The federal government has warned Western Australia will get lower GST grants and lower infrastructure funding after the state announced an increase in iron ore royalties in today's budget.
WA treasurer Christian Porter announced today that the royalty rate applying to iron ore 'fines' will increase, raising $1.9 billion over the next four years.
When asked earlier today about the impact on federal treasurer Wayne Swan's budget, Mr Porter said"it will cause a difficulty for his budget".
Mr Porter acknowledged there was a "possibility" that Canberra may withhold funding to WA in response to the government's move.
Mr Swan quickly lived up to that, issuing a statement this afternoon saying premier Colin Barnett had kicked an own goal by raising royalties.
"Western Australia will lose out overall because it will likely end up losing more in GST revenue distributed by the independent Commonwealth Grants Commission (CGC) than it gains in additional royalties," Mr Swan's statement said.
He noted that the distribution of GST grants to the states is being reviewed.
"However, Mr Barnett is misguided in his rush to jack up inefficient royalties in an attempt to increase his government's revenue.
"Our advice is that the CGC is highly likely to revise up their estimate of Western Australia's revenue-raising capacity, which means they will allocate less GST to the State.
"The Federal Government does not intend to intervene in the CGC process to save Mr Barnett from the effects of his own decision to play politics with the mining boom."
Mr Swan said the Commonwealth will also receive less revenue as a result of Mr Barnett's decision because the proposed Mineral Resource Rent Tax provides a full credit of state royalties paid by mining companies.
"Mr Barnett's decision means it will be much harder for the Federal Government to finance additional infrastructure projects in Western Australia funded by the MRRT."
