The GST deal with WA was supposed to fix things. It cost $23 billion and made things worse.

The Productivity Commission has found that a GST deal struck with Western Australia a few years back achieved almost none of its goals and made the system less fair. The Commission says the deal should be reversed.

The numbers are stark. The deal has cost taxpayers nearly $23 billion so far. The original estimate was about $5 billion. Based on current budget forecasts, the total cost will reach $60 billion by 2029-30.

Here's the background. Every year, the federal government collects the GST and hands it out to the states. The idea is simple: states that can raise less money on their own get a bigger share, so that every state can afford decent schools, hospitals and roads regardless of how wealthy it is. This is called equalisation.

In 2018, the Morrison government struck a special deal with Western Australia. WA felt it was being shortchanged because its mining royalties made it look rich on paper, so it was getting less GST back than it put in. The deal put a floor under WA's share, meaning no state could receive a lower per-person share than New South Wales or Victoria.

The problem is that fixing WA's complaint ended up breaking the broader system. GST funding accounts for around 25 per cent of state revenues on average, but the range is wide: roughly 10 per cent for Western Australia, almost 50 per cent for other states. The Commission concluded that only Western Australia has benefited from the deal.

Deputy chair Alex Robson said the deal had reshaped a system that needed targeted reform, leaving taxpayers with a large and growing bill. Commissioner Angela Jackson identified cases where a state improving its own finances can actually receive less GST. Economist Saul Eslake has separately called the 2018 reforms "the worst public policy decision of the 21st century" (The Guardian).

Every state and territory except Western Australia favoured a major overhaul of the GST system, according to the report. The federal government extended a guarantee that no state would lose money because of the deal until 2029-30, through an agreement with all states except WA.

Not everyone agrees the deal failed. Former Finance Minister Mathias Cormann submitted to the inquiry arguing that WA's GST share has been stabilised and lifted, while all other states received more GST revenue than they would have under the previous system. Another submission described the arrangement as a special carve-out for Western Australia. The WA government's own page on the reforms confirms an interim report was expected on 14 August 2026, with a final report to follow.

The political backstory matters here. This was a Coalition idea, pushed by a Liberal state government in WA, and Labor voted for it too. Neither major party has clean hands on this one, which makes it hard for either side to point the finger. WA's original complaint was fair enough. Back in 2017, 45 WA businesses told a Productivity Commission hearing they were worried about growing state deficits and the GST not being returned to the state. Western Australia had a genuine grievance about how the system treated its mining royalties. The 2018 deal was the remedy. It just turned out to be the wrong one.

In my view, the core issue is that the deal did not just top up WA. It changed the rules for everyone. The equalisation system is meant to make sure all states can provide similar services at similar tax rates. A floor that benefits one state at the expense of the Commonwealth's budget, and indirectly at the expense of the whole system's fairness, does not fit that goal. When the cost blows out to nearly five times the original estimate, the logic gets hard to defend.

What happens next is the real question. The Commission wants the deal reversed. Every state except WA agrees the system needs fixing. But unwinding a deal that WA now treats as an entitlement, and that both major parties voted for, is a lot harder than recommending it. The final report will have more detail. Whether any government is prepared to wear the political cost of acting on it is another matter entirely.