How Queensland's coal royalty hike will impact industry players

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How Queensland's coal royalty hike will impact industry players

 How Queensland's coal royalty hike will impact industry players
Image source: Copyright © 2022 Kalkine Media ®

Highlights

  • New progressive royalty rates on coal by the Queensland government have started a debate.
  • The mining industry believes that the move would obstruct fresh investments.
  • According to industry experts, the new tax regime will make Queensland’s coal royalty the highest in the world.
  • Queensland-focused coal miners’ shares on the ASX fell significantly after the announcement.

The Queensland government’s decision to increase the decade-old tax rates on coal has come under heavy criticism.

The new scheme has added three tiers to the royalty system. Based on the new system, if coal prices are above AU$175/tonne, miners will be required to pay a 20% royalty, while new rates will be 30% and 40% for prices above AU$225/tonne and AU$300/tonne, respectively. The tax rates are applicable only on the prices above the threshold set by the government.

Related read: Meet this ASX coal producer whose share price zoomed up 300% in a year

For instance, coal is trading at AU$350/tonne. In this case, the coal miner would be required to pay a 40% tax royalty only on the last AU$50/tonne, not on the whole AU$350. 

Let us examine how much would it cost the industry with the new tax regime, considering coal prices to be AU$350/tonne.

In the new system, coal miners will be required to pay AU$69.5/tonne in taxes if coal prices sustain around AU$350/tonne, i.e. around 20%.

In the existing (old) royalty system, the applied tax rate was flat at 15% for prices above AU$150/tonne, 12.5% for prices between AU$100-150/tonne and 7% for the first AU$100/tonne. So, for coal prices at AU$350/tonne, miners were required to pay AU$43.25/tonne as royalties. This is nearly 60% lower than the new tax scheme.

The above figures suggest why the industry is making so much noise about the new scheme. With the new system implementation, the industry will see a considerable drop in the profits.

Copyright © 2022 Kalkine Media ®

From one angle, it may look punitive for the industry. As coal prices are expected to increase in the near future, the Australian miners would also be required to pay higher tax amounts to the Queensland state government.

Recently, Germany decided to fire up its coal-based power plants as natural gas supply dwindles due to the Russia-Ukraine conflict. India is also undergoing a severe coal shortfall for its power plants. Market analysts are optimistic that the prices could move further north from here.

From another point, it seems that the government is making initial moves to make coal mining less attractive to achieve its emission targets. The new federal government has already raised its carbon emission reduction target to 43% by 2030. Higher tax income could provide more flexibility to the government to revamp the Australian industry for a more sustainable future.

Related read: How achieving net zero carbon emission target is a big challenge for Australia?

How did the industry react?

The government has kept the existing tax rates unchanged and introduced new taxes on coal prices above US$175/tonne. The new scheme is expected to deliver an additional US$1.2 billion to the state coffers.

The first reaction came from the Chief Executive of the Queensland Resources Council Ian Macfarlane, who labelled the new tax scheme as ‘misguided. He highlighted that the new system would make the Queensland mining industry less competitive on the international level.

CEO of Anglo American Australian operations Nick Barlow said the new royalty scheme would cost nearly 60% of the profits. This will put huge burden on coal miners. Anglo American operates several mines across the Queensland region.

After the news broke out, coal companies operational in the Queensland region witnessed a massive swing in their intraday trade on 21 June 2022.

In the last two days, many coal stocks saw a significant drop in their prices.  

Related read: What is the future of coal? 6 ASX-listed coal stocks in focus

According to Treasurer & Minister for Trade and Investment, Cameron Dick, the new royalty rates would support new investments in the state’s healthcare system. He added that the existing royalty does not justify high coal prices.

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