Perth press conference
FERGUSON: Firstly in terms of the decision of the WA Government to increase iron ore royalties today, the Commonwealth will honour its deal with the mining industry in terms of crediting royalties. As far as we are concerned a deal is a deal. But in terms of the Western Australian Government's decision I might say they might have cut their own nose off to spite themselves with respect to the potential impact on the Commonwealth Grants Commission process. Today's announcements clearly send a message to the Commonwealth Grants Commission from the WA Premier that Western Australia has a greater capacity to actually raise revenue. That will clearly be appropriately considered by the independent Commonwealth Grants Commission in the determination of grants to state and territory governments in Australia. So in essence this short term grab for cash by the Western Australian Government in terms of increasing iron ore royalties might be to the eventual disadvantage of the West Australian community.
The Commonwealth will also obviously honour its commitments in terms of the broader community. Given our patchwork economy at the moment, as Minister for Tourism I understand the impact on a lot of industries such as tourism. With respect to our desire to actually cut company taxation and I might say make it more attractive to small businesses to purchase necessary capital equipment in a very tough environment given the strength of the dollar. The Commonwealth will also honour its commitment in terms of infrastructure spending to the very important Gateway project, which represents a huge potential productivity boon for the whole Western Australian community given the complexities of the operation of the airport at the moment.
But Western Australia must also appreciate that in terms of its cut of the mining tax – a profits based tax – that also reduces our capacity because of the higher take in Western Australia in the crediting of royalties to spend additional money on infrastructure in Western Australia. Clearly the Western Australian community has now got to direct its attention to the Western Australian Government in terms of those potential outstanding infrastructure projects.
QUESTION: So that's how WA will be penalised is through the Grants Commission?
FERGUSON: The Treasurer's view is that the announcement by the Western Australian Government to increase iron ore royalties sends a very strong message to the Commonwealth Grants Commission that the revenue raising capacity of Western Australia is far higher. The increased revenue from royalties will be taken into consideration in future independent Commonwealth Grants Commission allocations of revenue to Western Australia. So on first blush it would seem that Western Australia is the loser out of the Commonwealth Grants Commission processes as a result of the WA Government's decision today.
QUESTION: So it's really just a round robin of money (inaudible)? Because the federal government has committed to rebating or giving money back to the iron ore companies under the MRRT (inaudible)?
FERGUSON: Well the issue really is for the mining industry in the medium to long term. We’ve got a high level of activity at the moment. They themselves actually favour a profits-based tax system. Remember as a result of today - be it in good times or bad times - the iron ore industry is now going to pay far higher royalties in Western Australia. And that's why the profits-based system which we are going to put in place is better for the industry because you only actually pay the higher taxation during times of good profits. From here on in for Western Australian iron ore companies you'll be paying far higher royalties both in good and bad times.
QUESTION: So in terms of GST has WA shot itself in the foot?
FERGUSON: The Commonwealth considers that the WA Government may have shot itself in the foot today in terms of increasing iron ore royalties because it will result in a reduction in Commonwealth grants to Western Australia as a result of the independent process that exists.
QUESTION: But can you really attack WA for this when they have been signalling for a long period of time that they haven't been getting their fair share of GST revenue? And this is perhaps their way to recoup revenue?
FERGUSON: The Government entered into a process to actually look at a simpler and a fairer approach to the allocation of revenue across all states and territories. I would have thought this matter was an issue that should have been put on hold to await the outcome of that process and perhaps that would have been a better approach.
But you know I think the Commonwealth learnt last year in terms of its dealings with the mining industry to go through a proper process of consultation. The feedback I have got over the last 24 hours that in terms of this increase in mining royalties there has been no consultation with industry and I think it is reflected in some of the irate comments by representatives of the industry this afternoon.
QUESTION: How much more difficult will it be for the government to get back into surplus now that you have in essence lost $2 billion?
FERGUSON: The decision of the WA Government will not have any impact on our objectives in terms of returning the budget to surplus. What it does is reduce our capacity to actually invest in infrastructure in Western Australian beyond the Gateway project. And clearly we will work through the impact over time but the more immediate impact for the WA community in terms of schools and hospitals and support for road infrastructure and public transport, etc is the potential loss out of the Commonwealth Grants Commission process. That's the real immediate impact but the Government – I simply reinforce the Commonwealth will stick by its agreement with the mining industry. We will credit the royalties. Not happy about it because it reduces our capacity to further invest in necessary infrastructure in Western Australia but we remain committed to cutting company taxation, tremendously important to you know non-mining industry representatives at the moment in the services sector, the retail sector, the tourism sector, etc assistance to purchase new capital equipment. They're given from us and we'll honour those undertakings. But you know I actually thought there probably would have been a better way to go about this as we have entered into a very public process to review, to try and get a simpler and fairer Commonwealth Grants Commission process.
Thanks very much.