A memory lapse ... or is Wayne Swan loose with the truth?

WESTERN Australians have a right to feel cheated and downright abused by the federal government.

WESTERN Australians have a right to feel cheated and downright abused by the federal government's reaction to their state government's decision to increase mining royalties on iron ore.

It was announced in last week's state budget and immediately the bully-boy language from the federal government began.

Threats and suggestions that Western Australia would pay a high price through a decline in federal infrastructure spending came thick and fast from the Prime Minister and the Treasurer.

And there were claims the state would get an even smaller share of GST revenue as a consequence.

"Mr Barnett did not communicate that he was going to do this to us," Wayne Swan said.

Well, he may not have picked up the bat phone, but the idea this move by Western Australia came as some sort of surprise to the federal government should be dispensed with immediately.

Last May, West Australian Under Treasurer Tim Marney wrote to then head of federal Treasury Ken Henry telling him of potential plans to lift mining royalties, which "would include the removal of existing iron ore royalty rate concessions, which would see both fine and lump iron ore royalty rates being levied at 7.5 per cent . . . by 1 July 2012".

And that is what last week's West Australian budget did.

The idea that just maybe Swan wasn't told of this development last year can also be dispensed with, because a week after Marney's letter, federal Treasury wrote to the federal Treasurer's political office stating: "Western Australia indicated at a recent Commonwealth Grants Commission meeting (prior to the announcement of the Resource Super Profits Tax) it was considering increasing the royalty rate on iron ore fines from the current rate of 5.625 per cent, to the 7.5 per cent rate for lump ore."

What does that tell you about claims by Swan and others that they were "surprised" by Western Australia's budget decision?

Either Swan's office doesn't pass important news on to him, or Swan is being a little loose with the truth. At the least, we need Swan to explain the disjuncture between the facts and his rhetoric.

It isn't just that mining royalties are a state's right under the constitution, or that Western Australia already carries the nation with its GST transfers, which see it retaining an ever decreasing fraction of the monies West Australians pay.

The idea the federal government would withhold infrastructure funds as payback is the ultimate example of a government cutting off its nose to spite its face.

Federal Labor needs to get back to surplus by 2012-13 as it has long promised to do, and if it doesn't, more than a few senior Labor MPs know the government's credibility will be irreparably damaged.

While it might be frustrating for Swan and his colleagues to see hundreds of millions of dollars drained out of the surplus projections he put to federal parliament just two weeks ago, more damaging would be the harm to development in the west from withholding infrastructure funding.

The feds need Perth and its outlying areas to prosper so the revenue from company taxation and mining super-profits taxes (yet to be legislated) is huge. It underpins future surplus projections.

Political theatre aside, the federal government should avoid doing anything that jeopardises that, and withdrawing infrastructure funding does jeopardise it.

We are yet to see debate over the second incarnation of the mining tax really heat up. Because Gillard managed to strike a deal with the big three miners, there is an illusion of co-operation in the air.

In truth, the small miners oppose the design of the tax, as does the West Australian government.

And then there is Tony Abbott, who will look to use opposition to the mining tax alongside his other negative messaging over the carbon tax and the NBN in the lead-up to the next election.

All eyes have been on the carbon tax lately, and they will continue to be in coming weeks as legislation starts to be drafted. But watch for the rise of attention on the mining tax, especially if other states follow the west and lift royalty rates, which the feds have promised to rebate to the miners.