WA's GST woes could be partly solved with a stroke of the Federal Treasurer's pen - whether it belongs to Labor's Chris Bowen or the coalition's Joe Hockey.
A simple administrative direction to the Commonwealth Grants Commission could deliver WA more than $1.6 billion in extra revenue by June 2017, according to analysis by WA Treasury.
The potential windfall hinges on how the Grants Commission treats WA's royalty revenue from iron ore "fines" - which until July attracted a royalty discount compared with "lump" iron ore.
Royalties on fines iron ore used to be levied at 3.75 per cent but the State Government raised the rate to 5.625 per cent in July 2011, 6.5 per cent in July last year and 7.5 per cent on July 1 this year.
Royalties on lump ore are also 7.5 per cent.
In assessing the States' and Territories' own revenue-raising capacity for the GST carve-up, the Grants Commission classifies mining royalty collections as either "low rate" or "high rate".
Iron ore fines royalties are categorised as "low rate".
But with a Grants Commission review due next year to determine GST shares for 2014-15, both sides of WA politics expect fines will be reclassified into the "high rate" category - unless the Federal Treasurer intervenes.
"For the purposes of the 2013-14 Budget forward estimates, it was considered that there is no choice but to assume that the CGC will reclassify iron ore fines to its 'high rate' royalty category from 2014-15, notwithstanding that this will be vigorously contested by WA," Treasury said in the State Budget papers.
If the Grants Commission instead continued to treat fines royalty in the "low rate" category, the State's bottom line would be boosted $230 million in 2014-15, $527 million in 2015-16 and $877 million in 2016-17, the WA Treasury analysis found.
Treasurer Troy Buswell wrote to then-treasurer Wayne Swan in April requesting fines continue to be treated as "low rate" until the completion of wider review of the Grants Commission's methodology, due in early 2015. "Unfortunately, in his response the current Federal Treasurer (Mr Bowen) provided no assurance," a spokeswoman for Mr Buswell said.
Opposition Leader Tony Abbott has said: "The GST won't change, full stop, end of story."
WA shadow treasurer Ben Wyatt said the State Government had already taken the "sugar rush" of extra revenue from increasing royalties on fines and now had to deal with that money being redistributed to other States through the GST.
"It's vital for the sustainability of the finances of WA that we keep that extra revenue, because if we don't, then clearly the Government is going to have to further cut services or increase taxes," he said.