Western Australia Premier Colin Barnett laughed at the caution posed by the federal government that it will lose funding for major projects after using its budget to lift royalty rates.

This after WA Treasurer Christian Porter announced an increase on the royalty rates on iron ore fines from the present rate of 5.625 per cent to 7.5 per cent by 2014.

The increase in royalties for iron ore fines will create a black hole in the federal government’s budget as it is expected to bring in $1.9 billion in extra royalties to WA's coffers by 2015.

Prime Minister Julia Gillard, whose administration will have to recompense the miners the reported rise in royalty rates under the Minerals Resource Rent Tax (MRRT), said the resolution would cost WA in infrastructure funding.

Gillard told reporters in Adelaide, "We will deliver that budget surplus and, as a result of the actions of Premier Barnett, of course we will ... be adjusting infrastructure expenditure for WA to protect the federal budget.”

Barnett dismissed the admonitions and expressed unbelief in any promise from the commonwealth about infrastructure. It can be recalled that in 2007, federal Labor assured it would set up an infrastructure fund for WA from the income from Gorgon and Pluto LNG gas project, worth about $100 million a year.

Barnett reiterated, "I hadn't seen that yet. I don't believe any promises that come out of Canberra.”

Whether the royalty rate hike would bring in nearly $2 billion over three years is the concern of Treasurer Wayne Swan. He has ordered treasury officials to look into the issue on the weekend.

Porter said WA Treasury’s calculations are "fair and conservative estimates".

He added that whatever inferences the increase in royalty rates on iron fines had on the federal financial plan was something the Gillard administration would have to work through for themselves.

Swan accused the WA premier of being misguided in lifting royalties and was "playing politics" with the mining uproar.

Barnett replied that the decision to increase royalties was based on principle and had no connection with the MRRT.