A radical proposal to change the calculation of mining royalties in response to the impact of falling iron prices on the WA budget has been outlined by former WA Nationals leader Brendon Grylls.

In a speech to State Parliament last night, Mr Grylls proposed the introduction of a flat fee for minerals mined that was unaffected by changes in price.

Currently royalties for most minerals are calculated as a percentage of its value - meaning revenues are affected by changes in price.

Treasury officials had forecast an iron ore price that averaged US$123 per tonne, but it has hovered around levels roughly half that mark for months.

As a result, Treasurer Mike Nahan revised his previous forecast of a $175 million surplus for the current financial year to a $1.3 billion deficit.

Mr Grylls, the architect of the Royalties for Regions policy who served as Regional Development Minister until deciding to move to the backbench in late 2013, told Parliament the Government had to respond.

The Member for the Pilbara singled out the iron ore industry in his remarks, accusing them of having a "deliberate strategy" to reduce the commodity's price by flooding a weak market.

"The iron ore belongs to the people of WA in the ground, we have state agreements that define how it can be mined and royalty rates that define what the state collects," he said.

"In light of what's happening we should be looking at those state agreements again.

"Maybe we should be looking at a fixed rate of revenue from our sales of iron ore, so company strategies about prices actually don't affect the state's revenue take.

"You would have thought it would be sensible from a policy setting for the state to have some certainly over what we were going to receive.

"So a fixed royalty rate we knew at the start of the year of the volumes that are being sold would give the state more certainty to budget and wouldn't have us in this situation now of looking at a deficit."

Proposal rejected as percentage preferred

Mr Grylls's comments follow an attack last year on the big companies by Premier Colin Barnett, who said major iron ore miners BHP and Rio Tinto needed to "remember who their landlord is".

His proposal was swiftly rejected by Mr Barnett, who said a fixed price would not work.

"That might be Brendon's view, it's certainly not my view," Mr Barnett said.

"The Royalty Acts go back to the 1960s and even earlier, they are agreements and the ad valorem, which is a percentage of the value of the mineral, has worked very much in Western Australia's favour."

Mr Barnett said fixed price agreements would not be good for WA.

"Some coal agreements historically have been on a fixed price per tonne and the state was getting very little for that," he said.

"In other states, they've also had fixed dollar payments and they haven't worked. Ad valorem is a good principle."

Mr Barnett said he did not think anything could be done to even out the variations in what the state received.

"To go to a fixed price would actually expose the state more to variability," he said.

"What we are doing, which is controversial, is we're trying to make sure that mining companies pay the equivalent of 10 per cent of the value of the mineral.

"The gold industry, which is a bit light on, is resisting that."