The federal government has agreed to redirect money it had put up for the now-axed Perth Freight Link to the West Australian government’s preferred project – the Metronet.
The two governments have struck a $2.3 billion agreement, including an extra $400 million, in funding to be included in Tuesday's budget for 17 road and rail projects that will create 6000 new jobs.
A combined $1.2 billion will be allocated towards the Perth Metronet rail project.
Now premier Mark McGowan had made dumping the Perth Freight Link in favour of the Metronet a key policy ahead of the March election campaign which Labor won decisively.
Until now the federal government, including Prime Minister Malcolm Turnbull, had publicly baulked at reallocating the funds.
"There is no business case - they have got a way to go," Mr Turnbull said on March 20, nine days after the state election left the Liberal party with just 13 seats in the 59-seat parliament.
But on Sunday, Mr Turnbull said the decision to redirect the funds acknowledged the WA government's priorities.
"In particular, the state government's Metronet initiative fits in well with my government's Smart Cities agenda, and we will continue to work with the premier and his team to help make it happen," he said in a joint statement with Mr McGowan.
But the federal government isn't giving up on the Perth Freight Link.
"We still believe Perth Freight Link is important, we believe it will need to be built at some stage, because of its capacity to reduce congestion in the suburbs of Perth," Infrastructure Minister Darren Chester told ABC TV on Sunday.
"But we have to be pragmatic, have to work with the government of the day, you have to play with the cards you are dealt with."
Federal Finance Minister Mathias Cormann told the paper that he still believed the freight link was "critically important" to WA, but the government was being pragmatic.
Funding for the Metronet rail network was one of the top two items on the new WA Labor government's federal budget wishlist.
The other is cold, hard cash to compensate for getting the lowest share of GST.
The contentious GST distribution issue will be the subject of a new Productivity Commission inquiry.
WA's share is 34 cents for every dollar raised this year compared to about or above the 100 cent mark for the rest of the country, with Victoria and NSW around 90 cents.