Canberra and Perth are at loggerheads over mining taxes after yesterday's Western Australian budget.
Federal Treasurer Wayne Swan has already slammed Premier Colin Barnett for hiking certain types of iron ore royalties leaving the federal government with a two billion dollar hole in its forward estimates.
Mr Swan has threatened in the past to withhold GST funding from states that jack up royalties.
He says Mr Barnett is misguided to rush to jack up inefficient royalties and it's highly likely the move will backfire when an independent review adjusts GST money going to states.
But the Commonwealth says the West Australian government's decision to increase royalty rates for a certain type of iron ore will not stop it delivering a budget surplus in 2012/13.
In handing down its 2011/12 budget on Thursday, the WA government said it would lift the royalty rate for iron ore 'fines' in the three financial years to 2014/15, bringing in an extra $1.9
billion in state revenue.
It would bring the fines rate into line with the rate for the lump form of iron ore, which used to be more sought after, and was also a way to recoup falling GST revenue to the state.
But federal Resources Minister Martin Ferguson says the Colin Barnett-led government may have shot itself in the foot in "a short-term grab for cash" and should have waited for the Commonwealth Grants Commission's GST carve-up.
"The WA government may have cut their own nose off to spite themselves," Mr Ferguson told reporters in Perth.
"The decision sends a message to the Commonwealth Grants Commission that the revenue-raising capacity of WA is far higher.
"It will not have any impact in terms of returning the (federal) budget to surplus."
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