Coal royalties could surge even higher after state government delivers record surplus

Queensland could earn close to $5 billion from its coal super-profits tax this year - $2 billion more than the latest estimate. But the news comes as a mining giant confirms it will pull the plug on a $2b local mine.

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The Palaszczuk government is on track to deliver a record $5.2bn surplus as billions of dollars are pumped into the state’s coffers amid a coal royalties bonanza.

The massive cash injection came as Glencore revealed it would pull the plug on a $2bn mine in Queensland – backing away from the thermal coal development in part due to the state’s royalties hike.

Treasurer Cameron Dick handed down the mid-year Budget Update on Wednesday, revealing the government had turned around what was meant to be a $1.029bn deficit and is now set to post a $5.18bn surplus for 2022-23.

The record surplus was secured amid a surge in revenue to government coffers, with the state now set to make $81.2bn this financial year – a massive $7.3bn jump from what had been forecast in the Budget.

Much of the extra money is coming from a huge uplift in coal royalties, with the state’s new royalty tiers set to rake in four times as much money as was initially anticipated in 2022-23.

Treasurer Cameron Dick. Picture: Dan Peled

But the Queensland Resources Council has estimated the windfall from the new royalty tier to be closer to $5bn for the financial year, rather than the $2.95bn expected by the government.

A total of $3bn from the royalties windfall will be added to the state’s consolidated fund to grow while it is waiting to be used, with Mr Dick promising to spend the cash in regional Queensland.

“That will be effectively water and energy projects in regional Queensland, a number of those already on the books,” Mr Dick said.

“We will then allocate that over time … but the critical point is this, those coal royalties were worth fighting for.”

Spending this financial year is now tipped to balloon about $1.1bn from what was forecast in June, due to extra health spending and the one-off water bill discount for South East Queenslanders.

And over the forward estimates, government expenditure is set to reach $79.28bn by 2024-25 – which is $1.45bn more than what had been predicted in Mr Dick’s June Budget.

Total debt, meanwhile, will now be about $340m less than what it had been forecast in June – but it is still tipped to reach $129.3bn by 2025-26.

Net debt, however, is set to reach $14.5bn in 2022-23 –$5.23bn less than initially forecast.

The Treasurer defended Treasury’s significant revision of projected coal royalties for the financial year, which have increased from $765m to $2.95bn.

Queensland Resources Council chief executive Ian MacFarlane. Picture: Zak Simmonds

Mr Dick credited sustained higher coal prices, including “unprecedented thermal coal prices”, for pushing up royalties revenue well beyond what had been forecast.

“There has been some criticism of Queensland Treasury for not perfectly predicting this,” Mr Dick said.

“As any Treasury official will tell you, forecasting is a complex task at the best of times.”

QRC chief executive Ian MacFarlane said the windfall from the new coal royalty tier to be “closer to $5bn” once the financial year is up, roughly double what the “notoriously conservative” Treasury had estimated.

Mr MacFarlane repeated warnings from the industry the royalty hike had made Queensland a risky place to invest, a black mark which would stretch further than coal and into emerging industries like hydrogen.

Glencore confirmed on Wednesday the company had cancelled its plans to build a 16 million tonne a year coal mine in Queensland, which was tipped to create more than 1200 permanent new jobs when it began production in 2024.

A spokesman for the company said the project’s future status was now “under review”, with the decision made in the “context of increased global uncertainty” and consistency with Glencore’s commitment to “responsibly manage decline” of its global coal business.

“Abrupt decisions like the Queensland super royalty hike have damaged investor confidence, increased uncertainty and raised a red flag with key trading partners,” the company stated.

In response, Mr Dick noted the company’s public statement attributed the decision to “increased global uncertainty”.

“Queensland Treasury’s report on Long-Term Global Coal Demand released last month makes clear that while demand for Queensland thermal coal is set to resume its decline, demand for Queensland metallurgical coal will remain strong over coming decades,” he said.

“Investment decisions around mining projects are ultimately a matter for proponents.”

Mining giant Glencore says it has cancelled plans to build a 16 million tonne a year coal mine in Queensland. Picture: NCA NewsWire / Peter Lorimer.

Mr Dick also warned there were “risks on the horizon” for Queensland’s economy, with geopolitical instability posing a “very real” threat to continued growth.

Tight labour markets and floods have also thrown a spanner into supply chains, adding to inflation woes and consequently cost-of-living grief as central banks move to act.

There were also a number of “emerging” pressures on the budget, including “expenses and investment” associated with the Brisbane 2032 Olympic Games and the threat of extreme weather pushing up disaster recovery expenses.

It was also noted the need to build “additional water infrastructure” and upgrade existing assets over the next decade to “meet future demand”, bolster against drought and ensure the reliability of dams would put pressure on the budget.