Jim Chalmers asks Grants Commission to review deal under which WA guaranteed minimum share of GST revenue

Dr Chalmers has asked the Commonwealth Grants Commission, which oversees the allocation of more than $80 billion of GST revenue among the states and territories, to assess how the tax take should be shared in 2025-26, which is when a transitional arrangement included in the Morrison agreement ends.

The treasurer specifically asks the commission to examine the impact of the deal pulled together by Scott Morrison while treasurer in 2018 to change GST sharing arrangements following Western Australian complaints over the size of its allocation.

"To assist in ensuring that each state and territory will get the better of the current or former GST distribution, the Commission should provide relativities that would have applied if the [Morrison deal] had not been enacted," Dr Chalmers wrote.

The treasurer has previously ruled out any changes to the current system.

Under the Morrison deal, from 2021-22, all states and territories are guaranteed a minimum 70 per cent (75 per cent from 2024-25) of what they would have received on a per-capita basis.

When the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of the GST) Act 2018 was introduced, WA was holding on to just 30 per cent of the GST revenue raised in the state because high iron prices were delivering it a royalty windfall. It was expected iron ore prices would drop and WA's share of the GST would increase.

To ensure other states and territories were no worse off, the Morrison government established a transitional period during which they would receive top-up payments from the Commonwealth.

At the time of the deal it was expected that the top-up payments would cost taxpayers about $4.6 billion over eight years but, because iron ore prices have soared and stayed high, they are now projected to exceed $24 billion.

However, the government has committed to maintaining the GST deal, which worsens the budget's structural deficit.

It is understood the findings of the Grants Commission review will help in calculating how much the states and territories would need to receive under the no-worse-off guarantee.

WA Labor Premier Mark McGowan has previously indicated his state would oppose any attempts to scrap or change GST distribution arrangements.

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Policy analyst Martyn Goddard, who has been a vocal critic of the arrangement, said all the states and territories except WA faced "a very nasty wallop" from mid-2026 when the transitional arrangement expires and the Commonwealth bail out ends, leaving them to pick up the tab.

In analysis jointly prepared with leading economist Saul Eslake, Mr Goddard warned the hit to state and territory budgets would be significant.

"On the basis of current Grants Commission relativities, NSW would lose around $1.4 billion, Victoria almost $1.3 billion, Queensland $1.06 billion, South Australia over half a billion and Tasmania $185 million," they said.

In its 2021-22 budget, the Victorian government released analysis showing the deal would put every state and territory except WA at a disadvantage.

"Victorian has modelled scenarios to test the potential financial impacts on states of the new system at the end of the transition period," the analysis said. "The modelling demonstrates that not continuing the no-worse-off guarantee after 2026-27 will put many states at risk of significant financial losses."

The Grants Commission is due to release updated recommendations for the distribution of GST revenue among the states and territories on Tuesday.

This financial year the ACT received $1.42 billion.