Royalties to continue powering Western Australia’s Treasury coffers despite projected decline

Western Australia’s state government is on track to continue delivering surpluses to its coffers on the back of a strong mining sector and despite a projected decline in royalties from commodities.

Released yesterday (12 May 2023), the McGowan government released its 2023-24 budget, with royalty income estimated to be $11.2 billion in 2022-23, largely unchanged from the $11.1 billion in 2021-22. 

However, the government says this masks a compositional change where a decline in iron ore royalties of $633 million (largely due to lower prices) is offset by an increase in other royalties of $700 million (largely due to higher lithium prices). 

In 2023-24, royalty income is projected to decline by $3.2 billion (or 28.5%), primarily due to lower iron ore royalties as the price of the steel-making ingredient is assumed to revert to its long-run average from November 2023. 

Royalty income is projected to decrease by a further $936 million (or 11.7%) in 2024-25, largely because the iron ore price is assumed to remain at its long-run average price for the entire year. Royalty income is then expected to decrease marginally in 2025-26 and 2026-27, primarily as a result of forecast rises in the AUD/USD exchange rate, reducing the Australian dollar value of royalty payments.

Royalty income is projected to decrease by a further $936 million (or 11.7%) in 2024-25

Iron ore volumes have been revised higher since the 2022-23 mid-year review, with volumes now forecast to grow to 898 million tonnes by 2025-26, before easing slightly to 890Mt in 2026-27 as some smaller mines deplete and are not replaced. Iron ore royalty income is forecast to account for 83% of total royalty income in 2022-23, and to average around 75% of total royalty income from 2023-24 onwards.

As announced yesterday, royalty income from all other commodities is estimated to rise by $700 million (or 59.7%) in 2022-23, due primarily to higher lithium royalties (up $649 million). 

The lithium price has risen sharply since 2021-22, which has been underpinned by a rapid pick-up in demand due to growing sales of electric vehicles (EVs). 

Royalty revenue from nickel, which is another commodity used in batteries, is projected to increase by $35 million in 2022-23 on the back of higher nickel prices. 

Gold royalties are projected to increase by $43 million in 2022-23 with expanding production. In 2023-24, royalty income from all other commodities (excluding iron ore) is projected to rise by a further $136 million (or 7.3%), with gold royalties rising by a further $75 million, lithium royalties by $18 million and nickel royalties by $20 million. 

Royalty income from other commodities is then forecast to decrease by $198 million in 2024-25, then by $11 million in 2025-26 and $204 million in 2026-27. These falls reflect the combined impact of a forecast decline in lithium prices (as more supply comes online) and assumed declines in gold production

The government reports that more than 210,000 jobs have been created since March 2017, with the unemployment rate currently sitting at 3.4%. At the moment, unemployment rates remain very low and the government anticipates it will remain that way.

In the budget section titled Taking Action on Climate Change, the McGowan government has invested $3 billion to achieve net zero emissions by 2050, “laying the foundation for Western Australia’s cleaner, affordable, and reliable energy future”.

This investment also includes $2.8 billion to deliver on our plan to decarbonise the state’s electricity grid and replace state-owned coal-fired power stations with renewables by 2030.

McGowan urges that these investments are necessary for emissions reduction and to build the State’s low carbon economy of the future, while also ensuring the security of electricity grids and keeping prices affordable.

Some $126 million is being invested in early planning for network upgrades, including the ordering of long lead-time components, to support the fast-tracking of the government’ and industry’s transition to net zero and facilitate the green energy boom.

The budget is providing $196 million to begin works for Perth’s third desalination plant, as well as a diverse range of climate initiatives to take place.

Images: Government of Western Australia
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Written By Aaliyah Rogan
Relocated from the East Coast in New Zealand to Queensland Australia, Aaliyah is a fervent journalist who has a passion for storytelling. When Aaliyah isn’t writing stories, she is either spending time with friends and family or down at the beach.