It might not be everyone’s idea of entertainment, but the release of yesterday’s Queensland budget was a lot of fun.
I sat in a room with lots of tea and sandwiches and a hundred other people who love talking about economics. The Treasurer, the Premier and lots of Treasury people were there to help when I had any questions or ran out of tea.
The only downside is that you have to ask permission to go to the toilet - a bit of a problem with all that tea. But it’s important because no-one can be allowed to tell the outside world all the funny bits in the budget ahead of time. The Treasurer gets to do that later. Here’s some of what he said:
When Labor was last in government we set out a blueprint for the establishment of a $60 billion LNG industry. This investment was both historic and significant, and as a result a new industry is now a reality. $648 million worth of LNG exports have left the Port of Gladstone so far in 2015.
Pretty funny hey? Did you see how $60 billion became $648 million? Clearly how much an industry is “worth” is a tricky thing. And just how much the gas industry is worth to Queensland is trickier still, as shown much later in the budget papers. Budget Paper 2, page 191 to be precise:
This table shows most of Queensland’s “own source” revenue – the revenue Queensland collects itself, as opposed to the $25 billion it gets from the Commonwealth this year.
Look at the line fourth from the bottom of the table, titled “Petroleum”. It’s called petroleum, but the bulk of it is royalties that Queensland gets from coal seam gas. You can see that the “$60 billion LNG industry” paid just $51 million to the Queensland Government in the last budget year.
That’s the same year that Treasurer Curtis Pitt referred to when he said that $648 million worth of gas had been sold this year so far. The Queensland taxpayer has collected around 4 per cent of that based on the budget papers.
Further into the projections in yesterday’s budget, we see that gas royalties are expected to get to $518 million in 2018-19, depending on gas prices and production rates. Putting this in the context of the rest of the budget, this represents 0.1 per cent of Queensland Government revenue this year, increasing to 0.9 per cent by 2018-19, when the current gas export plants should be at full production.
Let me say that again. Even at full production, Queensland’s government will get less than one per cent of its revenues from the coal seam gas industry. 99 per cent of Queensland’s public sector will be funded by other industries.
Queensland has nearly 7,000 active gas wells, many of which require fracking to keep producing gas. Public concern about the effects of this on groundwater and other aspects of the environment is well known. The 1 per cent increase in government revenue hardly seems worthwhile.
Worse still, it is Queensland’s export gas projects that have led to major increases in domestic gas prices on Australia’s wider east coast gas market. By linking our gas production with world markets, our prices have increased to world market prices and they’re never coming back. This will affect household bills and also the manufacturing industry, which has been screaming blue murder over gas price rises for some time.
So if the government isn’t making much, households are paying more and the manufacturers are complaining… who is doing well out of Queensland’s gas industry? Ironically, not even the gas producers. World gas and oil prices have declined to the point where shares in some were declared “worthless” at one stage earlier this year. Seems like no-one has been a winner from this “historic and significant” industry.
Another funny part of the budget is in the table above. Look at “Motor Vehicle Registration” for the 2015-16 budget year. You’ll see that car rego is expected to raise $1.654 billion.
Now look at coal royalties, which will bring in $1.684 billion. Now look again at car rego. Now back to royalties. Now back at rego.
Now back to me. That’s right, they’re both worth around 3 per cent of government revenue apiece.
Yep, you saw it. Queensland makes as much money from car rego as from coal. When former premier Campbell Newman said that Queensland was “in the coal business”, he really meant to add that Queensland is in the car registering business. Which it undeniably is. Coal and car rego. Important. “If [Queenslanders] want decent hospitals, schools and police on the beat we all need to understand that.”
So if having a laugh at the fossil fuel industry and drinking tea with the Treasurer is your idea of a good time, make sure you get to the next budget. As all economists know, there’s no such thing as a free lunch, but there are plenty of sandwiches. I’m sure they’re in the budget papers somewhere.
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AmericanDownUnder
Posted Wednesday, July 15, 2015 - 12:27
This is a great and horrifying article. But my question is still why. If even the producers and the government don't make money off lng, and the community doesn't want it, why is it still being pushed?
This user is a New Matilda supporter. Sooz
Posted Wednesday, July 15, 2015 - 12:43
The same question applies with coal.
I notice they're predicting rising revenues from coal over the next few years (perhaps factoring in the unlikely development of the Galilee Basin?), but coal prices just keep plummeting. In 2011 thermal coal was selling at $142US per tonne, now it's slumped to $62, coking coal was $330US a tonne in 2011, now it's selling at $85. Apparently a lot of mining companies are wearing losses of $10-$15per tonne in the current market. I can't see how they can continue in the delusion that this is a viable industry when demand is only going to drop further as other nations upgrade to renewable energy and decommission old coal fired power stations. Unless our governments are going to hand them large amounts of public funding in return for donations to political parties.
andrewbarger
Posted Wednesday, July 15, 2015 - 16:28
My car registration is $670 a year (and trust me, that is for for a very ordinary old car).
So if you are saying that every year, the coal industry pays the Government in royalties the equivalent of $670 for every Queenslander, then that seems like a lot of money to me.
I'd rather have a coal industry and pay a rego of $670 each year, than not have the industry and pay $1,340 in rego each year.
On coal seam gas, Rod seems got himself a bit confused (too much tea?). The Treasurer's speech yesterday was very clear. The industry has invested $60 billion to create a new export industry for Queensland. That new industry has already sold $658 million in gas this year and paid $51 million in royalties.
This article seems to confuse an investment total with annual sales. That's a bit of a worry for an economist.
Oh and royalties. By my maths that's 7.8% royalty return not 4%. $51m divided by $658m is not 4%. Perhaps you should show your workings?
The royalty rate is 10% of wellhead value, but there are discounts, so 8% sounds about right for the early days of a new industry.
An entertaining read, but relying a few more facts would have made it an informative read as well.
GaryDoggett
Posted Wednesday, July 15, 2015 - 17:09
It has cost the CSG industry $60 billion to establish in Queensland, and your writer contends that should have been recouped in year one? There are 6,700 CSG wells in Queensland and 434 have required hydraulic fracturing. That's just over 6% but based on the previous comment, your writer will land on 253%.
O. Puhleez
Posted Wednesday, July 15, 2015 - 22:18
Sooz:
That will be no problem, as the mining industry is on a sweet cop of at least $4.5 billion per year: $0.492 billion in direct subsidies and the rest in tax concessions - ie tax foregone. As Abboott (aboot time he was booted) says, "Australia is open for business".
Well, Australia's till is certainly open for business, and a lot of them just can't keep their paws out of it.
http://www.abc.net.au/news/2013-06-25/nrn-dist-mining-subsidies/4778042
launcespeed
Posted Thursday, July 16, 2015 - 09:49
Shame that the income from Land Tax, Land Rents and Gambling are so low.
This user is a New Matilda supporter. aussiegreg
Posted Thursday, July 16, 2015 - 19:46
@O. Puhleez
What used to be the Minerals Council of New South Wales and is now called NSW Mining has rebutted most of the points made by the Australia Council here.
I've taken to these boards in the past to point out the many ways Australian governments raise revenue by compulsorily charging productive enterprises in ways they disguise as "user-pays" and which they can therefore claim are not taxes. This feeds into the myth that Australia is a low-tax country.
I've also taken to these boards – reluctantly, because I think any sort of tax on fossil fuels is desirable in the absence of a comprehensive carbon price – to attack the intellectual dishonesty of calling a rebate for off-road diesel use a subsidy to miners (or to farmers or to railways).
I've also noted before that almost all of the tax concessions afforded to mining companies are also available to taxpayers generally – that is, they are, like Research and Development as an example, activities governments of all political persuasions think they should encourage by allowing faster write-offs of what would be legitimate deductions from income in the long run anyway.
beetwo77
Posted Friday, July 17, 2015 - 09:35
ozziegreg,
So that nsw mining lot argue that paying into the mine subsidence fund and the safety fund is being ignored from the amount they pay to the government? Wow I wonder why people ignore the amounts paid for insurance of the damage they do aren't counted royalties?
Further, how can port upgrades at Newcastle and Port Kembla be ignored? And why should NSW government wastage on its own coal projects be ignored? None of that makes sense to me.
Newcastle's port capacity would be adequate for eternity if coal export wasn't occuring. Explain to me how any of the points in that rant are valid? They aren't and there is no justification provided.
The argument for the diesel fuel rebate is pretty straightforward. No one should get it and the miners benefit massively from it. There should be no automatic diesel fuel rebate. It doesn't make sense.It should be handled through the general business deduction process.
Regardless of any points you are that rant you posted mate, you haven't counteracted the simple fact tha QLD is getting virtually nothing out of CSG and that in the future it won't be that much better.
Regards Ian
This user is a New Matilda supporter. aussiegreg
Posted Sunday, July 19, 2015 - 13:37
@beetwo77
I may be wrong – that has happened to me a couple of times in living memory – but I'm pretty sure neither the mine subsidence fund nor the safety fund have anything to do with insurance.
Miners still have to pay separately for public liability and workers compensation insurance, against the risk of being sued by people affected by subsiding mines or by workers injured on the job.
As I understand it, compulsory levies paid by miners to both the mine subsidence fund and the safety fund (and the rest of an enormous raft of such fronts for the State Revenue Office) are entirely used to pay for "administration", that is, for the jobs of public servants who overseas would be employed out of general taxation revenue.
I agree that the money State governments everywhere pour into infrastructure, like ports, that is largely or wholly used by private companies should be partly or wholly recovered from those companies, but given that it isn't, you can't make a special case for charging the miners. And I'm assuming you accept that there was a great deal of public benefit from the port upgrades both in Newcastle and the Illawarra, even if most of the benefit went to the coalminers and steelmakers.
As for the diesel fuel rebate, this was introduced at the time that the excise on diesel fuel was multiplied many times as a way (or so it was said at the time) of raising the money said to be needed to be spent on roads. It was sold as a user-pays exercise, and especially as a way of getting the road transport industry, whose heavy vehicles did almost all of the damage to the nation's highways, to pay for repairing that damage.
Logically, those who used their diesel off-road, like farmers, railway operators, and, yes, miners, would and should get part of the fuel tax rebated.
Naturally enough, vastly more money was raised by this increase in excise than was ever spent on roads (at least directly by the Federal government on national highways, although they argue that the increase in grants to the states led to the states spending the rest of the revenue raised on the roads under their control), and I have long argued that since it is a de facto general revenue raising measure, the de facto exemptions should go too.
And by the way, the additional tax deduction for the no-longer-rebatable-tax-increased cost of fuel would mean a bottom-line benefit of 30% of the extra diesel bill (at the current company tax rate), a fraction of the current rebate.
Anyway, I also hold the view that all of this should be rolled up in some sensible carbon-pricing/polluter-pays policy.
In a carbon-constrained world nobody should be drilling for CSG, and certainly State governments shouldn't be relying on royalties from gas companies, whatever the net benefit to their budgets. In a world of plentiful renewable energy, combustible hydrocarbons (probably hydrogen) can be produced by a range of processes using surplus electricity – like using off-peak power today for domestic hot water, for commercial intermittent high-load activities, and for pumped hydro – and fed into the gas supply grid currently dependent on fossil-fuel gases, including CSG.