Morrison-era GST deal with WA a multi-billion dollar mistake that should be reversed, Productivity Commission finds

Australia's federal system requires a balance between taxation and spending responsibilities between the national and state governments. Traditionally, Australia collected personal income tax, corporate income tax, and GST at the federal level, while state taxes like payroll tax and land tax contributed less than 20% of total revenue. However, the 2018 changes proposed by the Morrison government shifted the GST distribution system, benefiting Western Australia at the expense of other states.

The Productivity Commission's interim report reveals that the 2018 reforms were a "costly mistake" and did not achieve their intended goals. It indicates that Western Australia received 113% of its fiscal needs under the new scheme, while other states received only 98%. This imbalance resulted in Western Australia receiving an estimated $43 billion more in GST revenue by 2028-29 than under the pre-2018 rules.

Moreover, the changes encouraged unproductive lobbying and interstate rivalry, as states increasingly focused on securing special treatment from the federal government rather than focusing on serving their citizens. The report recommends reverting to the pre-2018 system, restoring the Commonwealth Grants Commission's original processes for distributing GST revenue equitably.