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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

20 May 2011

Interview with Paul Murray

Radio 6PR, Perth

20 May 2011

SUBJECTS: State Royalties; Minerals Resource Rent Tax

TREASURER:

Good morning.

MURRAY:

Wayne, does WA have the right to increase its mining royalties whenever it wants?

TREASURER:

Well, certainly under the arrangements we've put in place, we wouldn't expect them to be continuing to increase royalties because what we're going to put in place is a distribution of the Minerals Resource Rent Tax which will invest in places like Western Australia and Queensland which are making such a significant contribution to the Australian economy.

There's no doubt that under the constitution they have a right to increase their royalties. The problem here is that Mr Barnett has really kicked an own goal because under the existing Grants Commission rules he'll probably lose all of the revenue, and that won't come to the Commonwealth that will actually go to the other states. So it's a very odd thing for him to do because this is what he's complaining about, and that's why we've sat down with Mr Barnett and agreed on a review of the formula.

MURRAY:

How can you say what the Grants Commission's going to do when there's a review of those GST arrangements under way now?

TREASURER:

Two things Paul, that's a very good question. Firstly, that review is going on over the next two years so we won't have a result from that. What we already have is the approach of the Grants Commission, and you're dead right, they are independent. They take the decisions independently from us, but in the past the way in which they have treated these sorts of decisions – the Treasury advises me – will result in less revenue most probably to Western Australia and more to the other states. So it's just…

MURRAY:

Which is why WA was looking for a new approach.

TREASURER:

Too right. Which is why we've actually sat down with them. Paul, I come from a mining state. I've got a great affinity with Western Australia and Queensland, you know, great engine rooms of the economy. That's why we sat down with Colin Barnett and agreed to have this review by Nick Greiner and John Brumby to work our way through the issues. I think Western Australia does have a case but I just don't see how this decision really assists Western Australia.

MURRAY:

Wayne, if you come from a mining state you know how important royalties are to state finances and you also to understand that the state owns those royalties – the Federal Government doesn't – and it can do with them what they want. The Barnett Government has never agreed with your mining tax.

TREASURER:

Well, Mr Barnett was quite sympathetic to the objectives of the mining tax for a while there. He changed his mind after that. But what we've got to do is to make sure that we get a distribution of these profits to the mining states. And we sat down and said that with the Mining Resource Rent Tax what we wanted to do was to put in place a fund which was going to invest in infrastructure. We've already made a commitment to the Gateway Project out of revenue from the MRRT, that's a couple of hundred million dollars, one of the most important infrastructure projects in Western Australia and we want to do more because we recognise that states like Queensland and Western Australia are hungry for investment, they really want the Commonwealth to partner with state and local government. That's what we're doing. We've made big commitments to infrastructure in Western Australia so far. We get all that.

MURRAY:

What do you think the political implications for Labor will be if you withhold even more GST from WA?

TREASURER:

Well, we don't withhold the GST. This is a decision which is taken by the Grants Commission. Now, Mr Barnett likes to say it will be the Federal Government doing that. It's not the Federal Government doing that. This is a formula that has applied under the previous Liberal federal government. It's applied for 40 years.

So if there's a change here as a result of what Mr Barnett has done, he knows it will be taken by the Grants Commission. He will try and tell the people of Western Australia it's not the Grants Commission, it's the Federal Labor Government. But we remain willing to work with state and local governments in Western Australia to invest in infrastructure and to get the best deal, and that's what we're working for. That's why this is such a strange decision. It's really just smacks of politics because in the short term if the grants commission does what the Treasury has advised me they would normally do then it's counterproductive. So it's too smart by half.

MURRAY:

If the Grants Commission is truly independent why did you say in the statement you put out yesterday afternoon, this; you said this: 'The Federal Government does not intend to intervene in the Grants Commission process to save Mr Barnett from the effects of his own decision to play politics with the mining boom'. By saying that you are saying you could save Western Australia.

TREASURER:

No, I'm not saying we could. They generally take, they always take their decisions independently. There has been an issue between lump and fines, and how they were treated. Now he has equated those royalties with the higher value, that fines with the higher value royalties and if the Grants Commission treats them as higher value, then they will lose a lot of money.

MURRAY:

Why would you say you don't intend to intervene in the process to save Mr Barnett if you couldn't?

TREASURER:

Well, in the past when they have been treated differently we've made the point to the Grants Commission that they are different, but at the end of the day the Grants Commission takes its own decisions. In this case Mr Barnett has now equated the treatment of both those products. That's the whole point.

MURRAY:

When West Australians voted for the GST there was an understanding that all of the revenue would go back to the states and what we found out progressively is that we've just been duded on that.

TREASURER:

No, I'm sorry Paul, all of the GST revenue goes to the states and it is then distributed on a formula through the Grants Commission, by the Grants Commission and the same basis…

MURRAY:

The understanding was that we would get back our share of the GST. What we in Western Australia spent on the GST we would get back.

TREASURER:

Well, in the early days of the GST you were getting back more than your share and other states were losing more than their share. You see, it changes over time. In recent times Queensland and Western Australia have become donor states. Whereas the 30 or 40 years before that they were receiving more than they paid under the formula. Then of course the mining boom has come along, it's been a big contributor to revenue in WA in particular. That's why we've sat down with Colin Barnett and agreed to this review because we do agree that the level it's getting to in WA do deserve a thorough review. So we've agreed with him on that but the way they're working at the moment, and he know it, is that under these decisions a large part of this revenue increase will go to other states, not directed by the Commonwealth. That's the way the formula has worked.

MURRAY:

I can tell you how West Australians will take it. They'll blame Canberra. They'll blame you.

TREASURER:

That's what Colin Barnett is doing. That's true, he's going to turn around and blame us and say this is the Federal Labor Government that's doing this. The fact is he's kicked an own goal. We are sitting down through this review process looking at all the legitimate issues that are raised by Western Australia and other states like Queensland and working our way through it. The formula that operates now will most likely see most of this increase distributed elsewhere. That's why it's such a strange thing for him to do.

MURRAY:

Yeah, and I can understand that you see it that way and are you in fact worried that behind all of this is it the State Government's trying to set up some sort of a constitutional challenge to the mining tax?

TREASURER:

Look, I think they're just trying to set up a political fight for their own political purposes. What I'm really interested in is working constructively with state and local government, and as you know I've been there in the last couple of days. It's a great state, it makes a very significant contribution to our economy. We've got to get all of our settings right and I'm prepared to work with anyone to make sure we do the right thing by Western Australia and the rest of the country, and that's what the Commonwealth is doing, and that's what the Prime Minister did when she sat down with Premier Barnett and agreed on the review process to the formula. And you know, we'll keep doing that. If he wants to play the political games that he's playing now he can continue to do that. We'll get on working with the industry in Western Australia to make sure we maximise the benefits for Western Australians.

MURRAY:

Finally, as a result of this move yesterday, is your much prized surplus in 2012-13 now a deficit?

TREASURER:

No, not at all, and that's just another line being run by the West Australian Liberals in conjunction with one or two newspapers. It doesn't endanger the surplus at all.

MURRAY:

But you have to refund that under the agreement that Julia Gillard signed with the big three, you have to refund that $1.9 billion to the miners.

TREASURER:

Well, I don't accept the figure that he's got by the way. The figure that he's got in his Budget papers once again is very strange. I'm advised by our Treasury that it's not a realistic estimate, but it doesn't endanger our surplus as is being claimed by the West Australian Liberals. It's based on assumptions about an exchange rate which we don't believe are realistic. So it doesn't endanger our surplus at all, but what it does endanger is a cut in company tax rates. A cut to small business, a tax cut for small business and, of course the money that we want to spend on infrastructure in Western Australia that will assist the state. That's what it endangers.

MURRAY:

Great to talk to you. Thanks Wayne.

TREASURER:

Good to talk to you Paul.