As I predicted earlier this month (see John McCarthy’s 13 May InQld article), the Queensland Government will be boosting health spending in the upcoming budget to deal with the hospitals crisis, and to a large extent it’s able to do this because of booming coal royalties. Nine News last night reported Queensland Premier promises a ‘record health budget’ amid crisis. The Government will also be providing a $175 electricity bill rebate, which doesn’t make sense from an economic perspective, but could be justified as an equity measure (and hence, ideally, it should be targeted at those most in need).
We’re talking billions of extra dollars to the state government this financial year and next due to higher coal royalties. It’s difficult to quantify precisely because of the uncertainty around how long the crazily high coal prices caused by the Ukraine war will last (see below, noting the ICE Newcastle Coal price is for thermal/steam coal).
The state budget will also benefit from an economy that is in better shape than anyone would have predicted late last year when the state Treasury prepared the mid-year budget update. In the budget update, Queensland Treasury forecast the state unemployment rate would average 5.25% over 2021-22 and 5% over 2022-23. Currently the Queensland unemployment rate is 4.5% and it’s averaged 4.7% so far this financial year (see chart below). This will mean hundreds of millions of dollars of extra payroll tax revenue. Incidentally, I should note the jump in the state unemployment rate from 4% to 4.5% in April is probably statistical noise rather than signal.
Additionally, there’s the likelihood that the Treasury substantially under-estimated stamp duty revenue at the time it prepared the mid-year update last year. We know the Queensland property market is being super-charged by interstate buyers who’ve finally realised all the advantages Queensland has to offer – even if we do seem to have recurring crises in the delivery of public services by successive state governments (one of the themes of my 2018 book Beautiful One Day, Broke the Next). Net interstate migration is currently running at around 40k per annum (see chart below).
Finally, we saw signs of state business capital spending picking up in the latest March quarter data released by the ABS yesterday, although business capital spending is still nowhere near what it was during that incredible boom in the first half of last decade when the $70 billion Curtis Island LNG terminals were under construction (see chart below). State business capital spending was up 1.7% in March quarter, while nationally it had a slight fall of 0.3% (see the ABS report).
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Gene. The gross royalties for coal (detailed by mine and production and average price) 2021-22 will be around 6.3b, but this is gross of freight and insurance costs. While there has been higher demand for thermal productive uses it only makes up around 20-25% of production.
So your graph shows coking coal prices. There is no increased demand for coking coal being driven by production of steel for global economic expansion. The price is being completely driven by freight costs from supply chain bottlenecks and spiralling inflation which deduct from net royalties (as do insurance costs). A profit-less boom I say in met coal royalties – like the so-called govt confected construction boom 😎
Yes, coal royalties will be relatively high for dick this year along with increased stamp duties. But not of the hype of John McCarthy.
Gene, we are really making hay whilst the sun shines here. The QLD Labor government and we citizens are getting by well on the back of coal exports even though they pretend to have high climate change principals. What we need is a plan for moving to net zero that acknowledges and respects the role our high quality thermal coal and necessary coking coal plays in the global energy market. In this way, we can help reduce CO2 by being the last coal source to leave the market. Scope three emissions should have a rebate for the CO2 and toxic pollutants offsets of our premium coal vs Chinese and Indian and Indonesian lower energy and higher polluting coal we are displacing. We need someone to collate all the information, produce a credible story and then get the new Labor Federal government to sell it to the people. Maybe you are that person.