Peter van Onselen: Albo’s desperate plan to save Labor’s seats exposed – and it’s the rest of Australia that could pay. 41
The Illusion of the Free Lunch: How Canberra’s GST Compromise Threatens the Australian Federation
The Perth Guarantee and the Politics of Reassurance
Across the vast expanse of the Nullarbor Plain, political rhetoric often shifts to match the unique economic frequency of Western Australia. Touching down in Perth, Prime Minister Anthony Albanese delivered an unyielding defense of the nation’s most contentious fiscal architecture: the statutory 75-cent floor on Goods and Services Tax (GST) distributions.
Speaking to local media and party faithful, the Prime Minister framed the policy not merely as a regional economic safeguard, but as an arrangement where no state loses and the Commonwealth effortlessly absorbs the multi-billion-dollar difference.
+-----------------------------------------------------------------------------------------+
| THE EVOLUTION OF AUSTRALIA'S GST DISTRIBUTION DEAL |
+----------------------+-----------------------------+------------------------------------+
| Milestone / Policy | Mechanism & Terms | Fiscal & National Impact |
+----------------------+-----------------------------+------------------------------------+
| 2000 (Howard Gov) | Pure Horizontal Equalisation| Revenue pooled & carved by CGC to |
| | (HFE) based on fiscal need | provide equal baseline services |
+----------------------+-----------------------------+------------------------------------+
| 2018 (Morrison Gov) | 70c (then 75c) floor floor | Broke pure HFE; Commonwealth funded|
| | + "No Worse Off" Guarantee | multi-billion annual top-ups |
+----------------------+-----------------------------+------------------------------------+
| 2026 Review & Stand | Labor locks 75c floor; | Productivity Commission labels it |
| | Overrules PC draft findings | a costly fiscal distortion |
+----------------------+-----------------------------+------------------------------------+
The political calculation behind the announcement was unambiguous. Addressing the delicate balance of federal-state finances, Albanese guaranteed that Western Australia would retain its legislated minimum return on GST revenues. Concurrently, he sought to reassure the rest of the country that eastern states would remain insulated through the Commonwealth’s temporary “no worse off” top-up framework.
However, the political insulation wore thin during a live broadcast interview. Pressed directly on whether larger eastern states like New South Wales were genuinely receiving their “fair share,” the Sydney-born Prime Minister sidestepped an endorsement of his home state’s fiscal demands. Instead, he reiterated that Western Australia was entitled to its protected revenue base.
The exchange took a sharp, transactional turn when Albanese addressed the broader fiscal picture:
“We’ll bear that in mind… when we’re talking about other funding arrangements with the states.”
The statement reverberated across state treasuries from Sydney and Melbourne to Adelaide, widely interpreted by state leaders as a tacit warning: if the Commonwealth continues to foot the bill for Western Australia’s GST windfall, it reserves the right to claw back those outlays across alternative federal funding agreements, including public hospitals, schools, and major infrastructure grants.
THE FISCAL CONDUIT
[ Commonwealth Treasury ] ─── Top-Up Guarantee ───> [ WA Protected Revenue ]
│
│ (Deficit & Debt Squeeze)
▼
[ Tied Federal Grants ] ─── Future Offsets? ───> [ Hospitals, Schools, Roads ]
(NSW, VIC, SA, QLD, TAS)
The Eastern Revolt
The reaction from eastern state premiers was immediate and fierce. New South Wales Labor Premier Chris Minns has repeatedly condemned the current distribution formula as an unsustainable raid on the nation’s most populous state. Minns pointed out the stark demographic and fiscal disparity: New South Wales accounts for approximately 31 percent of Australia’s total population, yet under current Commonwealth Grants Commission relativities, receives only 26 percent of GST distributions.
+-----------------------------------------------------------------------------------------+
| POPULATION VS. GST REVENUE SHARE DISPARITY |
+------------------------------------+-----------------------+----------------------------+
| Jurisdiction | Population Share (%) | GST Revenue Allocation (%) |
+------------------------------------+-----------------------+----------------------------+
| New South Wales (NSW) | ~31.3% | ~26.1% |
| Victoria (VIC) | ~25.8% | ~21.5% |
| Queensland (QLD) | ~20.6% | ~21.2% |
| Western Australia (WA) | ~10.7% | ~15.8% (Floored at 75c) |
| South Australia (SA) | ~7.0% | ~8.4% |
| Tasmania, ACT, NT | ~4.6% | ~7.0% |
+------------------------------------+-----------------------+----------------------------+
Minns was not alone in his condemnation. South Australian Premier Peter Malinauskas and Victorian Deputy Premier Ben Carroll joined the chorus of dissent, rejecting the premise that a resource-rich state enjoying consecutive multi-billion-dollar budget surpluses should be insulated from the core principle of horizontal fiscal equalisation.
Western Australian Premier Roger Cook brushed aside the complaints, dismissing eastern critics with regional bravado, while Malinauskas delivered a blunt electoral warning: securing seats in the West offers cold comfort to a federal government if its political foundation collapses across the eastern seaboard.
The Fiscal and Electoral Reality
The architecture of the current dispute traces back to 2018, when former Coalition Prime Minister Scott Morrison overhauled the distribution formula. Faced with electoral losses in Western Australia, the Morrison government legislated a permanent floor ensuring no state would receive less than 70 cents (rising to 75 cents) for every dollar of GST revenue it generated.
To secure the compliance of other premiers, the Commonwealth instituted the “no worse off” guarantee—promising to bridge any financial shortfall from general federal revenue until the system transitioned.
+-----------------------------------------------------------------------------------------+
| THE ACCUMULATED FISCAL COST OF THE 2018 REFORM |
+------------------------------------+----------------------------------------------------+
| Cumulative Cost to Commonwealth | Exceeding $23 Billion to date; |
| Budget (Top-Up Subsidies) | Projected to pass $60 Billion by 2029–30 |
+------------------------------------+----------------------------------------------------+
| Direct Net Benefit to WA Treasury | Over $22 Billion above historic HFE baseline |
+------------------------------------+----------------------------------------------------+
| Commonwealth Financial Baseline | Gross national debt exceeding $1 Trillion; |
| | Ongoing structural federal deficits (~$31.5B) |
+------------------------------------+----------------------------------------------------+
Independent economic bodies have delivered scathing verdicts on the policy’s structural sustainability. The Productivity Commission, in its comprehensive inquiry into federal-state financial relations, classified the Morrison-era reform as an expensive distortion that fundamentally undermined horizontal fiscal equalisation. The Commission’s findings revealed that the special arrangement has already cost the federal budget nearly $23 billion in top-up equalisation payments, while delivering a direct windfall of over $22 billion to Western Australia at a time when surging iron ore and LNG royalties had already propelled the state into historic surpluses.
Yet, the electoral dynamics override standard economic consensus. Prior to the 2022 federal election, Labor held just 5 of Western Australia’s 15 lower house seats. Following targeted campaign launches in Perth and the 2025 electoral sweep, Labor expanded its footprint to 11 of the state’s 16 federal electorates.
With internal polling indicating heightened volatility and third-party movements like One Nation gaining traction across regional and outer-suburban communities, federal party strategists view the preservation of the 75-cent floor as an electoral necessity—regardless of the growing fiscal strain on the national ledger.
2. My Professional Perspective
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THE ILLUSION OF FISCAL NEUTRALITY
========================================================================================
WHAT THE GOVERNMENT ANNOUNCES WHAT THE BALANCE SHEET REVEALS
┌────────────────────────────────────────┐ ┌────────────────────────────────────────┐
│ "WA keeps its 75c floor." │ │ • Commonwealth absorbs $60B liability. │
│ "No other state loses a single dollar."│ ─> │ • Federal debt & interest climb. │
│ "The Commonwealth pays the difference."│ │ • Non-GST grants squeezed to offset. │
└────────────────────────────────────────┘ └────────────────────────────────────────┘
│ │
▼ ▼
Political Reassurance Structural Zero-Sum Game
========================================================================================
What Important Details Have People Overlooked?
Covering federal budgets and constitutional economics over several decades teaches you one immutable rule: there is no such thing as “Commonwealth money.”
When national leaders state that the Commonwealth will step in to guarantee that no state is disadvantaged, they rely on a public misunderstanding of fiscal federalism. The Commonwealth does not possess an independent vault of capital insulated from the Australian populace. Every dollar dispatched to Perth under the 75-cent floor or distributed to Sydney and Melbourne via top-up grants originates from the very same taxpayers paying income tax, company tax, and excise duties across all states and territories.
THE CLOSED TAXPAYER LOOP
┌────────────────────────────────────────────────────────┐
│ National Taxpayer Base (All Australian States) │
└───────────────────────────┬────────────────────────────┘
│
┌────────────────┴────────────────┐
▼ ▼
┌────────────────────────┐ ┌────────────────────────┐
│ GST Central Pool (10%) │ │ Direct Commonwealth │
│ │ │ Revenue (Income/Corp) │
└────────────┬───────────┘ └────────────┬───────────┘
│ │
▼ ▼
┌────────────────────────┐ ┌────────────────────────┐
│ 75c WA Protected Share │ │ Multi-Billion "No │
│ │ │ Worse Off" Top-Up Fund │
└────────────────────────┘ └────────────────────────┘
The fundamental flaw overlooked in daily commentary is that the Commonwealth is running an active structural deficit, balancing over $1 trillion in gross debt against rising debt servicing costs.
To fund an artificial $60 billion top-up subsidy through 2030, the federal government must execute one of three options:
-
Borrow the shortfall on global debt markets, thereby expanding federal debt liabilities and locking future generations of taxpayers into higher interest payments.
-
Raise alternative Commonwealth taxes, clawing back through personal income tax or corporate levies what was nominally preserved in GST distributions.
-
Suppress capital and operational allocations in tied grants—quietly reducing federal contributions to the National Health Reform Agreement, Quality Schools funding, and National Partnership infrastructure projects.
The Prime Minister’s broadcast admission that Canberra would “bear that in mind” during future bilateral funding negotiations is not an off-the-cuff remark. It is a candid acknowledgment of the arithmetic. What the Commonwealth gives with one hand under the glare of Western Australian television cameras, it must systematically claw back with the other hand behind the closed doors of national ministerial councils.
┌───────────────────────────────────────────────────────────────────────────────────────┐
│ THE MECHANICS OF THE STEALTH FISCAL OFFSET │
│ │
│ NOMINAL LINE ITEM (Protected): REAL BUDGET IMPACT (Suppressed): │
│ • State GST Relativities • Hospital Capacity Grants │
│ • "No Worse Off" Top-Up Allocation • Public Transport Infrastructure │
│ • Guaranteed 75-Cent Statutory Floor • Regional School Maintenance Allocations│
│ │
│ RESULT: The loss is real, but concealed across fragmented line items. │
└───────────────────────────────────────────────────────────────────────────────────────┘
The Deeper Meaning: The Destruction of Horizontal Fiscal Equalisation
Beyond the immediate multi-billion-dollar accounting maneuver, this policy shift represents a profound erosion of Australian nationhood: the abandonment of Horizontal Fiscal Equalisation (HFE).
Since the establishment of the Commonwealth Grants Commission in 1933 during the depths of the Great Depression, Australia’s federal compact operated on a foundational principle of equity: every Australian citizen, regardless of whether they live in the remote goldfields of Kalgoorlie, the industrial suburbs of Western Sydney, or the rural valleys of Tasmania, is entitled to a comparable standard of public infrastructure, schooling, policing, and healthcare, funded without imposing wildly disparate burdens of state taxation.
THE HISTORIC FEDERATION EQUALISER
[ Resource Boom Era ] ──> WA & QLD generate surplus resource royalties.
Revenue pooled nationally to support smaller states.
│
▼
[ Manufacturing Boom Era ] ──> NSW & VIC generate surplus industrial payroll/stamp taxes.
Revenue pooled nationally to support developing regions.
│
▼
[ The Core Compact ] ──> All Australians receive equal baseline public services.
Horizontal Fiscal Equalisation was designed as a national shock absorber. In decades when New South Wales and Victoria generated outsized industrial, financial, and manufacturing revenues, their tax surpluses supported developing agrarian and mining states. Conversely, when commodity super-cycles and iron ore prices generate windfalls in Western Australia, the formula was engineered to distribute those dividends across the Commonwealth to sustain national living standards.
The introduction of an arbitrary 75-cent floor uncouples the federation from this social contract. It transforms a mutual safety net into an extractive framework governed by regional leverage.
By legislating that Western Australia can retain its elevated mining royalties while simultaneously demanding a guaranteed minimum quota of consumption tax revenues, the Commonwealth has replaced needs-based federation funding with power politics.
+-----------------------------------------------------------------------------------------+
| PRINCIPLE COMPARISON: EQUALISATION VS. STATUTORY FLOOR |
+------------------------------------+----------------------------------------------------+
| Traditional HFE Framework (Pre-2018| 2018–Present Floored Architecture |
+------------------------------------+----------------------------------------------------+
| • Dynamic, needs-based allocation | • Fixed political floor (75 cents minimum) |
| • Smooths volatile commodity cycles| • Insulates wealthy states during resource booms |
| • Eliminates regional service gaps | • Leaves eastern health & schools structurally exposed|
| • Protects national cohesion | • Incentivizes interstate political competition |
+------------------------------------+----------------------------------------------------+
Why This Story Matters: The Road to Permanent Interstate Division
The danger of this precedent extends far beyond the current budget cycle. When a national government demonstrates that the rules of federal distribution can be altered to secure a regional electoral redoubt, it establishes an adversarial precedent across the states.
If Western Australia is granted a statutory floor to shield its mining wealth, what prevents New South Wales from demanding a statutory floor on the corporate income taxes generated in Sydney’s financial district? What stops Victoria from demanding a ring-fenced guarantee on its manufacturing and technology taxes?
THE FRAGMENTATION CASCADE
[ Step 1: Resource Floor ] ──> WA secures 75c minimum on GST revenue.
│
▼
[ Step 2: Eastern Backlash ] ──> NSW, VIC & SA demand structural compensation.
│
▼
[ Step 3: Factional Demands ]──> States demand retention of corporate & stamp duties.
│
▼
[ Outcome ] ──> The complete breakdown of national revenue sharing.
Once the principle of equitable redistribution is discarded, the Australian federation ceases to operate as an integrated economic union. It deteriorates into a loose confederation of competing jurisdictions, where state premiers wage permanent public campaigns against one another, weaponizing regional parochialism to extract concessions from a weakened national executive.
What Questions Remain Unanswered?
Beneath the political declarations in Perth and the combative press conferences in Sydney, critical structural questions remain unaddressed:
-
What Happens When the Top-Up Guarantee Expires? The Commonwealth’s “no worse off” guarantee was legislated as a transitional measure. When the statutory provision reaches its formal expiration, how will the federal budget manage an ongoing $6 billion to $8 billion annual liability without triggering steep cuts to eastern state services?
-
How Does the Executive Reconcile Independent Economic Advice? The Productivity Commission was established precisely to provide rigorous, non-partisan economic modeling. When the Commission formally warns that the 75-cent floor is economically detrimental and inequitable, on what empirical basis does a Prime Minister overrule his own primary economic advisory body before its final report is tabled?
-
Where Will the Infrastructure and Hospital Offsets Fall? If federal funding for public transport projects, road upgrades, and emergency hospital networks across Sydney, Melbourne, and Brisbane is suppressed to manage the Commonwealth’s structural deficit, will the administration openly account for these cuts, or bury them across fragmented forward estimates?
-
How Does Labor Manage the Eastern Parliamentary Backbench? While securing lower house seats in Perth is vital for federal stability, Labor’s parliamentary majority rests heavily on suburban seats across Western Sydney, Melbourne’s outer growth corridors, and regional Queensland. How long can backbench MPs in the eastern states defend an arrangement that visibly deprives their local schools and hospitals of capital investment?
┌───────────────────────────────────────────────────────────────────────────────────────┐
│ THE UNRESOLVED FEDERAL TRILEMMA │
│ │
│ [ 1. Maintain WA 75c Floor Permanently ] │
│ ▲ │
│ / \ │
│ / \ │
│ / \ │
│ [ 2. Fully Compensate ] <────────────────> [ 3. Maintain Federal Fiscal ] │
│ [ Eastern States ] [ Balance & Surplus Goals ] │
│ │
│ A government can achieve any two, but never all three simultaneously. │
└───────────────────────────────────────────────────────────────────────────────────────┘
What Audiences Should Understand Beyond the Headline
The mainstream news narrative frames this issue as a regional sports match: East Coast premiers versus the West, Premier Minns against Premier Cook, Canberra balancing state rivalries.
Readers must look at the balance sheet.
This is not a debate over state pride or regional entitlement. It is an argument over the fiscal sustainability of our public services. When state governments in New South Wales, Victoria, and South Australia warn of structural deficits, they are highlighting real consequences: overcrowded hospital emergency departments, delayed transport corridors, and underfunded regional school systems.
When national leaders claim that a multi-billion-dollar concession to one state can be perpetually subsidized by the federal government at zero cost to the rest of the nation, they are offering an economic fiction.
Every dollar allocated to maintain a political guarantee in the West that is not backed by economic equalisation principles is a dollar that must be borrowed, taxed, or stripped from another national priority.
The Ledger Must Balance
The debate over Australia’s GST distribution is reaching an inevitable structural reckoning.
THE INESCAPABLE REALITY
[ Political Narrative ] [ Fiscal Reality ]
• "Everyone gets their fair share" • Federal debt expanding past $1T
• "No state is worse off" ──────────> • Top-up subsidies unsustainable
• "The Commonwealth covers it" • Public services bearing the cost
Anthony Albanese’s assurances in Perth may have achieved their short-term tactical objective: securing local media coverage and defending federal seats against minor-party challenges. But in politics as in economics, short-term tactical gains often produce deep structural liabilities.
A federation cannot function indefinitely on the premise that one jurisdiction is entitled to keep its mineral windfalls during a global resource boom, while demanding that citizens across the rest of the continent subsidize the difference. True national leadership requires confronting regional interests with the hard realities of national equity, rather than managing federal finances through closed-door funding offsets and quiet compromises.
Until the Commonwealth restores the integrity of horizontal fiscal equalisation, the tension between the states will continue to escalate. The arithmetic of the federal budget cannot be rewritten by political rhetoric, and the Australian taxpayer will ultimately bear the full cost of the transaction.
A Thought-Provoking Question for Discussion
When a national government guarantees special wealth retention to resource-rich states while warning that other jurisdictions will absorb the difference through reduced hospital and school grants, is it preserving a unified national federation—or transforming the Commonwealth into an arena of state-based economic competition?
