Key facts
- The Productivity Commission (PC) has described the GST deal with Western Australia as a costly mistake that should be reversed.
- The deal, implemented under the former Morrison government, has cost taxpayers nearly $23 billion to date and is projected to reach $60 billion by 2029-30.
- The PC found the reforms achieved few objectives and made the system less equitable, with only Western Australia benefiting.
- The deal placed an effective floor under any individual state's GST share, preventing them from receiving less than New South Wales or Victoria.
- The PC recommended overhauling the GST distribution system to ensure all states can offer similar standards of services and infrastructure.
- Despite criticism, the federal government and opposition are expected to maintain the deal due to political considerations.
The Australian Productivity Commission (PC) has issued a scathing interim report on the Goods and Services Tax (GST) deal with Western Australia, labeling it a "costly mistake" that should be reversed. The report indicates that tens of billions of dollars of taxpayer money has been directed to the state under the reforms, which were implemented under the former Morrison government with bipartisan support.
According to the PC's review, the deal has failed to achieve most of its objectives and has diminished the equity of the GST distribution system. Deputy chair Alex Robson stated that the reforms reshaped a system needing targeted changes, resulting in a large and increasing bill for taxpayers. He emphasized that the system's core purpose should be to ensure all states and territories can provide Australians with a similar standard of services and infrastructure, regardless of their location.
The GST distribution system, managed by the Commonwealth Grants Commission, allocates GST revenue based on states' fiscal capacities. However, the 2018 deal, struck after Western Australia's GST share significantly decreased due to the mining boom, established a floor ensuring no state receives a lower per-person share than New South Wales or Victoria. This has resulted in substantial costs to the federal government, far exceeding initial forecasts.
Commissioner Angela Jackson highlighted the "perverse outcomes" of the deal, explaining that states improving their fiscal position receive less GST, while Western Australia either retains its share or potentially receives more. The report also noted that a natural disaster in one state could lead to increased GST revenue for Western Australia, even if unaffected.
The PC's interim report was released following a meeting of state and federal treasurers, where all jurisdictions except Western Australia expressed support for a significant overhaul of the current system. Queensland Treasurer David Janetzki welcomed the PC's recognition of the need to address the "unfair" GST distribution, particularly concerning resource-rich states.
As a less desirable alternative, the PC suggested making the "no worse-off" payments permanent if the government is unwilling to alter the core WA deal. However, the federal government and the opposition are expected to maintain the current arrangement, recognizing the political importance of winning votes in Western Australia. Prime Minister Anthony Albanese has previously pledged to uphold the deal, citing Western Australia's role as a driver of the national economy.
The "no worse-off" payments alone associated with the 2018 deal are estimated to cost taxpayers $6.4 billion in 2024-25, a sum the PC suggested could have funded a tax cut of over $450 for every taxpayer. The PC plans further consultations before releasing its final report later this year.