States have been threatened with infrastructure funding cuts if they raise mining royalties under the latest changes to the Mineral Resources Rent Tax.
The focus was predominately on NSW and WA, which have both raised mining royalties in the past six months.
Baird not on board
According to NSW treasurer Mike Baird, Swan wrote to him stating that another royalty rise, like that carried out in September, may compel the Government to enforce financial sanctions on the state – such as holding back infrastructure funding.
Baird and O’Farrell argue the rise is necessary to offset the cost of the carbon tax, which they estimate will cost the state $950 million over the next four years.
"We are clearly disappointed by what [Swan’s] letter is asking NSW to absorb, which is a financial hit," Baird told ABC radio.
"As part of the mining tax what you have is a promise from the federal government that they will spend over about 11 years $6 billion in infrastructure around supporting those communities that facilitate mining."
Royalties in NSW currently range from 6.2 per cent for deep underground coal to 8.2 per cent for open-cut coal.
The NSW State Government said the size of the latest increase will be negotiated with miners once legislation is finalised later this year.
Western Australia is also once again in the targets of the Federal Government.
WA in focus
In March Swan made the same threats, saying up to $2 billion in funding for infrastructure upgrades may be cut.
In May a raise in the iron ore fines royalty rates by WA premier Colin Barnett saw the state and Federal Government again clash.
Independents force Government’s hand
The latest developments come as Federal treasurer Wayne Swan and Prime Minister Julia Gillard were forced to give concessions to independent members Tony Windsor, Rob Oakeshott, and Andrew Wilkie to ensure their support in passing the tax.
Windsor called on the Government to enforce tougher coal seam gas rules, saying: "I have given them an ultimatum that I won’t support the MRRT without greater restrictions on coal seam gas and assessment of farmland".
Windsor’s key demand is for $200 million to $400 million of the MRRT’s takings to be spent each year on CSG assessments.
The reviews will scientifically determine the impact of CSG on the environment, farmland, and water supplies.
Wilkie demanded that the threshold for the mining tax be raised from $50 million in yearly profit to $75 million, a move designed to level some protection for junior miners.
The full tax rate will not apply until profits hit the $125 million mark.
This shifting of the threshold now leaves a gaping hole in the Government’s budget, which according to The Daily Telegraph, sits at around $3 billion.
If the states raise their own royalty rates it will force the Federal Government to compensate the shortfall between the tax rate and the royalty rate.
Questioning penalising powers
However, WA Premier Colin Barnett has queried the Federal Government’s ability to withhold GST payments from states that increase mining royalties.
Barnett questioned if the Commonwealth could reduce or hold funding for infrastructure to penalise states that waver from the Government line, according to The West.
"I don’t think the Federal treasurer can do that," Barnett told ABC Radio, adding that GST arrangements were law.
"Remember the states gave up their constitutional right to income tax and company tax in exchange for that."
Baird told the Telegraph that this latest move is "a desperate act from a Federal Government clearly concerned their mining tax will not raise as much revenue as they claimed it would".