Under Morrison’s policy, originally forecast to cost $2.3 billion over four years, no state’s GST share could fall below 75¢ for every dollar of the tax, with the federal government topping up the national GST pool. At the time, WA’s share had fallen below 30¢ of every dollar estimated to be raised within the state.
It was estimated to cost federal taxpayers about $2.3 billion over four years. Instead, it is on track to cost more than $60 billion by 2029.
Under the terms of reference, the commission needs to determine if the arrangement is “fiscally sustainable” for the federal and state governments, whether the system is acting as an incentive for the states to pursue reforms in areas such as tax and service delivery, and if it is providing certainty to states for their budget planning.
They also require the commission to assess the feasibility and risks of any changes while accounting for the federal government’s promises during the last election to honour the original Morrison deal.
The GST deal has grown faster than any other federal program including the NDIS. But it is also a huge political issue for the government and Coalition.
The deal was put in place largely due to explicit political pressure across WA where, in 2018, the Coalition was defending 11 of the state’s 16 seats. At the 2025 election, Labor won 11 seats with the Liberal Party holding just four.
Economist Saul Eslake has described the GST deal as the worst public policy decision of the 21st century so far.Credit: Alex Ellinghausen
Apart from the pressure on the budget, other states are agitating for change to both the deal and the way the GST is allocated.
Independent economist and long-term critic of the Morrison deal Saul Eslake said the inquiry would be a test for the Albanese government and whether it would continue to “gift” the nation’s richest state with $7 billion a year more than it needed to provide services to its residents.
He said the commission would have to find the deal was not working as intended, given the huge blowout in costs.
“Any rational person would also draw from that fact alone that the current arrangements are not fiscally sustainable for the Commonwealth,” he told this masthead.
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“Hopefully, the treasurer has today opened the door to reversing the worst public policy decision of the 21st century thus far.”
NSW Treasurer Daniel Mookhey said the country would be better off if the “busted” GST allocation system was fixed.
“Doing nothing means Australia will be stuck with a weird system that no one can understand, let alone explain, much less support,” he said.
“The nation would be better off if we shift to distribute the GST on a per-capita basis, and use the balance of the federal grants system to help the smaller states.”
The key reason for the blowout in the GST deal has been the ongoing strength in iron ore prices which had been assumed to fall to their long-term average. Instead, they have consistently outperformed expectations.
In the March budget, the spot price of iron ore was assumed to fall to $US60 a tonne by March next year. So far this year, it has averaged more than $US100 a tonne.
If that continues, it means the cost of the GST deal will again blow out.
