Western Australia was warned yesterday that it faces deep and lasting consequences should the state arbitrarily increase the taxes it charges its two iron ore giants.

John Ralph, the former chief executive of Rio Tinto’s predecessor CRA and a former Commonwealth Bank chairman, warned that while the new iron ore tax proposed by WA Nationals leader Brendon Grylls would have a significant impact on Rio Tinto and BHP Billiton, it would cause even greater harm to the state by forever ruining its ¬reputation as a safe and stable place to invest.

He told The Australian that the stability of the legislation governing the state’s world-leading iron ore industry, which was nego¬tiated during the 1960s while he was in the midst of a long career at CRA, had been invaluable to the state.

“It was realised by both parties that if a government unilaterally abrogated an agreement, it would largely destroy the value of any future such agreements and thus do the government and the state great harm,” Mr Ralph said.

Mr Grylls is campaigning ahead of the upcoming state ¬election on a platform that would use a tax increase on Rio and BHP to repair the state’s debt-laden ¬balance sheet.

Mr Grylls wants to lift an ¬obscure 25c-a-tonne lease rental fee charged on the duo to $5 a tonne, which would strip about $3 billion a year out of the two iron ore giants.

While the Liberal and Labor parties have opposed the plan, which would add to the existing estimated $17 a tonne in taxes and royalties already paid by the duo, Mr Grylls could make the policy a condition of any deal to form ¬government in the event of a close election result.

Lifting the charge without the consent of the miners would require unilateral changes by parliament to the existing legislation that has governed the iron ore ¬operations over the past 50 years.

Mr Ralph recalled being told by CRA’s Australian bankers that there was no way the company’s Pilbara iron ore development could be funded from Australian sources, and it was only when CRA could go to international lenders armed with the government’s commitments that the huge project could secure support.

“I am confident that without the agreement and the parliamentary endorsement, the funds necessary for the development would have not been available on the scale and the timing that was achieved,” he said.

The state agreements that today still govern the iron ore ¬operations of Rio and BHP had provided a template for other major developments to follow, and making arbitrary changes to those agreements would devalue both existing and future state agreements.

“The first time an agreement is unilaterally changed, the government will have jeopardised or abandoned the very valuable asset that its backing represented, that has underwritten much of the state’s development,” Mr Ralph said.

“I hope that, if the National Party does get into a position where it can achieve unilateral change to the agreements, it does it with a full understanding of the cost to the future development of the state of Western Australia — the loss of the ability for the WA government, current or future, to offer to enter into agreements that will have the same value in supporting new developments within the state.”

Mr Ralph served as managing director of CRA from 1983 and chief executive from 1987 up until his retirement in 1994.

He went on to sit on some of Australia’s biggest and most prominent boards, chairing the Commonwealth Bank and Foster’s and serving as a director of Telstra and BHP.