How are the Prime Minister and the Treasurer going to win their argument with the Western Australian Premier? Colin Barnett has a winning hand here. Julie Gillard and Wayne Swan are just going to have to swallow hard and fold their hand.
Politically Barnett has a winning hand. He is very popular in WA and the royalties/GST issue feeds right into the public belief in WA that they are being screwed by the Commonwealth. Personally I am not big on states rights, but there is no denying it is a big issue in WA and the Premier is on the right side of it.
So, the more that Wayne Swan threatens to reduce funding of infrastructure projects in WA the higher Barnett’s vote and the lower the Federal ALP vote will be in the next election cycles. Labour only has 3 out of 15 federal seats in WA and a swing of 5% would lose them those three. Moreover, because it is infrastructure funding that the Treasurer is threatening to cut, the Premier will have a particular project to point at and focus public attention on.
Tactically Barnett has a winning hand. The Premier controls the level of royalties on mineral extraction in WA. The Federal Government cannot change that and they cannot stop him raising royalties further. Crucially, an increase in royalties will not hurt the mining companies since it will be remitted by the Federal Government.
So, if Barnett increases royalties on iron ore there will be a transfer of funds from the Commonwealth to the State. The Commonwealth can reduce GST and infrastructure payments to WA, but they are ‘only’ $4 billion anyway (in the medium term) and may go as low as $2 billion as WA’s GST return is reduced to 33%. Iron ore exports from WA in 2015 will be 700 million tonnes. If the price of iron ore is $150/tonne in 2015 then an increase in royalties from 7.5% to 10.5% would more than match the projected GST payments to WA and that money would come from the Commonwealth, not from the miners.
Wayne Swan seems to be missing the point that Colin Barnett can take money directly out of his pocket without harming the miners and without damaging Barnett’s electoral prospects.