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Regions to get $900m bonanza

Country WA can expect a Royalties for Regions bonanza of close to $900 million when Premier Colin Barnett brings down the State Budget on Thursday.

With iron ore and other commodities enjoying recent dramatic price rises, the regional fund is set to be $350 million bigger in 2010-2011 than the $514 million it was allocated this financial year.

The fund is drawn from 25 per cent of the State's mining and oil royalties over and above normal budgetary considerations and capped at $1 billion. Unspent money is returned to consolidated revenue.

But as long as the accumulated amount in the fund is below $1 billion, Nationals leader Brendon Grylls can continue to farm out the money to regional projects.

The prospect of a Royalties for Regions windfall prompted shadow treasurer Ben Wyatt to warn against a Nationals spending spree.

"The $1 billion cap basically forces Brendon Grylls to keep spending, particularly in a strong royalties year, because the last thing he wants is to hit the $1 billion cap and then to start losing money back into consolidated revenue," Mr Wyatt said.

He said that with the fund set to explode this financial year, country local governments will be awash with money.

"All the big projects like the Ord and the Pilbara cities, those very worthwhile projects will take significant percentages of that money but there's still going to be a lot of money sloshing around in that fund that over time they'll struggle to spend."

A number of Royalties for Regions programs were deferred this financial year as the global financial crisis bit into commodity prices.

Programs aimed at boosting local government regional infrastructure will now not only be reinstated but boosted. But Mr Grylls was tight-lipped yesterday about new programs for the fund expected to be outlined in Thursday's document.

"There's a number of checks and balances that ensures the Royalty for Regions fund is spent in a proper manner," a spokesman for Mr Grylls said.

"We feel sure that the programs that will be announced in the Budget will create a better result for regional Western Australia."

While State Treasury is believed to have built price increases into its mid-year review last December, forecasting a Royalties for Regions fund of $741 million next financial year, prices have continued to move, particularly in the spot market.

Volumes have also been high.

Mining industry analyst Peter Strachan said iron ore prices had jumped from $60 to $100 a tonne with spot prices about $120 a tonne.

"Rio Tinto would be selling quite a bit of its ore at a mix with the ore delivered into China as high as $160 a tonne," Mr Strachan said.

The Royalties for Regions fund could be further boosted by the Barnett Government's push to scrap the discount that has historically been enjoyed by BHP-Billiton and Rio Tinto on their small-particle iron ore "fines".