Western Australia’s share of GST payments will be cut by $1 billion as a result of rising iron ore royalties, but this will largely be offset by extra payments from Canberra.
Western Australia’s share of GST payments will be cut by $1 billion as a result of rising iron ore royalties, but this will largely be offset by extra payments from Canberra.
The Commonwealth Grants Commission this week published its final report on GST revenue-sharing arrangements for 2021-22.
The report highlighted the importance of the 2018 deal that guaranteed WA would get a minimum share of GST receipts.
Premier Mark McGowan yesterday cited concern about the potential unravelling of the GST agreement as one of the main reasons he decided to take on the treasury portfolio.
The grants commission said the main driver of change in the states’ share of GST in its latest assessment was the strong growth in the value of mining production in WA, principally due to historically high iron ore prices.
Iron ore royalties have grown from about $300 million in 2001 to $7.6 billion in 2019-20.
The state budget papers show they are set to rise even further in the current financial year, to an estimated $9.9 billion, before declining in the out years.
That assumes there is a decline in iron ore prices in future years.
The increase in WA’s revenue raising capacity meant the state’s share of GST will be cut by $1.06 billion in 2021-22.
This will be offset by several other factors, including increased capital spending requirements in WA, increased population and a larger GST pool.
The largest offset will be an extra $629 million flowing to WA as a result of the new arrangements established in 2018.
Total distributions to all other states will be cut by the same amount as a result of the new arrangements.
The net result is that WA’s distribution will drop slightly, to $2.92 billion in 2021-22, from $2.94 billion in the current financial year.
That represents just 4.3 per cent of the total GST pool, less than half WA’s population share of 10.4 per cent.
This percentage is based on WA's 'relativity' of 0.41967, or 41.96 per cent.
In the absence of the 2018 reforms, WA would have had a relativity of 32.85 per cent.
In addition to the $629 million grant, there is a separate grant from the Commonwealth to lift WA’s relativity to 70 per cent; i.e. the new minimum.
This is not included in the grant's commission's report, as the payment is funded separately from the GST pool.
However from 2022‑23, this will be funded from within the GST pool and will become part of the grants commission's recommendations.
Under the 2018 deal, WA was expected to be $3.3 billion better off by 2026-27.
At the height of the last mining boom, WA got back just 30 cents in every dollar of GST paid by Western Australians .
