Nearly $1 billion in extra royalties could flow into WA’s coffers in the coming months as iron ore prices soar in response to the Vale dam disaster in Brazil.
Premier Mark McGowan says his Government will not blow any “windfall” it receives but will use it to pay down State debt.
But Steve Thomas, the shadow minister for the environment, warned it could be the first big test of the new GST arrangements.
ANZ commodities analysts forecast WA will receive extra royalties worth $700 million by the end of June — but potentially as much as $950 million — as global iron ore prices soar in response to the severe supply disruption caused by last month’s Vale mine disaster.
Iron ore prices have jumped from US$75 a tonne before the disaster to US$90 a tonne, and could go even higher — and remain at elevated levels — with Vale forced to halt millions of tonnes of production.
Daniel Hynes, a senior ANZ commodities analyst, said iron ore prices of up to $US100 a tonne could last “for quite a time” because it was unlikely Vale would be able to restore production to previous levels for months.
“It’s difficult to know how long they will be out for,” Mr Hynes told The West Australian.
“On initial estimates of the disruption, which we think could be around 40 to 50 million tonnes, (the price) could be as high as $100 a tonne.
“If it does extend for more than six months then I think we could see prices remain at those types of levels for quite a time.”
Mr McGowan said his Government would use any extra royalties to pay down the $40 billion of debt “the Liberals and Nationals left us with”.
“So we have to make sure we’re always focused on good financial management and you don’t blow windfalls you get,” he said.
Under new Federal legislation, WA’s GST floor of 70¢ will begin in 2022-23, but WA will receive top-up payments from the Commonwealth over the next three years to ensure the State receives an effective GST relativity of 70¢ until the floor kicks in, worth $2.4 billion.
Mr Thomas said he would like to know if WA experiences a mini iron ore boom over the next couple of years, with prices holding about $US90 or above, if some of the windfall would be redistributed and the GST top-up amounts adjusted, ahead of a floor being introduced in 2022-23.
Treasurer Ben Wyatt said the Government would not assume that iron ore prices would remain at $US90 a tonne.
“The current Government has learnt from the mistakes of the previous Government, and accordingly does not assume that temporary windfall gains will continue well into the future,” he said.
He also questioned Mr Thomas’ concern about the GST arrangements. “Mr Thomas seems to be suggesting that a Federal Liberal Government might simply refuse to pay their tab ... because the legislation clearly sets out the Commonwealth will pick up the tab of any current year royalties below the floor. That is why the McGowan Government fought so hard for a GST floor.”