Wednesday, June 09, 2010

NSW Budget 10-11: mining royalties

I haven't had time to do a proper review of the 2010-2011 NSW budget. However, I did want to look at royalty payments since most of these come from New England.

The table below provides a summary of some revenue variables.

  08-09 actual $m 09-10 revised $m 10-11 budget $m
Total revenue 49,663 55,492 57,669
less Commonwealth payments 22,309 26,798 26,741
State source revenue 27,354 28,694 30,928
royalties 1,279 953 1,745

You can see just how important Commonwealth payments to NSW are. This creates a practical management problem for the NSW Treasury because of uncertainties associated with the level and timing of Commonwealth payments.

I was surprised at the fall in the royalty amount in 2009-2010. Royalty payments had been rising sharply. Why, then, did they fall? The answer appears to lie in the value of the Australian dollar.

Methods of calculating royalty payments vary between the states. In the NSW case, the rise in the value of the Australian dollar reduced $A payments to mining companies. The huge rise in projected royalty payments in 2010-2011, 48.5% of the projected increase in state source revenues, is due in part to the decline in the value of the Australian dollar, more to projected increases in production.  


Mark said...

91% of all mining royalties in NSW directly come from New England coal. Then of course you have port fees etc which boost the revenue stream. I would dearly love to see what comes back into New England compared to goes out. I know statistics can be hard to break down given statistical boundaries etc. It would also legitimise my arguments with other public servants.

I might just start doing this! I'll see what I come up with.

Jim Belshaw said...

Mark, that would be very helpful. We need evidence, evidence, evidence to support our case. We also need to know when we are wrong.

I know from my own experience in the system including NSW that current structures in thinking distort. We have to show this.

Greg said...

Jim, there is uniform resentment over the river of money generated from Hunter mining royalties disappearing down the F3 while local infrastructure falls further behind. I would have to say that it is the single biggest Hunter grievance.

Yesterdays budget failed to address this imbalance. The resentment is only likely to grow.

Greg said...

Mark, some months back "the Herald" ran an a piece examining this very issue. They looked at mining royalties and also dividends from Government owned public utilities and corporations operating in the Hunter. I don't recall if port charges and asset sales were included.

From memory the number came out at something like $2b a year from these sources alone.

State taxes and levies would be additional to that figure. On a proportionate basis that might be another couple of billion, so I think that is where the numbers come from in the claim that the Hunter contributes approximately 20% of revenue raised by the state. I could be wrong, but as far as I am aware there is no separate publicly available data for regional contribution to state treasury, so I don't know if you would be able to get any accurate figures on New England's total contribution.

If you can track down that Herald piece it might be a good starting point.

Jim Belshaw said...

I can understand the concerns, Greg.

One on the reasons for the growth of new state agitation in the Clarence in the 19th century lay in the way that revenue from crown land sales on the Clarence was all spent in Sydney. By the time they started to get their act together, the goose had been sold.

Greg said...

That is the concern here too Jim. Coal mining might last perhaps another 30 or 40 years. Just what happens then? The Hunter will be left with a moonscape and land contaminated by heavy metals where there was once beautiful fertile farming country and we will have nothing to show for it. The proceeds will have all been spent in Sydney.

Mark said...

The link to the Newcastle Herald story on the Hunter's contribution to the NSW economy:

The comments below the story also show a great deal of resentment too.

Jim Belshaw said...

Mark, will run the Herald story as a post so that people can follow it up.

Greg, you are absolutely right.

Greg said...

Mark - thanks for that. I note that the $1.4b is only from taxes and dividends on corporate-ised state businesses such as Macquarie Generation. It doesn't include mining royalties, asset sales, state taxes, duties, levies, registrations etc. so the real state revenue collections from the Hunter is probably up around the 4 or 5b mark. That 20% number may well be close to the truth.

Makes a 4 or 5% return look pitiful doesn't it?