Queensland budget: coal and petroleum forecasts labelled 'delusional' as royalties dive
Queensland’s coal and petroleum royalties income has collapsed, wiping more than $2bn – about half the revenue initially forecast – from the state’s budget bottom line.
But while the global slump in the fossil fuel industry has impacted the pandemic-delayed Queensland 2020-21 budget, the state is betting heavily on a coal and gas-fired recovery in the coming years.
The budget forecasts that the volume of coal and petroleum exports will rebound and continue to grow. Energy market analysts say such an assumption is “delusional”.
The budget – labelled a “no surprises” document by the treasurer, Cameron Dick – is broadly in line with election commitments outlined by Labor before it was returned to government in October. It includes $500m staged over four years to build publiclyowned wind and solar projects.
The state will run an $8.6bn operating deficit this financial year, with total borrowings forecast to hit almost $130bn within four years. Labor has pitched the increase to debt and deficit as necessary to boost the economy during the pandemic, and to avoid austerity measures and service cuts.
The state predicts unemployment will drop back to 6.5% next year.
One of the biggest hits to the budget was in coal royalties. Last year, Queensland made $3.52bn from royalties paid by coal exporters. In 2020-21, that figure drops to $1.64bn. Total exports will reduce by 18m tonnes.
Similarly, petroleum (including oil and gas) royalties were initially forecast to bring in $600m. The budget now only expects to make $308m.
Treasury expects the coal price – particularly for thermal coal – will not rebound significantly over the forward estimates period and that royalties will not return to the highs of recent years. However, the state does predict coal export volumes will reach former levels next financial year and continue to increase thereafter.
Tim Buckley, the director of energy finance studies at the Institute for Energy Economics and Financial Analysis, said the sharp drop in royalties was “stark evidence of the false promise of the fossil fuel industry to Queensland”.
Buckley said the resources sector regularly pointed to its contribution to state revenue via royalties.
“They’ve been given approvals [on that basis], and they’ve failed to deliver,” he said.
Queensland is the world’s largest producer of coking coal, used to make steel. Buckley said China’s steel production was at record highs, and that the pandemic masked a bigger problem for the market.
He said assumptions that export volumes would grow were problematic.
“That’s delusional. No forecaster is saying that those volumes are going to rise.”
“In the year of record Chinese steel production, our volumes declined. That’s saying something.”
The chief executive of the Queensland Resources Council, Ian Macfarlane, said: “The resources sector shares the treasurer’s firm confidence that it will rebound.”
Environmental groups praised the government for delivering on its renewable energy commitments, but said the state was falling behind others, including New South Wales, on its green transition.
“The Queensland government needed to announce an extra boost if we are to keep up with southern states in the race to reach 100% renewables. Right now we are falling off the pace, said Claire Fryer, the Queensland Conservation Council’s climate and energy campaigner.
The Queensland Council of Social Service also said the budget was a missed opportunity to invest in housing and social services.
“It is very disappointing to see no new commitment from the state government to build new public housing,” the Qcoss chief executive, Aimee McVeigh, said.
“This government was given a clear mandate to borrow significant amounts of money to recover from the Covid crisis. Whatever we borrow now should leave a lasting legacy for all Queenslanders. We shouldn’t be borrowing to rebuild, but to build back better.”
In his budget speech, Dick warned the projected level of debt created a risk the state’s credit rating could be placed on a negative outlook.
“But the priority for us is to create jobs but I think as you’ve seen from the budget today ... we’re doing better than a lot of other jurisdictions in Australia and I think that will hold us in good stead with our rating agencies.
“When the private sector is hit with a hammer blow like Covid, government must help it get back on its feet.”