The GST deal every state but one wants gone

On 14 August 2026, the Productivity Commission handed down its interim verdict on one of the most contested arrangements in Australian federal finance, and it did not equivocate. The 2018 changes to how GST revenue is divided between the states, the commission found, have achieved almost none of their stated aims. They have made the system less equitable and more complex. In the commission’s own words, the deal has been a costly mistake.

Here is what that mistake has cost so far. Since 2018, Western Australia has received close to $23 billion in extra federal payments beyond what its actual fiscal capacity would justify, on the commission’s own assessment. In 2024 to 2025 alone, the top up payments designed to guarantee no state was worse off under the new formula cost $6.4 billion, an amount the commission says was equivalent to funding a tax cut worth more than $450 for every Australian taxpayer. Left unchanged, the total bill is projected to reach $60 billion by the end of the decade. If iron ore prices or export volumes keep rising, Productivity Commission deputy chair Alex Robson has warned the annual cost alone could climb to $12 billion.

The mechanism behind this is worth understanding on its own terms, because it will come up again this Friday. In 2018 the Morrison government changed the formula so that Western Australia’s GST share could never fall below the stronger of New South Wales or Victoria’s share, and legislated a minimum floor on top of that. The Commonwealth agreed to top up the national GST pool from general revenue to make sure no other state lost out in the transition. Western Australia’s mining wealth, and the royalties that flow from it, is driven largely by iron ore export volumes and Chinese demand, factors well outside any state government’s control, which is part of why the commission wants a system that adjusts automatically rather than one that has to be renegotiated by politicians every few years.

Every state and territory except Western Australia wants the arrangement scrapped or substantially rewritten. New South Wales Treasurer Daniel Mookhey called the report historic. New South Wales’ formal submission to the inquiry described the current system as overly complex and increasingly unfair. Both Mookhey and federal Treasurer Jim Chalmers are members of the same party as Western Australian Premier Roger Cook, which makes this as much an internal Labor argument as a federal-state one. Cook has to defend a windfall his own state has come to depend on. Chalmers has to weigh that against the same complaint from every other Labor state treasurer, and from his own budget bottom line.

Western Australia is not backing down. Treasurer Rita Saffioti accused the eastern states of treating her state as a cash cow, and warned that if the federal government reversed course now it would lose all credibility. Cook says the changes recommended in the report would cost Western Australia between one and six billion dollars a year, and has vowed his government will accept nothing less than the current deal. One Nation leader Pauline Hanson has backed Western Australia’s position too, arguing other states including Victoria and Tasmania have been shutting down industries rather than contributing their share.

Prime Minister Anthony Albanese is caught in a trap partly of his own making. In 2024 he told West Australians there were no circumstances under which he would ever change their GST deal. He has not ruled out change now, saying only that he wants the commission’s final report, due by 31 December 2026, before deciding anything. The political arithmetic explains the caution. Federal Labor holds 11 of Western Australia’s 16 lower house seats, in a state where One Nation’s support has been climbing.

It is worth being clear about what happens next, because a damning report does not automatically change anything. The Productivity Commission is required to have its final report tabled in Parliament, but the government is under no obligation to adopt its recommendations. Albanese could receive a final report in December that eviscerates the current deal and simply take no action on it before the next federal election. Reports do not change laws. Governments do, when it suits them politically to.

This argument is being fought out in Canberra, Perth, Sydney and Brisbane, but every state budget is shaped by its outcome, including Victoria’s on the way into a November 2026 election. Victoria is one of the two states, alongside New South Wales, whose own fiscal capacity sets the benchmark the whole equalisation system is measured against. In 2026 to 2027, Victoria is actually set to receive $1.4 billion more GST revenue than New South Wales despite having 1.5 million fewer people, an illustration of how differently this system treats states that on paper look similar. Whatever the commission ultimately recommends changes the money available for services in every state, Victoria included, which is reason enough to watch this closely without needing to invent a crisis that the numbers do not currently show.

This is a Commonwealth decision. The Productivity Commission is a federal statutory body, the formula is set by federal legislation, and the final call sits with federal Cabinet, not with any state government, however loudly state treasurers argue their case in public. But Cabinet is not immune to political pressure, particularly in an election year, and that is exactly why the submission process matters. Public hearings run through September, and formal submissions to the inquiry remain open until 30 September 2026, open to any Australian, not just state governments and industry lobbyists. A federal Cabinet weighing whether to act on an unpopular report pays attention to what is said publicly before it decides, not only what officials say behind closed doors afterwards.

You can read the interim report yourself at pc.gov.au. Whichever state you live in, this is your money and your services being argued over, decided by a level of government most people never watch closely enough to notice when it moves.

Your Vote. Your Future.

You know what to do.

Sue Barrett is the founder of Democracy Watch AU and Before You Vote a free civic education resource for every Australian who wants to cut through the spin. Before You Vote publishes every Tuesday and Friday. If this was useful, send it to five people.