New South Wales has hit back at Federal treasurer Wayne Swan's threats to cut funding to the states if they raise mining royalty rates.
NSW premier Barry O'Farrell has accused the government of making hollow threats, NineMSN reports.
Yesterday it was revealed Swan had written a letter to the NSW government stating that another royalty rise, like that carried out in September last year, may compel the Government to enforce financial sanctions on the state – such as holding back infrastructure funding.
Swan says that any state or territory that increase rates will be docked federal funding – either GST revenues or infrastructure money.
"We are legally entitled to make adjustments to royalties, but I have to say there is a hollow part in this threat," Mr O'Farrell told reporters in Sydney.
"I'm fighting for a fair share of infrastructure funding, but it's a bit rich for this federal government to claim they will give us less funding for infrastructure when it's given us barely nothing for the past five years.
"This is just another example that the federal government is in campaign mode."
The Greens have also joined in the condemnation of the mining tax, calling for the royalty raise loophole to be closed instead of the states and territories and the Federal Government at each other's throats, according to the Sydney Morning Herald.
Currently under the MRRT miners will be fully reimbursed by the Federal Government for any future state royalty rate increases.
The Greens have called for this reimbursement and ability to raise rates to be culled.
However Minerals Council of Australia chief Mitch Hooke has dismissed these calls.
Fiscal stability is key to Australia's investment pipeline and continual changes to Australia's tax system acts as significant deterrent to investment,'' Hooke said.
''Changing the design of the mining tax would simply add to the instability and uncertainty of Australia's taxation regime.''
Image: Kym Smith