Royalties so far this financial year have already beaten the treasury forecast as the previous estimate in the 2008-09 budget predicted $840 million in total royalty revenue with the state government now anticipating $1.3 billion in the period on the back of market factors along with the royalty rate increase.

In the mini-budget report, the state treasury said the jump in royalty revenue was “principally because of higher export coal prices but also because of the fall in the value of the Australian dollar” and noted that export coal now accounts for about 72% of total NSW production and also provides 95% of total mining royalty revenue.

Effective from January 1 next year, all royalty rates will rise 1.2%, taking open cut mining to 8.2%, underground mining royalties to 7.2% and deep underground mining rates to 6.2%.

These gains in percentage growth terms are 17%, 20% and 24% increases respectively and follow a 22% jump in Queensland’s coal royalty rates from June.

The NSW Minerals Council quickly issued a statement on the rate increases, labelling the move a “short-sighted, knee-jerk reaction”

“It dramatically highlights the issue of sovereign risk in NSW,” the council said.

“The development of mining projects is a long-term commitment. Such a dramatic increase in the royalty rate, just four years after it was overhauled, sends a message that NSW is an unpredictable, high-cost investment environment.

“It provides the clearest possible signal that despite its claims about being ‘open for business’, the door to investment in NSW is being slammed shut.”

As a better method for raising revenue, the council advocated government investment to increase output and productivity as an extra 10 million tonnes in additional capacity at the Port of Newcastle would generate an extra $110 million in royalties.

“With the industry ready and willing to pay for port expansion projects valued in excess of $2 billion, this is $110 million which would come at no cost to the taxpayer,” said NSWMC.

“If the Port of Newcastle was allowed to reach its nominated capacity of 211 million tonnes per annum by 2013, the additional royalties payable to the state would wipe out the current budget deficit in one year.

“Instead, as we watch this revenue float away, along with an estimated $300 million per year in demurrage fees, the government’s bewildering response is to raise royalties and impose yet another cost on doing business in this state.”

In its mini-budget, the NSW government also said that transport costs would no longer be an allowable deduction for calculating coal royalties.

The mini-budget revealed an anticipated state deficit for 2008-09 of $917 million, while the 2008-09 budget in June forecast a $268 million surplus for the period.