Western Austrajaw crushers in tanzanialia will plough some of its unprecedented mining wealth into a future fund it says will be worth at least $4.7 billion within 20 years and will preserve the benefits of the resources boom for future generations.
In the first move by a state government to establish a wealth fund, West Australian Treasurer Christian Porter said he would use $1.1bn of the government's rapidly growing mining royalties as seed capital for the fund, which would be quarantined until 2032.
Mr Porter rejected suggestions the money would be better spent immediately on infrastructure to sustain the boom, saying the money was at risk of being wasted on promises in the lead-up to next year's state election.
A spokesman for Wayne Swan last night said the federal Treasurer had rejected suggestions the commonwealth should also establish a sovereign wealth fund.
Mr Swan has said the government would be better off investing in infrastructure and in spreading the benefits of the boom through the proceeds of the mining tax.
The Greens have backed the creation of a national sovereign wealth fund to preserve tax revenue from the boom and limit the shock to the economy from the strong dollar. Mr Porter announced the creation of the future fund as he unveiled a projected surplus of $196 million for 2012-13 and said the state's economy was growing at a nation-leading rate of 6 per cent.
The growth is being fuelled by $270bn in projects that are either under way or being planned.
Western Australia is expecting to collect total mining royalties of $4.87bn in 2012-13, climbing to a record $6.56bn by 2015-16.
The budget included an upgrade of $300m in additional revenues that Western Australia expects to collect from its decision last year to increase iron ore royalty rates. It includes an estimate of almost $1bn in additional royalties in 2015-16 that was not included in last year's budget.
Western Australia's financial fortunes contrasted with those of Tasmania, which yesterday released a budget forecasting a deficit of $289m this financial year, a blow-out of $176m on original projections.
The upgraded forecasts in the West Australian budget present Mr Swan with a headache after he promised the big mining companies, including BHP Billiton and Rio Tinto, that he would reimburse them for all royalties they pay the states once the minerals resource rent tax starts in July.
The federal Treasurer agreed at the time to also foot the bill for any future state royalty increases.
It is unclear what effect the revised forecasts for refunds under the MRRT will have on the federal budget.
The real impact is further clouded because the assumptions that underpin the West Australian and commonwealth budgets are radically different, with the commonwealth making the assumption that the dollar will hold at $US1.03 while Western Australia assumes that it will fall to US78.9c by 2015-16.
A spokesman for Mr Swan said: "(Premier Colin) Barnett has been running around saying federal government policies are hurting the boom, yet now he's claiming a big increase in royalty receipts. It just goes to show the scaremongering has all been empty political posturing."
Mr Porter said Western Australia was responsible for 70 per cent of national jobs growth over the past year, and the state was being inundated with 1000 people a week arriving to work in the resources industry.
"What's happening in Western Australia is really quite extraordinary," he said.
Mr Porter said the state's revenues were shrinking fast as it was penalised for its success by the Commonwealth Grants Commission. WA would get only 55 per cent of its population share of national GST revenue next year, and this would decline to just 25 per cent by 2015-16.
"The federal Labor government's decision to cut WA's GST share is the single greatest economic threat to WA," he said.
But the federal Treasurer's spokesman said that when all payments from the commonwealth were taken into account, WA's share was closer to that of NSW and Victoria at 88c in the dollar.
"Mr Barnett and Mr Porter need to stop making excuses for their budget and acknowledge some facts about the degree of their commonwealth funding," the spokesman said
Mr Porter's pre-election budget held increases in electricity bills to the rate of inflation, following several years of steep rises, in an attempt to calm voter anger over the rising cost of living.
Mr Porter's second budget contained $7.6bn to be spent on infrastructure next year to fund a raft of projects, including the Perth waterfront development, a new sports stadium and a children's hospital.
Net debt will peak at $23.2bn in 2014-15 but this remains within the limits needed for WA to retain its AAA credit rating.
Mr Porter defended the creation of the future fund, saying the government was spending record amounts on infrastructure, and the best way of using the money was "not to spend it".
But the WA Chamber of Commerce and Industry said the fund was a mistake. "We believe businesses are the generators of wealth, and investing today will drive wealth for future generations far in excess of a savings vehicle that the government establishes," said CCI chief economist John Nicolaou.
"The real value of that money in 20 years won't be able to deliver much in the way of infrastructure. We're going through a phenomenal rate of growth in this state's economy, and there are infrastructure bottlenecks everywhere. We have a tax system that could be more competitive over time, and if the government invested today in infrastructure and tax relief you would achieve wealth-generation that would be far in excess of a savings vehicle."
Mr Porter said the future fund would invest only in low-risk government bonds and would be run through the WA Treasury Corporation to minimise administration costs.
The government will establish the fund by contributing $223m in savings it cut from its Royalties for Regions program and a further $820m it generated from lifting iron ore royalties last year.
Legislation to create the fund will require that at least 1 per cent of the state's annual mining royalty revenue - about $70m a year on current estimates - be put into the fund from 2016-17.
All interest earned will be reinvested in the fund, and Treasury has estimated conservatively the fund would be worth $4.7bn by 2032.
Mr Porter said future governments would be prevented from breaking into the account until 2032, after which they would only be able to spend the annual interest revenue on health, science, technology, education and cultural infrastructure.
The money would be divided roughly equally between regional and metropolitan projects.
He said the fund would be expected to earn annual returns of about 5.2 per cent.
Opposition Treasury spokesman Ben Wyatt described the fund as a desperate attempt to distract from the deterioration of the state's finances.
