GST WA: About the GST Reforms

The WA Government has lodged its submission to the Productivity Commission’s inquiry into the 2018 GST Reforms, alongside a People’s Submission representing the voices of more than 6,000 Western Australians — read the reports here.

What is GST?

GST stands for Goods and Services Tax. It’s a 10% tax added to most things you buy or consume in Australia.

When businesses sell goods or services, they collect this tax from customers and send it to the government (specifically, the Australian Taxation Office).

The Australian government then distributes this money to the States and Territories to help pay for things such as hospitals, roads, and public schools.

The history of GST in Australia 

The GST was introduced in Australia in 2000. It’s a 10% tax added to most goods and services sold or consumed in Australia. Many countries around the world have GST applied to their goods and services at various rates. This is sometimes referred to as VAT in other countries.

Not everything in Australia is taxed—some food, health, and education items are exempt from GST.

GST replaced older taxes like the Wholesale Sales Tax and several State taxes. 

How the GST is shared in Australia 

Why GST revenue is shared differently

Australia's eight States and Territories have different economic, social and geographic circumstances. As a result, some jurisdictions can raise more revenue from taxes and other sources, while others face higher costs to provide services to their communities.

GST revenue is shared between the States and Territories to help ensure Australians can access similar levels of public services, such as hospitals, schools and transport, regardless of where they live.

Who decides each State's GST share?

The Commonwealth Grants Commission (CGC) is an independent body that calculates how GST revenue should be distributed between the States and Territories.

In making its assessments, the CGC considers:

• each State's capacity to raise revenue from sources other than GST
• the cost of providing services, such as hospitals, schools and transport.

The CGC then makes recommendations to the Australian Government on how the GST pool should be shared.

What is Horizontal Fiscal Equalisation?

The CGC uses a method called Horizontal Fiscal Equalisation (HFE) to determine each State and Territory's share of GST revenue.

HFE is the system Australia uses to share GST revenue between States and Territories. Its goal is to ensure all States and Territories have the financial capacity to provide similar levels of public services, such as hospitals, schools and transport, if they make a similar effort to raise revenue and operate efficiently.

Changes made through the 2018 GST reforms

Before the 2018 GST reforms, the GST system aimed for full equalisation. This meant GST revenue was distributed so that every State and Territory was brought up to the fiscal capacity of the strongest State.

The 2018 reforms introduced a partial equalisation model. The reforms were designed to balance support for States and Territories with different fiscal capacities while maintaining incentives for jurisdictions to grow their economies. Similar approaches are used in countries such as Canada and Germany.

How GST shares are calculated

Calculating GST shares is complex. The CGC's methodology involves analysing large amounts of data and applying a range of assumptions and judgements about States' revenue-raising capacity and the costs of providing services. 

How did we get here? The 2018 GST Reforms.

In 2018, the Productivity Commission reviewed how GST was shared between States. 

Under the old system, States that grew their economies could be penalised by receiving less GST. This meant there was less incentive to invest in industries, jobs and growth that benefit both the State and the national economy.

The 2018 reforms were designed to create a fairer balance. They continue to support States with inherently higher costs and lower revenue-raising capacity, while allowing States to retain more of the benefits of growing their economies.

Based on the Productivity Commission’s findings, the Commonwealth Government introduced the 2018 GST Reforms that:

• Set a minimum GST floor ensuring that no State or Territory receives less than 75% of its per person share of the GST. 
• Guarantees as of 2026‑27 that no State gets less per person GST grants than the lowest of NSW or Victoria.
• Provides an annual top-up to the national GST pool.  

The Australian Government has guaranteed that no State or Territory will receive less GST funding under the current system than it would have received under the previous arrangements. This guarantee has been extended until 30 June 2030.

The guarantee has meant other States and Territories continue to benefit from GST funding, even during periods when Western Australia has generated strong iron ore royalty revenue.

Although the guarantee has cost the Commonwealth more than originally forecast, higher company tax revenue associated with strong iron ore prices has more than offset this cost.

What does the GST distribution mean for WA? 

The 2018 GST Reforms are assisting WA to:

• Fund hospitals, schools and infrastructure
• Avoid raising other taxes to cover shortfalls
• Support national productivity through WA’s strong economy and exports. 

Some facts about WA’s GST distribution share 

• Western Australia’s GST share is currently 82% of the population, equal lowest with New South Wales. One of the 2018 GST Reforms was to introduce a minimum GST share so no State receives less than the stronger of Australia’s two largest States.
• Without the 2018 GST Reforms, WA’s GST share would fall to just 24% of our population share in 2026-27. No other State has ever received a share lower than 82% of population. 
• Western Australia's economy is different from other States because it receives significant royalty income from resources such as iron ore and lithium.
• Under the GST system that existed before the 2018 reforms, Western Australia would have effectively retained only around 11% of additional royalty revenue from these resources, with the remainder reflected in a lower GST share.

To find out more about how this distribution impacts WA and the Australian economy visit GST WA: What would changes to the distribution mean?

Review of the GST Reforms

As part of the 2018 GST Reforms, the Australian Government legislated the Productivity Commission to conduct an inquiry into whether the GST Reforms are operating as intended by the end of 2026.

The Productivity Commission’s review will consider:

• If the current GST Reforms gives each State and Territory a fair share of GST
• How well the system balances stability with flexibility, so States can plan their budgets and respond to change
• Whether it helps States and Territories improve the way they deliver services and raise their own revenue
• If the system is financially sustainable for both the Commonwealth and the States.

The Productivity Commission will provide an interim report to the Australian Government on 14 August 2026, with a final report expected before 31 December 2026.

This report will help the Australian Government decide if the GST changes made in 2018 are working as they should, or if the way GST is shared between States could be improved.

Western Australia will fight to protect the 2018 GST Reforms, which ensure all States receive their fair share.

How can I take action?

You can still have your voice heard while the Productivity Commission review is taking place.

Find some of the ways you can make a difference.

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