Productivity Commission criticizes $60b WA GST deal as costly and inequitable
Consensus Summary
The Productivity Commission has released an interim report criticizing the 2018 GST deal with Western Australia as a costly and inequitable failure. The deal, struck under the Morrison government, was expected to cost $2.3 billion but is now projected to cost $60 billion by the end of the decade, with $22 billion already flowing to WA between 2018-19 and 2024-25. The commission found that the 'no-worse-off' guarantee, designed to prevent other states from losing revenue, has led to perverse outcomes, such as WA gaining GST revenue after natural disasters in other states. All states except Western Australia support overhauling the system, with the commission recommending a return to pre-2018 arrangements or alternative options if the government refuses. The final report is due by the end of the year, with public hearings scheduled next month. The deal has been extended to 2029, and the GST pool is expected to reach $102 billion in 2026-27, with an extra $6.7 billion allocated for the guarantee.
✓ Verified by 2+ sources
Key details reported by multiple sources:
- The 2018 GST deal with Western Australia was expected to cost $2.3 billion but is now projected to cost $60 billion by the end of the decade
- The Productivity Commission interim report was released next month (August 14) and will finalize by the end of the year
- The GST deal was struck in 2018 after Western Australia’s share of GST plummeted due to the mining boom
- The deal includes a 'no-worse-off' guarantee ensuring other states and territories do not lose GST revenue, funded by federal taxpayers
- The GST pool is expected to be worth $102 billion in 2026-27, with an extra $6.7 billion paid for the 'no-worse-off' guarantee
- The deal was originally set to expire in 2026 but has been extended to 2029
- Western Australia has received $22 billion more in GST between 2018-19 and 2024-25 than it would have under the pre-2018 formula
- The Productivity Commission recommends scrapping the 2018 deal and returning to pre-2018 arrangements, with alternative options if the government refuses
- The 'no-worse-off' payments cost taxpayers $6.4 billion in 2024-25
- The Productivity Commission interim report was released immediately after a meeting of state and federal treasurers on August 14
Points of Difference
Details reported by only one source:
- The Productivity Commission believes the deal is now on track to cost the budget almost $60 billion by the end of the decade
- Queensland’s share of GST is expected to climb by 10 per cent to $18.4 billion this year, but fell by $1.1 billion over the past two years
- The Productivity Commission is expected to hold public hearings next month with a final report due by the end of the year
- Independent economist Saul Eslake called the deal a failure, noting it was supposed to cost $9 billion over nine years but will cost $60 billion over 11 years
- The Productivity Commission’s report is not on the agenda for the August 14 treasurers meeting, but its proposals are expected to be a key discussion point
- The 'no-worse-off' guarantee was put in place to ensure every other state and territory does not have its GST share reduced
- The GST collection is expected to be worth $102 billion in 2026-27, with an extra $6.7 billion paid for the guarantee
- The Productivity Commission interim report states the deal will cost taxpayers nearly $23 billion by 2024-25 and reach $60 billion by 2029-30
- The 'no-worse-off' payments could reach $12 billion per year if iron ore prices or production volumes rise
- The Productivity Commission recommended making the 'no-worse-off' payments permanent if the government does not want to change the deal
- The report notes that only Western Australia has benefited from the deal, at the expense of other states and territories
- The Productivity Commission found that the deal has created perverse outcomes, such as Western Australia receiving more GST revenue after a natural disaster in NSW
- The report was released immediately after a meeting of state and federal treasurers, with all jurisdictions except Western Australia in favor of overhauling the system
- The final report will be published in December
- The deal struck by then-treasurer Scott Morrison ensures WA gets a bigger slice of GST revenue every year than it would under the national formula
- The commission found this had cost the federal budget $23 billion in its first six years, $22 billion of which had flowed to WA
- The commission recommended scrapping the Morrison deal and returning to the pre-2018 arrangements, with alternative options if the government refuses
- The commission acknowledged that the GST carve-up formula is highly volatile to changes in mining revenue, which are concentrated in Western Australia and Queensland
- The commission’s fallback position is to keep the floor at 0.75 but not tie it to the outcomes for NSW and Victoria
- The commission found that the 'no worse-off' guarantee led to perverse outcomes, such as WA gaining GST revenue when NSW or Victoria experiences a natural disaster
- The commission put the overall price tag of this effect at $47 billion, the amount every other state and territory would have to be paid to get the same level of fiscal capacity as WA
Contradictions
Conflicting information between sources:
- The SMH states the deal was expected to cost $2.3 billion when unveiled, while the Guardian states it was originally forecast to cost $5 billion by 2024-25
- The SMH says the deal was supposed to cost $9 billion over nine years, while the Guardian says the total cost will reach $60 billion by 2029-30
- The SMH mentions the deal was extended by the Albanese government, while the Guardian states Anthony Albanese pledged to maintain the deal in early 2024
- The SMH says the Productivity Commission’s report is not on the agenda for the August 14 treasurers meeting, while the Guardian and ABC say the report was released immediately after the meeting
- The ABC states the commission found the deal cost $23 billion in its first six years, while the Guardian states it cost nearly $23 billion by 2024-25
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