Royalty Legislation Amendment Bill 2020
Plain English Summary
Overview
This bill overhauls how Queensland calculates petroleum royalties, replacing the old 'wellhead value' system with a simpler volume-based model that applies different rates depending on whether gas is sold domestically, supplied to LNG projects, produced as part of an LNG project, or is liquid petroleum. It also brings mineral and petroleum royalty administration under the Taxation Administration Act 2001 for consistency with state taxes.
Who it affects
Petroleum and mineral producers are most affected, particularly the large coal seam gas and LNG companies operating in Queensland. All Queenslanders have an interest as royalties from non-renewable resources fund government services.
Key changes
- Petroleum royalty is now calculated based on the volume of petroleum produced, replacing the old 'wellhead value' system that was difficult to apply to vertically integrated CSG-LNG companies
- Gas is classified into four categories — domestic gas, supply gas, project gas and liquid petroleum — each with tiered royalty rates linked to average sales prices
- Benchmark prices (Wallumbilla gas price for domestic gas, Europe Brent Spot Price for supply/project gas and liquid petroleum) apply where independent sales data is unavailable or for revenue protection
- The Commissioner of State Revenue replaces the Minister as the person responsible for administering mineral and petroleum royalty
- Royalty payers gain formal objection, review and appeal rights through QCAT and the Supreme Court, consistent with the rights available for state taxes
- Joint venture participants without a petroleum tenure can elect to lodge royalty returns and pay royalty directly
Bill Story
The journey of this bill through Parliament, including debate and recorded votes.
▸Committee16 July 2020View Hansard
Referred to Economics and Governance Committee
The Economics and Governance Committee examined the Royalty Legislation Amendment Bill 2020, which was declared urgent and referred on 16 July 2020 with a report due by 7 August 2020. The committee received 20 submissions and held public hearings with industry stakeholders. The committee recommended the bill be passed, noting the reforms would replace the existing wellhead value model for petroleum royalty with a simpler volume-based model and modernise royalty administration. However, the LNP members filed a dissenting report opposing the bill, arguing it was being rushed without sufficient economic impact analysis.
Key findings (5)
- The existing wellhead value model for petroleum royalty was no longer suitable for Queensland's coal seam gas and LNG industry, leading to costly disputes and inequitable outcomes between producers
- Stakeholder views on the volume model were mixed: some producers welcomed the simplicity and equity improvements, while smaller and remote operators warned it would disadvantage them by removing cost deductions
- Several industry submitters raised concerns that the volume model does not account for significant variations in operating and transportation costs between producers in different locations, particularly those in the remote Cooper-Eromanga Basin
- Industry broadly supported the Royalty Administration Modernisation Program to align royalty administration with other state tax legislation under the Taxation Administration Act 2001
- The committee identified potential fundamental legislative principle concerns with transitional regulation-making powers but accepted these were justified given the significance of the reforms
Recommendations (1)
- The committee recommends the Royalty Legislation Amendment Bill 2020 be passed.
Committee report tabled
▸Second Reading13 Aug 2020View Hansard
▸22 members spoke10 support12 mixed
Argued that royalties should be used as an enabler and lever for government, not just a cash grab, and called for royalty discounts to keep the Mount Isa copper smelter open and protect thousands of jobs in Townsville and the north-west.
“Royalties can be a great enabler and lever for government. They should not be seen just as opportunity to pull cash out of an industry but seen as an enabler.”— 2020-08-13View Hansard
As Treasurer, introduced the bill modernising Queensland's petroleum royalty regime by transitioning from a wellhead value model to a volume model, encouraging domestic gas supply with lower royalty rates.
“The volume model that this legislation implements is the first of its kind in the world.”— 2020-08-12View Hansard
Criticised the rushed process and lack of economic modelling, and tabled LNP amendments to freeze royalty rates for 10 years to provide industry certainty, but stated the LNP would not oppose the bill.
“Our amendments will freeze royalties to provide industry with the certainty needed to unleash investment, create jobs and boost exports.”— 2020-08-12View Hansard
In reply, defended the volume model for gas royalties, rebutted LNP claims about revenue, criticised the LNP's proposed 10-year royalty freeze, and noted Labor's five-year commitment to keep the gas royalty framework unchanged.
“With the introduction of the volume model, Labor vows to keep the gas royalty framework unchanged for five years, providing certainty to industry and to government.”— 2020-08-13View Hansard
Supported the new volume model for petroleum royalties as ensuring Queenslanders receive a fair return for their non-renewable resources, noting industry broadly acknowledged the need for modernisation.
“It is vital that Queenslanders get a return in the form of royalties on these resources.”— 2020-08-12View Hansard
Criticised the new royalty regime as increasing sovereign risk for Queensland, noting the state had fallen to 16th place for mining investment attractiveness.
“We are now being rated as sovereign risk, along with the lunatic African countries.”— 2020-08-12View Hansard
Supported the transition to a volume model for petroleum royalties as providing greater transparency and returning more to Queenslanders for their non-renewable resources.
“The volume model will provide greater transparency and streamline the process and return more to Queenslanders for their non-renewable resources.”— 2020-08-12View Hansard
Questioned the lack of economic modelling on the new royalty regime's impact and raised concerns about Queensland's declining investment attractiveness.
“Mr Macfarlane added that we are now below some African countries as an investment destination.”— 2020-08-12View Hansard
Supported the royalty reforms noting broad industry acknowledgement of the collaborative work undertaken during the review process.
“During the committee process it was clear that there was broad acknowledgement of the significant collaborative work undertaken by both government and industry.”— 2020-08-12View Hansard
Criticised the volume model as not world's best practice, arguing it would discourage exploration and make smaller operators unviable, and called for the legislation to be withdrawn.
“This model does not exist anywhere in the world. This model is an unusual model that will make an industry that was already on the wrong side of the cost curve go even further over.”— 2020-08-12View Hansard
Supported the royalty review as timely given the decade-old regime and backed the adoption of the volume model with rates frozen for five years.
“The proposed rates and the benchmark will be frozen for five years. This will give certainty to industry and government.”— 2020-08-12View Hansard
Criticised the government's approach to royalty reform as demonstrating financial incompetence, and supported the LNP's 10-year royalty freeze amendment to provide certainty for the resources industry.
“Only an economically incompetent government could introduce urgent legislation to amend royalty arrangements without having determined how the volume measurements for royalty calculations will be made.”— 2020-08-12View Hansard
Supported the volume model as providing the best return for Queenslanders and ensuring industry pays its fair share.
“The volume model is obviously a much better deal for Queenslanders.”— 2020-08-12View Hansard
Criticised the rushed introduction of the royalty bill, the 25 per cent gas tax increase, and the failure to develop measurement guidelines or release economic modelling.
“This government introduced urgent legislation to amend royalties without determining how the volume measurements for royalty calculations would be made.”— 2020-08-12View Hansard
Supported the volume model for its equity, simplicity and transparency in petroleum royalty calculations.
“The benefits of the volume model are its equity, simplicity and transparency.”— 2020-08-12View Hansard
Criticised the royalty changes as making Queensland rank below African resource nations for investment attractiveness and noted the government failed to release economic modelling.
“We are now ranked below an African resources nation.”— 2020-08-12View Hansard
Supported the volume model for petroleum royalties, crediting the state Labor government with establishing the LNG industry in Queensland.
“This was an industry set up by a state Labor government—an entirely new export industry set up by Labor which has delivered billions in investment across the state.”— 2020-08-12View Hansard
Criticised both bills as a missed opportunity to raise substantially more from mining royalties. Advocated for a flat 35 per cent royalty rate on fossil fuels and abolishing all mining subsidies, but did not oppose the bills.
“Between 2010 and 2020 mining corporations exported over $480 billion worth of coal, minerals and LNG, paying only seven per cent of that in royalties.”— 2020-08-12View Hansard
Criticised the 25 per cent gas royalty increase and lack of modelling on domestic gas price impacts, raising specific concerns from Arrow Energy and Shell QGC in her electorate.
“This overnight royalty increase sent the wrong message to the gas producers in my electorate. It did nothing for business confidence, it did nothing for investment and it did nothing for local roads or local jobs.”— 2020-08-12View Hansard
Defended the gas royalty reforms, reminding the House that the LNP hiked coal royalties without consultation in their first budget while sacking 14,000 workers.
“It was time to change that framework so we could guarantee that Queenslanders—who own this resource—were getting the benefit of its extraction and its commercialisation.”— 2020-08-12View Hansard
Defended the LNP's 2012 coal royalty increase as justified by high coal prices while criticising Labor's petroleum royalty changes.
“At a time when coal companies were getting $340 or $350 a tonne for coal, the people of Queensland as the suppliers of that resource deserved to get a better return on their resource.”— 2020-08-12View Hansard
Criticised the urgent royalty legislation as economically illiterate for being introduced without volume measurement guidelines, and attacked Labor's treatment of the resources sector.
“Only the economically illiterate Palaszczuk Labor government could introduce urgent legislation to amend royalty arrangements without having determined the volume measurements for the royalty calculations.”— 2020-08-12View Hansard
▸In Detail14 July 2020 – 13 Aug 2020View Hansard
Amendment to the Duties Act 2001 inserting a transitional provision to expand the definition of 'defined relative' for transfer duty purposes to include first cousins and their spouses, with retrospective effect from 23 May 2018.
Amendment to the First Home Owner Grant Act 2000 to establish a Regional Home Building Boost Grant scheme (up to $5,000) and a Home Builder Grant scheme ($25,000), including eligibility criteria, application processes and enforcement provisions.
Opposition amendment sought leave to move an amendment outside the long title of the Royalty Legislation Amendment Bill (first attempt, before clause 5).
Opposition amendment sought leave to move an amendment outside the long title at clause 71 of the Royalty Legislation Amendment Bill (second attempt).
Amendments to clause 97 correcting technical provisions relating to petroleum royalty calculations, including specifying that petroleum is not supply gas and inserting 'average' before 'hedge'.
Amendment to clause 2 (Commencement) to exclude the new Parts 2A, 2B and 12 and Schedule 1 from the default commencement date.