Eight years after a political compromise reshaped how Australia distributes its goods and services tax, the nation's Productivity Commission has concluded that the arrangement struck to appease Western Australia has cost the federal budget $23 billion and quietly undermined the foundational principle that every Australian, regardless of postcode, deserves comparable government services. The 2018 floor deal — born of a genuine grievance about how resource wealth was penalising a prosperous state — has instead created a two-tiered fiscal order where improvement is rewarded for one and punished f
Productivity Commission calls WA GST deal a 'costly mistake' costing $23bn
If Western Australia improves, it gains more. If others improve, they lose.
Mark
Why does it matter so much how GST gets divided between states? Isn't this just accounting?
Mimi
It's not accounting—it's about whether a child in rural Queensland gets the same school funding as one in Perth, whether a hospital in Adelaide has the same resources as one in Western Australia. The GST is how states pay for those things. The formula was designed so that need, not wealth, determined the split.
Mark
So the Morrison deal broke that principle?
Mimi
Completely. It said Western Australia's wealth should not reduce its share. But the GST pool is fixed. So other states had to be compensated from general federal money—money that could have gone anywhere. It created a system where only one state's success is protected.
Mark
The commission says it costs $47 billion. How is that number calculated?
Mimi
It's the total amount every other state and territory would need to receive to have the same fiscal capacity Western Australia now has under the deal. It's not money spent—it's the measure of the inequality baked into the system.
Mark
Could Albanese just scrap it?
Mimi
Politically? It's hard. Western Australia would cry foul. But other states are now openly saying the deal is unfair. He's caught between them. The commission gave him options, but none are painless.
Mark
What happens if nothing changes?
Mimi
The cost grows. Mining revenues stay strong. Western Australia keeps winning. Other states keep losing. The system drifts further from its original purpose—ensuring Australians get equal services wherever they live.
O Pulso
- A $23 billion price tag over six years has transformed what was sold as a fairness fix into what the Productivity Commission now calls a 'costly mistake' warping the entire national revenue-sharing system.
- The deal's internal logic is self-defeating: when South Australia strengthens its fiscal position it receives less GST, while Western Australia faces no equivalent penalty — a structural inequity the commission values at $47 billion across all other states and territories.
- Treasurers from Queensland, South Australia, Victoria, and New South Wales have broken into open condemnation, with one calling it 'a dog of a deal' and another invoking the founding principle that an Australian in Sydney deserves the same services as one in Perth.
- The commission has offered three paths forward — scrap the deal entirely, replace it with transparent direct payments, or strip it back to a fixed floor — but the Albanese government, having already extended the arrangement to 2029, has so far offered only careful deferral.
- Western Australia insists its economic success should not be penalised, yet the commission's own framing reframes the debate: one state's structural advantage is being built, dollar for dollar, on every other state's structural disadvantage.
Eight years after a political compromise reshaped how Australia distributes its goods and services tax, the nation's Productivity Commission has concluded that the arrangement struck to appease Western Australia has cost the federal budget $23 billion and quietly undermined the foundational principle that every Australian, regardless of postcode, deserves comparable government services. The 2018 floor deal — born of a genuine grievance about how resource wealth was penalising a prosperous state — has instead created a two-tiered fiscal order where improvement is rewarded for one and punished for others. As the Albanese government awaits a final report in December, the question is no longer whether the system is broken, but whether the political will exists to fix it.
Eight years after Scott Morrison struck a deal to shield Western Australia from the consequences of its own mining wealth, the Productivity Commission has delivered a blunt assessment: the arrangement has cost $23 billion, distorted the national revenue-sharing system, and produced outcomes that are fundamentally inequitable.
The original grievance was real. As mining booms enriched Western Australia, the standard GST distribution formula — designed to direct more money to states with greater need — penalised the state for its success. Morrison's solution was to impose a floor, guaranteeing Western Australia would never fall below 75 percent of its per-capita share, or whatever Victoria and New South Wales received, whichever was higher. Between 2018 and 2025, Western Australia received $22 billion more than it would have under the old formula. To prevent other states from losing ground, a 'no worse-off guarantee' was added, drawing compensation from general federal revenue — creating, in the commission's words, a 'perverse' two-tiered system.
The structural absurdity is precise: if South Australia improves its fiscal position, it receives less GST because the formula deems it less needy. If Western Australia improves, it loses nothing. The commission calculated that closing this gap would require $47 billion flowing to every other state and territory.
The interim report recommends scrapping the deal and returning to pre-2018 arrangements, with adjustments to manage the volatility of mining revenue. Two lesser alternatives are offered if the government refuses: replace the floor with direct, transparent payments from non-GST revenue, or fix the floor at 0.75 only and sever its link to other states' outcomes.
Prime Minister Albanese, whose government has already extended the deal through 2029, offered careful words about Western Australia receiving its 'fair share' and deferred to December's final report. The political pressure around him is building. Queensland's treasurer challenged Chalmers to defend his home state. South Australia's called it 'a dog of a deal.' Victoria's said the findings vindicated years of complaint. New South Wales's invoked the system's founding principle: an Australian in Sydney deserves the same government services as one in Perth.
Western Australia's government has held its ground, arguing that economic success should not be penalised. But the commission's deputy chair reframed the question entirely — the system exists to ensure comparable services for all Australians, and the current arrangement does the opposite. The federal government now faces a choice with no comfortable exit: scrap the deal and anger one state, preserve it and deepen resentment across the rest, or find a middle path that may satisfy no one. The final report arrives in December. Whether the political will to act on it follows is another matter.
Eight years after Scott Morrison struck a deal to give Western Australia a larger slice of the national GST pool, the Productivity Commission has delivered a damning verdict: the arrangement is a costly mistake that has warped the entire system of how Australia funds its states and territories.
The 2018 agreement was meant to address a specific grievance. As mining booms made Western Australia wealthy, the standard formula for distributing GST revenue—which directs more money to states with greater need and fewer resources—penalized the state for its own success. Morrison's solution was blunt: impose a floor on how little any state could receive, ensuring Western Australia would never fall below 75 percent of its per-capita share, or whatever Victoria and New South Wales got, whichever was higher. In practice, only Western Australia has consistently benefited. Between 2018-19 and 2024-25, the state received $22 billion more than it would have under the old formula. The total cost to the federal budget: $23 billion.
But here is where the system breaks down. The GST pool is fixed. Money flowing to one state must come from somewhere else. To prevent other states from losing ground, Morrison added a "no worse-off guarantee"—compensation payments from general federal revenue to make up the difference. This created what the Productivity Commission calls a "perverse" two-tiered system. If South Australia improves its fiscal position, it receives less GST because the formula deems it less needy. If Western Australia improves its position, it either loses nothing or gains more. The commission calculated the total cost of this inequity at $47 billion—the amount every other state and territory would need to receive to match the fiscal capacity Western Australia now enjoys.
The commission's interim report, released this week, recommends scrapping the deal entirely and returning to pre-2018 arrangements, with tweaks to the underlying formula to address volatility caused by mining revenue swings. If the federal government refuses to abandon the deal, the commission offers two alternatives, both less desirable. The first would replace the current system with direct, transparent payments from non-GST revenue to states deemed unfairly penalized by their economic performance—money for Western Australia would still flow, but without forcing other states to lose. The second would keep the floor but fix it at 0.75 only, severing the link to Victoria and New South Wales outcomes.
Prime Minister Anthony Albanese, whose government has already endorsed and extended the deal through 2029, said Western Australia would "get its fair share" but deferred detailed comment until the final report arrives in December. The political ground beneath him is shifting. Queensland's treasurer called the current system unfair and challenged Chalmers to "stick up for his home state." South Australia's treasurer called it "a dog of a deal." Victoria's treasurer said the interim findings vindicated years of complaint. New South Wales's treasurer invoked the principle at the heart of the original system: an Australian in Sydney deserves the same government support as one in Perth.
Western Australia's government has pushed back, with its treasurer reiterating that the state's economic success should not be penalized and that the formula fails to support national growth. But the Productivity Commission's framing cuts against this argument. The commission's deputy chair noted that the system should serve its core purpose: ensuring all Australians can expect similar government services regardless of where they live. The current arrangement does the opposite. It has created a system where one state's advantage is built on other states' disadvantage, where fiscal improvement is punished unless you are Western Australia, where the rules themselves depend on which side of the ledger you sit.
The federal government now faces a choice that will ripple through interstate relations for years. Scrap the deal and face Western Australia's anger. Keep it and watch other states grow more resentful. Find a middle path and risk satisfying no one. The commission has handed Chalmers an escape route, but whether he takes it remains unclear. The final report in December will clarify the technical options. The political will to act on them is another matter entirely.
Citações Notáveis
The GST system is now built on two sets of rules: one for states in a better fiscal position than Victoria and New South Wales, such as Western Australia, and another for everyone else.— Productivity Commission commissioner Angela Jackson
The system should be brought back to its core purpose: ensuring that all states and territories can offer Australians a similar standard of services and infrastructure no matter where they live.— Productivity Commission deputy chair Alex Robson
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Politics & Governance