Productivity Commission criticizes WA GST deal as costly and unfair, calling for reversal

Consensus Summary

The Productivity Commission’s interim report has delivered a damning verdict on the 2018 GST deal with Western Australia, labeling it a ‘costly mistake’ that should be reversed. The deal, struck under the Morrison government and extended by Labor, guarantees WA a minimum GST share tied to NSW and Victoria’s allocations, ensuring it never receives less per capita. However, the commission found the arrangement has cost taxpayers $23bn since 2018—far exceeding the original $5bn projection—and is on track to reach $60bn by 2029-30, with WA as the sole beneficiary. The report also highlights perverse outcomes, such as WA gaining GST revenue when other states face disasters, undermining the system’s core purpose of ensuring equitable service standards nationwide.

The GST deal emerged after WA’s share plummeted following the end of the mining boom, prompting demands for reform. The Morrison government introduced a ‘no worse-off’ guarantee and a floor on WA’s GST share, but the Productivity Commission now argues these measures have distorted federal-state financial relations. The deal was initially expected to cost $2.3bn by 2024-25, but stronger-than-anticipated mining revenues and the guarantee’s extension to 2029-30 have inflated its price tag. Economists like Saul Eslake have long criticized the policy, with Eslake calling it ‘the worst public policy decision of the 21st century.’ The commission’s review, mandated by Treasurer Jim Chalmers, is set to conclude with a final report by year’s end.

Key figures have reacted sharply to the report. WA Premier Roger Cook dismissed it as ‘dodgy, deceitful, and dumb,’ while other state leaders, including NSW’s Chris Minns and Queensland’s David Janetzki, welcomed its findings. Albanese, who signed a pledge in 2024 to maintain the deal, has distanced himself by noting the Morrison government initiated the review. The Productivity Commission’s deputy chair, Alex Robson, emphasized the need to restore the system’s original intent: ensuring all states can deliver comparable services. Meanwhile, WA Treasurer Rita Saffioti argued the pre-2018 formula penalized her state’s economic contributions, while other states accused WA of exploiting its mining wealth to secure an unfair advantage.

Coverage diverges on the political implications and technical details. The Guardian and ABC both highlight the $60bn cost projection but frame it differently: the Guardian focuses on WA’s windfall, while the ABC and SMH emphasize the federal budget’s strain. The SMH notes NSW’s proposal for equal per-capita GST sharing with federal top-ups, a more radical shift than the commission’s recommendations. The ABC also details the ‘no worse-off’ guarantee’s $6.7bn annual cost in 2026-27, while the Guardian underscores WA’s eight consecutive budget surpluses under the deal. Contradictions arise over the original cost estimates—$2.3bn (SMH) vs. $5bn (Guardian)—and the timing of the guarantee’s expiration, with sources varying between 2026 and 2029.

The report has reignited federation tensions, with all states except WA calling for changes. The Productivity Commission’s preferred option is scrapping the deal and returning to pre-2018 arrangements, though it offers alternatives if the government resists. Labor’s political calculus is complicated by WA’s electoral importance, though Albanese’s 2025 election victory—securing 11 of WA’s 16 seats—may reduce his dependence on the state. The next national cabinet meeting is expected to address the report’s findings, with premiers like South Australia’s Tom Koutsantonis and Victoria’s Colin Brooks urging scrapping the deal. Meanwhile, WA’s resistance and the commission’s final recommendations due in December will determine whether Albanese’s 2024 pledge survives—or becomes a political liability.