State Treasurer Eric Roozendaal made no secret of the fact that the mini-budget, expected next Tuesday, will be tough.
“We have to think about the long-term future of the state," he said.
“We are looking at substantial savings to bring in line our expenditure closer to our revenues."
He said the state's deficit had already totalled $656 million over the first three months of this financial year, and while the mini-budget would identify a slew of savings, the budget would "definitely" remain in deficit.
Among the cost saving plans under consideration, the treasurer has hinted at a royalty rate of 10% on coal worth more than $100 a tonne.
Also on the cards is a flat 8% levy on the value of all coal exports.
The proposal comes in the wake of a similar $600 million royalty rise by the Queensland government in June this year.
An increase in line with Queensland's coal royalty rates is estimated to provide the stricken NSW economy with additional revenue in the area of $250 million.
The New South Wales Minerals Council yesterday hit out at the government’s plan, pointing out the coal industry was not immune to the global economic downturn.
“A royalty hike at this time would compound the economic pain resulting from the constraints at the Port of Newcastle, which cost the industry around $300 million a year in demurrage penalties alone,” NSWMC said in a statement.
“These constraints represent a loss of export revenue estimated at $2 billion over five years and tens of millions of dollars in additional royalties for the people of NSW.”
The council said the NSW coal industry’s ability to withstand unprecedented global economic forces was finely poised.
“Commodity prices are cyclical, inextricably linked to global demand. Assuming that the mining industry has a ‘capacity to pay’ regardless of circumstances runs counter to how commodity-based economies actually work and ignores the interrelationship between economic downturn and demand for minerals.”
NSWMC pointed out Chinese growth was expected to fall by 2% this year and over the past three months coal prices had fallen 46%.
Escalating costs were also held up by the council as a factor ignored by the government.
“The cost of doing business in the mining industry has also risen at an alarming rate,” NSWMC said.
“The resources boom (upon which the entire Australian economy has depended) has generated massive inflationary pressure on input costs.
“This dramatic upswing in costs since 2004 has seen inputs in underground mines increase by 35 per cent and open cut mines by 61 per cent. So even as prices hit historical highs, so too did the costs.”
Greens MP Lee Rhiannon said the government's move to increase coal royalties was welcomed. But she called for a significant proportion of the money to flow to services for coal communities and to retrain coal workers so NSW can make the transition away from coal to clean, sustainable industries.
“Slugging billion-dollar coal companies is long overdue. But the government must resist the temptation to pocket the windfall and neglect coal-affected communities," Rhiannon said.
“The NSW government has an ethical responsibility to allocate some of the substantial economic gains from the mining boon to coal communities and workers."
Rhiannon called on the premier to earmark a proportion of the coal royalties for a “just transition” away from the industry towards more sustainable industries such as clean green manufacturing, renewable energy and tourism.
The Construction, Forestry, Mining and Energy Union echoed Rhiannon's sentiment, with its mining and energy division general secretary Peter Murray saying such a move would boost government income and provide a better deal for mining communities.
“Some of this additional money should be used to address problems in overstretched coal mining communities," Murray said.
“These communities have not been getting a fair share of the prosperity the coal industry has generated in the state and it is time that they did."
Murray estimates an increase in the royalty rate over a full financial year would boost the NSW government's take from the coal mining industry to $1.5 billion.
But just as the Queensland move was labelled a "smash and grab" raid by the Queensland Resources Council, it is expected not everyone will be so welcoming of the NSW royalty hike.
NSW Mineral Resources Minister Ian Macdonald has already opposed the rise, claiming it would hurt the smaller players in the industry.