In 2016, a child and adolescent mental health nurse working out of Rockingham, south of Perth, watched two numbers move against her at once. Iron ore had crashed from more than US$180 a tonne in 2011 to under US$40, and the state government's own royalty income was collapsing with it. At the same time, the share of the national GST pool Canberra sent back to Western Australia had fallen to around 30 cents for every dollar an average WA resident generated — the lowest relativity of any state in the tax's history (approx.; Commonwealth Grants Commission, GST relativities, 2014-15 to 2016-17). Health and education budgets in Perth were being cut on two fronts at once, even as WA kept paying more company and resource tax into Commonwealth coffers, per person, than almost anywhere else. It felt, to public servants like her, as though the state was being punished twice for the same downturn.
Perth in 2016 was the start of an argument Western Australia has now largely won — and the terms of that win are this article's subject. WA's case that year was real. But the fix Canberra built to answer it has outlasted the emergency that justified it, and its cost has grown far beyond anything put to Parliament in 2018.
What the government did
The mechanism doing the damage in 2016 was the Commonwealth Grants Commission's system of horizontal fiscal equalisation, formalised for the GST when the tax began in July 2000. The principle: every state should have roughly the same capacity to deliver services, regardless of its own revenue base. The Commission assesses each state's ability to raise revenue — including mining royalties — and tops up the states that can raise less with a larger GST share. As WA's iron ore royalties surged through the 2000s and early 2010s, the Commission judged it less in need of GST support and cut its share accordingly. The formula also runs on a lag, comparing years-old royalty data to current conditions, so when iron ore crashed in 2014, WA's GST share kept falling for years after the boom that caused it had ended.
Both of Western Australia's governments through this period — Colin Barnett's Liberal government, then Mark McGowan's Labor government, elected March 2017 — campaigned hard in Canberra for a fix. The federal Coalition government, first under Malcolm Turnbull and then Scott Morrison, responded in July 2018 with the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Act 2018 (No. 143, 2018), which did three things: it changed the equalisation benchmark from the single strongest state — WA at the height of the boom, an outlier dragging every other state's entitlement around — to the fiscally stronger of New South Wales or Victoria; it set a permanent floor under every state's relativity, 70 cents in the dollar from 2022-23 rising to 75 cents from 2024-25; and it committed the Commonwealth to permanently top up the GST pool, plus a transitional "no worse off" guarantee, so no other state received less than under the old rules while the changes phased in (Federal Register of Legislation, Act No. 143 of 2018; Australian Government, Federal Financial Relations, "Extension of the GST No Worse Off Guarantee," Dec-2023).
The current Cook Labor government did not create this deal. Roger Cook became Premier in June 2023, five years after it was legislated, inheriting an arrangement built by his predecessors and a different federal government. What the Cook government has done is defend it: its February 2026 submission to the Productivity Commission's statutory review argued the floor should be retained in full, while banking the proceeds in a run of record state budgets (Government of Western Australia, submission to the Productivity Commission's GST Distribution Inquiry, Feb-2026).
The strongest case
Western Australia's grievance in 2015-17 was real, and the old formula was genuinely broken
Before dismissing the floor as a stitch-up, it is worth sitting with how extreme WA's position had become. A relativity of around 30 cents in the dollar meant Western Australia — one of the largest net contributors to Commonwealth revenue, through royalties and company tax — was handed back barely a third of an average resident's per-capita share of the tax its own consumers had paid. No comparable swing had happened to any other state. The lag in the Commission's data made it worse: WA was still being penalised for a boom that had already turned to bust, while absorbing the direct budget hit of collapsing royalties at the same time. A shock of that size and speed is exactly what a well-designed equalisation system should correct, and by 2017 independent reviewers largely agreed the old formula's tendency to chase a single boom state's fortunes made every other state's entitlement swing unpredictably too. Some floor, and some change to the benchmark, was a defensible response to a genuine design flaw. The disagreement that follows is about how high the floor was set, how permanent it was made, and what should happen once the emergency that justified it has passed.
The evidence: a floor built for a low iron ore price
The trouble with the 2018 fix is that it was costed against an assumption that did not hold. Treasury's 2018 pricing assumed the iron ore price — then above US$60 a tonne — would fall back toward a long-run average closer to US$55, keeping the top-up payments needed to protect other states modest. Iron ore did not cooperate: driven by Chinese steel demand and a premium for higher-grade Pilbara ore, the price spent most of the following years above US$100 a tonne, and WA's assessed fiscal capacity stayed high throughout. The longer the price stayed elevated, the more work the floor had to do, and the more it cost, than the 2018 costing assumed.
Estimates of the total bill have grown as the price stayed high. Grattan Institute modelling (April 2023) put the annual cost of "WA's special deal on the GST" at around $5 billion and recommended unwinding it — a labelled independent view, not a government costing (Grattan Institute, Back in black? A menu of measures to repair the budget, Apr-2023). Economist Saul Eslake, addressing the National Press Club in May 2024, put the cumulative cost at around $39 billion by 2030 on Treasury's own iron ore assumptions. By 2025, a Parliamentary Budget Office costing was reported as putting the ten-year cost above $30 billion, with WA alone receiving an estimated $26 billion more over the following four years than the standard formula would deliver (approx.; PBO costing, as reported, 2025). These independent estimates disagree by tens of billions, but agree on direction: a package Treasury costed in 2018 at $6.6 billion over eight years to 2027-28 has become, on every recalculation since, several multiples of that (approx.; 2018 Treasury costing, as reported, 2023).
The Commission's own numbers — not modelling, but the calculation used to write the cheques — show the same pattern up close. For 2026-27, it assessed WA's relativity at 81 cents in the dollar, above the 75-cent floor for the first time since 2018, worth an estimated $9.3 billion in GST payments, of which about $6.6 billion is the floor's own contribution over the standard formula (Commonwealth Grants Commission, Media Release, 13-Mar-2026). Analysis of WA's own budget papers shows that without the 2018 reforms, the state's 2027-28 GST grant would fall from an estimated $9.5 billion to about $4.3 billion — a rough measure of how much of WA's current GST income depends on the deal (approx.; WA Budget Papers analysis, 2026).
The critique
The case for a temporary floor in 2018 was that WA's relativity had swung to an extreme no formula should produce. That case has weakened every year since, for a simple reason: the floor was made permanent, and the benchmark permanently reset, while the royalty cycle that justified the emergency was not permanent at all. Iron ore prices are cyclical; treating WA as needing extraordinary protection because a boom had temporarily overstated its capacity was reasonable in 2015. That the same protection is still running, at a higher floor, nine years into a resources boom that has made WA the only state posting consecutive multi-billion-dollar surpluses, is much harder to defend on the same grounds.
WA has posted consecutive annual budget surpluses stretching back the best part of a decade, most recently around $3.5 billion in 2025-26 on elevated iron ore and gold royalties, GST receipts and stamp duty, with 2026-27 forecasting a further $2.4 billion surplus (approx.; Western Australia Budget Papers 2026-27, May-2026). Some of that is the state's own resource wealth — a companion piece on this site covers the royalties story directly. But part of it is the floor itself, worth an estimated $6.6 billion to WA's bottom line in 2026-27 alone. The Cook government's response has not been to argue the arrangement should now be wound back as circumstances changed; it has been to submit, in February 2026, that the Productivity Commission's review should leave the floor exactly where it is — defensible as a state government protecting its own residents, harder to defend as sound national policy from a government that, unlike the Barnett and McGowan governments that first made the case for change, is managing no fiscal emergency at all.
The cost does not sit only on a federal ledger that can absorb it through deficit spending indefinitely. The transitional "no worse off" guarantee — the extra Commonwealth cash shielding every other state from losing money as WA's share grew — was due to expire in 2026-27, and has already needed one extension, to 2029-30 (Australian Government, Federal Financial Relations, "Extension of the GST No Worse Off Guarantee," Dec-2023). Once it lapses for good, the floor stops drawing on a growing Commonwealth top-up and starts drawing on a fixed national GST pool every state shares — so every extra dollar guaranteed to WA comes directly out of what is left for the other seven states and territories, a direct transfer between them rather than an abstract federal cost. Modelling commissioned by the Victorian Government in 2024 — a state with an obvious interest, so read accordingly — put the annual cost to Victoria alone at around $1 billion once the guarantee lapses, with New South Wales, Queensland, South Australia and Tasmania also shown losing money (approx.; Victorian Government-commissioned modelling, 2024).
A floor that pays out most when Western Australia needs it least is not equalisation — it is insurance the rest of the federation keeps paying the premium on.
There is a telling asymmetry in how the arrangement behaves. In 2026-27, WA's own relativity rose above the 75-cent floor for the first time since the deal began — not because the floor did anything, but because softening iron ore royalties let WA's assessed capacity fall on its own (Commonwealth Grants Commission, Media Release, 13-Mar-2026). That is the mechanism working as designed: it sits quietly once not needed. But it means the floor's real cost to the rest of the federation is concentrated precisely in the years WA is wealthiest, and shrinks only when the mining cycle turns down — at which point WA would likely have qualified for a larger share under the old rules regardless. A safety net installed for a genuine 2015 emergency has become a standing subsidy that pays out hardest exactly when its recipient needs it least.
The risk to the future
A permanent fix for a temporary problem, at a growing cost to the rest of the federation
The Productivity Commission's 2026 review is the first real chance since 2018 to reset the arrangement against the evidence rather than the politics of a decade ago. If it does not, three risks compound. First, as the "no worse off" guarantee winds down, the cost stops being a Commonwealth budget line and becomes a straight transfer out of every other state's GST — including Tasmania and South Australia, which already run structural deficits and depend on GST for a large share of their revenue. Second, a permanent floor built to fix one state's extreme outlier now sits in the system for good, giving any future state whose fiscal capacity swings sharply a template to demand its own permanent protection, at the expense of the equalisation principle the Commission exists to defend. Third, a formula meant to equalise fiscal capacity now systematically over-compensates the wealthiest state in the federation during its wealthiest years — hard to explain to residents of any other state asked to accept a smaller GST share, a bigger deficit, or a service cut instead. None of that is a reason to re-litigate the genuine unfairness Western Australia lived through in 2015 and 2016. It is a reason to ask why a fix built for that moment is still running, unchanged and enlarged, nine years and one long mining boom later.