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A deal to protect Western Australia’s share of the GST has blown out another 45 per cent and is on track to cost taxpayers more than what the federal government gives to the states and territories to run the nation’s public hospitals.
The federal budget reveals the GST deal, put in place by the Morrison government, is on track to cost $30 billion while leaving every other state and territory bar WA with a fiscal cliff in the next three years.
The cost of the Morrison-era GST deal to protect Western Australia has blown out another 45 per cent.Credit: Alex Ellinghausen
As treasurer in 2018, Scott Morrison struck the deal that WA would receive a minimum of 70 cents of every dollar of GST raised within the state from 2022-23 before increasing to 75 cents in 2024-25.
It was in response to a collapse in WA’s share of GST pool, which in 2014 reached an all-time low of 30 cents for every dollar raised within the state. In 2023-24 its share is expected to be worth $86 billion.
When the policy was put in place, it was expected iron ore prices would fall and WA’s share of the GST pool would therefore rise. Instead, prices soared and have remained elevated ever since.
The Morrison government ensured other states and territories would not be worse off under the deal, requiring top-up funding from outside the GST pool.
The plan was originally forecast to cost federal taxpayers $2.3 billion over three years, including just $293 million in 2021-22, but the surge in iron ore prices has meant larger top-ups for longer.
Jim Chalmers on Tuesday revealed that by 2026-27, the deal is now forecast to cost federal taxpayers almost $30 billion. In the coming year, the government expects to spend $28.4 billion on public hospitals.
Compared to his October budget, the cost has climbed by 45 per cent. In 2025-26 alone, the forecast cost has jumped from $2.5 billion to $5.7 billion while Treasury is now expecting taxpayers to foot a $3.5 billion bill in 2026-27.
On Thursday, WA’s Labor Premier and Treasurer Mark McGowan will reveal a multibillion-dollar budget surplus due largely to the GST arrangement.
Both sides of politics now support the deal, in part due to political dynamics in the state. At last year’s election, Labor won four seats from the Liberal Party while independent Kate Chaney claimed the Coalition-held electorate of Curtin.
A redistribution of electorates in coming months is expected to confirm WA will get an additional seat for the 2025 election, increasing its political importance.
Independent economist Saul Eslake said the overall budget compiled by Chalmers was good, but the retention of the GST deal was the worst decision.
He said it was outrageous so much money was being paid by federal taxpayers to WA when it was running such large budget surpluses and other jurisdictions were struggling.
A key part of the original Morrison deal, to ensure no state or territory was left worse off, ends in 2026-27.
Eslake said beyond then, many parts of the country would struggle.
“Everyone else, particularly the smaller states like Tasmania, South Australia and the NT, are going to face a fiscal cliff when that part of the deal ends,” he said.
“The GST deal isn’t Chalmers’ fault, but no party is going to abandon it because of the politics of WA. Something is going to have to change because it can’t continue.”
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