The parable of the boy who cried wolf carries a lesson for Tasmania. Warnings raised too often lose their impact, especially when a state has unresolved challenges of its own. But the Productivity Commission’s interim report is not a false alarm; it is a clear, evidence-based signal that the GST system has drifted off course in ways that matter deeply for smaller states. Tasmania must make its case calmly and credibly, while showing it is also taking responsibility for its own structural problems.
When the 2018 GST distribution changes were legislated, Australians were told every state would come out ahead. The then-Treasurer Scott Morrison promised all states and territories would be a combined $9 billion better off over ten years. The Productivity Commission’s interim report into those reforms, released on 14 August, has now tested that promise against eight years of data. The verdict is clear, the changes have achieved almost none of their objectives, made the system less equitable and more complex, and cost Australian taxpayers close to $23 billion to 2024‑25, which is more than four times what was projected. Only one state has come out ahead. It is Western Australia.
This is the finding from the nation’s independent economic advisory body, tasked by the Treasurer with assessing whether the 2018 system was working as intended. It was and is not.
The Commission’s interim report explains why “no state worse off” turned out to mean something very different in practice. Before 2018, GST was distributed so that every state received enough to fund services and infrastructure at a broadly similar standard to the rest of the country under a principle called horizontal fiscal equalisation. The 2018 reforms introduced a “standard state benchmark,” guaranteeing no state would receive less GST per person than the fiscally stronger of New South Wales or Victoria, with the Commonwealth topping up the pool to cover the gap. report finds this arrangement has effectively and quietly rewritten the rules for the benefit of one state.
Before 2018, every state received GST sufficient to meet 100 per cent of its assessed fiscal need. By 2024‑25, Western Australia was receiving enough to meet 113 per cent of its assessed need, while every other state and territory sat at 98 per cent. To lift the rest of the federation to Western Australia’s fiscal capacity would have required an extra $47 billion in that year alone.
The Commission’s Dr Angela Jackson was quite clear reporting the system now runs on two sets of rules. One set of rules for a state in a stronger fiscal position than Victoria and New South Wales, that is Western Australia, and another for everyone else. If a state like South Australia improves its budget position, it loses GST because it is assessed as needing less. If Western Australia’s budget improves, under the standard state benchmark it can retain its share or gain more. The report gives a stark illustration. Under the current formula, if New South Wales spends heavily recovering from a natural disaster, its GST share rises to reflect that need and Western Australia’s share can rise too, for a disaster it never had.
The cost of this arrangement has fallen almost entirely on the Commonwealth, via the so-called “No Worse Off” payments designed to guarantee that no other state lost out during the transition. Those payments already cost around $6 billion a year and are tied to the iron ore price, meaning they are, in the Commission’s words, potentially uncapped. If iron ore prices or export volumes rise, that annual bill could reach $12 billion.
The Commission calculates the extra $6.4 billion spent in 2024‑25 alone could instead have funded a tax cut worth more than $450 for every Australian taxpayer. And under current settings, those payments are due to end in 2029‑30, at which point the uncapped cost does not disappear, it simply shifts from the Commonwealth’s budget onto the states that were meant to be protected in the first place.
The Commission’s interim recommendation is to unwind the 2018 changes and return to the pre-reform system, while dealing separately and transparently with the genuine issue of “dominant-state effects”, the fact that a state which dominates a revenue source like mining can be penalised disproportionately when it changes royalty settings. That is a reasonable, evidence-based way to address WA’s legitimate underlying grievance without entrenching a benchmark that has instead delivered a windfall.
For Tasmania, this really matters. Our GST revenue is not a minor line item in this state’s budget. It is close to 40 per cent of total revenue, and the Tasmanian Treasury’s Fiscal Sustainability Report already shows a structural budget position under pressure over the coming decade. A distribution system that has spent nearly $23 billion propping up one outcome, funded substantially by Commonwealth payments that are due to lapse, is far from a stable foundation for any state to plan services and infrastructure against and exposes the State to enormous fiscal risks. It was, on the Commission’s own analysis, a costly mistake and not a design that happened to have some rough edges.
Submissions on the interim report close on 30 September, with the final report due to government by 31 December. Given what is at stake for Tasmania’s budget, this state’s voice in that process, informed by the Commission’s own numbers rather than the politics that surrounded the original deal, should be heard clearly and heeded. Tasmania, and all other States outside Western Australia have much to lose if full horizontal fiscal equalisation is not restored.
The Mercury, Tuesday 15 September 2026