Premier Colin Barnett has kicked an own goal by raising royalties on iron ore.
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.
The Gillard Government recognises concerns about the way GST revenue is distributed between the States and Territories, and has announced a review to make the system simpler, fairer and more predictable. 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.
The Commonwealth will also receive less revenue as a result of Mr Barnett's decision under the proposed Mineral Resource Rent Tax, which provides a full credit of state royalties paid by mining companies.
Proceeds from the MRRT deliver substantial benefits to West Australians, including tax benefits for the State's 280,000 small businesses, a cut in the company tax rate, a boost to superannuation, and new infrastructure including the $480 million investment in the Gateway WA project in Perth.
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.
All levels of government share a responsibility to ensure the taxation of Australia's resources preserves our international competitiveness.
The MRRT is a more efficient way to provide Australians with a return on their mineral wealth than revenue-based royalties. In contrast to royalties, which apply to start-up mines before they even make a profit, the MRRT only taxes profits after the costs of investment have been recouped.
Mr Barnett needs to stop playing politics with the mining boom, and help ensure the people of his state receive their fair share of the nation's resource wealth.
19 May 2011