GST distribution dispute
As a result of WA's improved financial position during and after the COVID-19 pandemic, debate has since centred around the suitability of the minimum payments floor introduced and the perceived inequity of the reform.
Several states have held inquiries and have alternatively demanded the federal government undo the reform or continue contributing to the GST pool.
Critics have pointed to the high cost the federal government incurs subsidising states under the no worse-off guarantee and the relative inequity in funding that the reform introduced.
Despite the criticism and proposed alternatives, it is generally understood that altering the distribution arrangements would be political suicide due to WA's status as the key swing state in federal elections.
[1] In Australia, GST revenue is paid to a central pool and then distributed between the states and territories according to the principle of horizontal fiscal equalisation (HFE).
The GST return received by WA was relatively steady from 2000 to the mid-2000s, taking its first plunge as the iron ore and gas boom began and resource tax revenue rose dramatically.
[9] The newly elected McGowan government (Labor) in WA had been relying upon a GST payment of 38 cents to the dollar to help return the state budget to surplus by 2019–20 financial year.
[9] However, Turnbull again stated that no floor would be introduced until WA's share had been raised to between 70 and 75 cents to the dollar under the HFE system,[9][11] which was not projected to occur for at least four years.
[9] He added that no change could occur without the agreement of other states and territories,[11][12] which WA Premier Mark McGowan (Labor) asserted was false given the CGC was a federal body.
[33] The inquiry tabled its report on 10 March 2022, concluding that WA was being unfairly advantaged over the other states and territories, and called for a return to the original HFE system without a payments floor.
[34] NSW treasurer Dominic Perrottet (Liberal) called McGowan the "Gollum of Australian politics" and demanded a review of the GST floor.
[38] McGowan drew some media attention after joking he would take a spear to meetings with Perrottet during a press conference in which he dismissed the NSW complaint.
[41] SA treasurer Rob Lucas (Liberal) said the state government wanted the no worse-off guarantee to be permanent and the Productivity Commission inquiry scheduled for 2027 to be brought forward.
[42] Ahead of the 2022 federal election, the CGC produced a report which concluded all states except WA would receive less under the new system than the old once the no worse-off guarantee expires in 2027.
[44] Labor won the 2022 election, and Prime Minister Albanese and treasurer Jim Chalmers subsequently committed multiple times to maintaining the GST reform.
[45][46] In November 2022, McGowan announced the creation of a state wealth fund backed by WA's mining sector, a policy that drew criticism from shadow treasurer Steve Thomas (Liberal) who believed it would justify demands to overturn the GST reform.
[52] The NSW government hired a bureaucrat to lead a team of public servants to advance the state's interests in "federal financial relations".
[57] The McGowan government allocated $1.6 million to fund a dedicated team of eight staff within the Department of Treasury to advance the state's case to preserve the reform in time for the CGC's methodology review.
[58] Tasmanian treasurer Michael Ferguson (Liberal) said that funding a dedicated team proved that the reforms were unfair, while WA opposition leader Shane Love (Nationals) said they were wasted since the final decision would be political, not mathematical.
McGowan said he believed it would be politically impossible for either major party to roll back the reforms given the severe electoral consequences they would suffer in WA.
He again criticised other states and territories for demanding changes, pointing out that the no worse-off guarantee meant other jurisdictions would be in the same financial positions had the reforms never occurred.
[71] In February 2024, economists Saul Eslake and Chris Richardson suggested that the reform could cost the federal government over $50 billion by 2030, and asked the Productivity Commission to recommend abolishing the top-up payment.
[72] WA treasurer Rita Saffioti (Labor) argued that any federal government would "lose every seat in Western Australia" if they undid the reform and said that it was inconceivable that they would do so.
[75] Saffioti and Chaney said that its repeal would incentivise the state not to invest in mining so as to avoid losing its GST share,[75][76] a claim Eslake dismissed.
[83] Saffioti said Eslake was correct that "no one put the iron ore under the Pilbara and the gas under the Northwest shelf", but that they "don’t just jump out of the ground and onto a ship".
