in Queensland since this new rate was introduced, and the profitability of mining operations based in Queensland remains sky high, while Queensland has reaped the rewards to its budget.

The Greens will introduce a progressive coal royalty scheme to capture some of the extreme super-profits being made by fossil fuel companies, and use this money to fund education, housing, health and climate adaptation and energy transition efforts across the state.

By failing to update the coal royalty regime in line with other jurisdictions NSW has failed to collect over $20 billion dollars in potential additional revenue. The most recent NSW Budget Update projects NSW to receive $6 billion in coal royalties this financial year, with fossil fuel companies taking home tens of billions of dollars in pure profit.

INTRODUCE A PROGRESSIVE COAL ROYALTIES REGIME IN NSW

We will increase the royalty payable by coal mining companies to a standard similar to other jurisdictions, to make sure the people of NSW aren’t cheated of their fair share of the enormous wealth being generated in the dying days of the fossil fuel industry.

We will apply a progressive royalty structure to coal extracted and sold from NSW soil. 

The NSW Government owns and controls, on behalf of the people of this state,  the rights to the minerals and materials that naturally occur in NSW land.

Huge fossil fuel companies are only able to extract and sell these commodities with the consent of the State. It’s time they paid a fair price for that privilege.

INCREASES IN LINE WITH OTHER JURISDICTIONS 

NSW coal royalties are extremely low in comparison to other jurisdictions, both domestically and internationally. The argument that a higher royalty rate would be damaging to businesses and jobs is demonstrably untrue. The people of NSW aren’t getting a fair deal.

From 1 July 2022, following surging coal prices experienced in 2021 and early 2022, the Queensland government introduced an additional three tiers to their coal royalty structure.

Since 1 October 2012, the highest marginal royalty rate applicable to Queensland coal royalties has been 15 per cent. The three additional tiers added by Queensland brought the highest marginal rate up to 40 per cent, payable on that part of the average price per tonne that is more than A$300.

At the time, the Queensland government said “the addition of the new tiers is not expected to have any material impacts on the coal industry or viability of producers, given the increases are applied only at relatively high prices.” This statement has proven to be true, with no jobs lost in Queensland and zero reduction in profitability for coal companies. 

Despite coal companies claims, this is not an uncompetitively high royalty rate. Coal India Ltd, the largest coal mining company in the world, pays a excise and royalty rate of a combined 34-35% of revenues, plus a corporate tax rate averaging 33% over FY2018-2021. Coal India Ltd pays a total excise, royalty and corporate tax of 38.9-40.8% of revenues.

By contrast, the biggest fossil fuel companies in NSW are masters of corporate tax avoidance, and many manage to avoid paying more than 1% in corporate tax, if they pay anything at all.

We can use our coal royalties system to make sure we are getting a fair deal.

CAPTURE PART OF THE FOSSIL FUEL INDUSTRY’S OBSCENE WINDFALL PROFITS

Globally, the hyperinflation of fossil fuel prices driven by price-gouging opportunism and war profiteering from Putin’s invasion of Ukraine has delivered record windfall profits to these already obscenely wealthy corporations. In the last year, NSW coal exports totalled over $70 billion dollars, but the people of NSW will only see about 7 cents in every dollar, or about $6 billion dollars out of that deal.

Thermal coal prices began rising very quickly in late 2021 and into 2022. Russia’s invasion of Ukraine has created significant and long-lasting energy supply shortages and uncertainty for global commodity markets. Thermal coal prices peaked at more than four times their long-run average five times their long run average. Thermal coal prices are now expected to be materially higher than the long run average over the four years to 2025-26. 

The value of NSW coal exports have increased more than five-fold, delivering more than $50 billion in additional revenue to major fossil fuel companies, yet the state of NSW has only seen an increase in royalties of $2 billion. This extreme wealth should be redirected towards socially beneficial uses such as climate change adaptation and clean energy generation, housing, education and health.

NSW has already missed out on a possible $20 billion dollars in additional revenue in the last year alone. The Greens plan for a more equitable coal royalties regime would see, even on very conservative projections, around an additional $27.5 billion dollars make their way into government coffers by July 2026, to fund the much needed investment in people and climate-ready infrastructure we will need to navigate an uncertain future.

Every additional dollar in windfall profits extracted by major fossil fuel companies in excess profits is a dollar not being spent for the people of NSW.

Coal prices are at a 50 year high. Failure to act now to capture the benefit of this windfall profit will mean this is potential revenue lost, never to return.

Proposed Coal Levy Rates

Projected royalties return

*Based on projections by: Office of the Chief Economist, NSW Treasury, GlobalCoal

References:

• https://budget.qld.gov.au/highlights/coal-royalties/

• https://michaelwest.com.au/foreign-fossil-fuel-juggernauts-dominate-the-annual-mwm-top-40-tax-dodgers-chart/ 

FIND ALL OUR POLICIES:  GREENS.ORG.AU/NSW/PLATFORM