Every few years, Western Australia rediscovers the same grievance. The state digs enormous quantities of iron ore out of the ground, sends the royalties to its own coffers, and then watches a portion of the resulting wealth flow back east through the arcane machinery of the GST distribution system. This time, the Cook government has put the argument in writing, in considerable detail, and sent it to the Productivity Commission.
The submission, running to 124 pages, asks the Commission to apply a 25 per cent discount to mining revenue when calculating how GST receipts are divided among the states and territories. The request comes as part of the Commission's review into the 2018 reforms to horizontal fiscal equalisation, the technical name for the system that attempts to give every state a roughly equal capacity to deliver public services, regardless of its own revenue base.
The 2018 changes were themselves a concession to WA's long-running complaints. Before the reforms, WA's GST share had collapsed to as low as 30 cents in the dollar as its iron ore royalties ballooned during the mining boom. The floor mechanism introduced under the Morrison government guaranteed WA at least 70 cents, rising to 75 cents by 2024-25. WA accepted the deal. Now it wants more.
The Case Perth Is Making
The logic behind the discount proposal is straightforward enough. Mining revenue, the argument goes, is volatile, geologically concentrated, and not genuinely replicable by other states through policy choices. South Australia cannot simply decide to have a Pilbara. Therefore, treating mining royalties the same as income tax revenue or GST collections overstates WA's real fiscal capacity and results in the state being penalised for a natural endowment it did not create.
There is genuine economic substance to this argument. The Productivity Commission's own earlier work has acknowledged that full equalisation can create perverse incentives, potentially discouraging states from developing their resource bases if the gains are substantially redistributed. A discount mechanism would blunt those incentives and, in WA's telling, produce a more efficient federal financial system overall.
What the Other States Will Say
The smaller states and territories will not accept this quietly, and their objections deserve to be taken seriously rather than dismissed as special pleading from the less productive end of the federation.
Tasmania, South Australia, and the Northern Territory rely heavily on GST distributions and Commonwealth grants precisely because their own revenue bases are limited. If mining revenue is discounted, the pool available for redistribution effectively shrinks relative to WA's share, and those states absorb the loss. The principle of equalisation exists to ensure a child in Hobart can access hospital services of a comparable standard to a child in Perth. That is not a trivial objective.
There is also a political economy argument worth hearing. WA's mining wealth is partly a product of federal infrastructure investment, a national trade framework, and a stable institutional environment maintained at collective cost. The royalties flowing into Perth's budget are not generated in isolation from the rest of the country.
The Broader Stakes
The Productivity Commission's review is genuinely high-stakes. The federal financial relations framework underpins tens of billions of dollars in annual transfers, and any shift in the formula ripples through every state budget. The Commission is expected to report later this year, and its findings will feed into negotiations between the Commonwealth and the states that have never, in living memory, been described as straightforward.
Federal Treasurer Jim Chalmers will face pressure from multiple directions. Labor holds government in WA and depends on its federal seats there. It also governs with an eye on South Australia and Tasmania. The arithmetic of coalitions does not make principled federalism any easier.
Strip away the rhetoric and ask the simple question: what is the GST system actually for? If it is purely about incentive-compatible fiscal federalism, WA has a reasonable case. If it is about ensuring baseline service equality across a continent of very unequal jurisdictions, the case for full equalisation remains compelling. Both answers are defensible. Both involve genuine trade-offs.
Australia's federation has always struggled to reconcile the ambitions of its wealthiest states with the needs of its smallest. The 2018 reforms were a political fix that papered over a structural tension rather than resolving it. This review is an opportunity to do better, though history suggests managing expectations is wise.
WA deserves a fair hearing. So do the states that would lose out if Perth gets everything it is asking for. The Productivity Commission, at least, tends to follow the evidence rather than the lobbying. That is a better starting point than most stages of this debate have managed.