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Jay Weatherill has been spoiling for a fight with Canberra for months, first over power, and now money.
So far, the smoke from his unexpected grenade assault on the major banks last week has emanated from the financial sector as it prepares to retaliate.
But it has obscured the real fight; the underlying tensions swirling through the federation since 2015 and which now threatens to escalate into a battle over the states' rights to raise revenue.
Two years ago, then West Australian premier Colin Barnett began a concerted campaign to rewrite the rules — to which he had only recently agreed — on how the Federal Government divvies up the GST take between the states.
Mr Barnett argued at the time that WA was in the midst of a perfect storm; iron ore prices were in freefall, denuding government coffers, while its share of GST revenue was in line to plummet to just 30 cents in the dollar, a record low for any state.
It was difficult to argue with the numbers. The West, it appeared, was being delivered a raw deal.
How did it come to this?
Appearances, however, can be deceptive.
That push for change — or reform as some like to call it — hasn't abated with Barnett's recent departure.
Former treasurer Joe Hockey gave the West a sympathetic hearing when he was in office and more recently, Prime Minister Malcolm Turnbull has said Western Australians "had every right to feel aggrieved" although he has since backed away from any immediate aid.
And that has had every other state seething. The big eastern states, Victoria and NSW, which traditionally have propped up states like WA since federation, aren't prepared to give ground.
The poorer states such as South Australia and Tasmania, meanwhile, have been aghast at the prospect of missing out.
Last week, just a few days before Mr Weatherill pulled the pin, NSW Treasurer Dominic Perrottet announced he too was a proponent of GST reform.
He wants to move to a system that would guarantee more money would remain in NSW, heading off any push by WA to turn the system on its head.
Has the West been dudded?
The short answer is no.
Since the six colonies formed a federation in 1901, the states gradually have ceded taxation powers to the Commonwealth.
In 1942, as the war in the Pacific gathered momentum, the states gave up their power to raise income tax to the Commonwealth and in 2000 they agreed to drop a range of taxes for a share of the Goods and Services Tax.
Over the years, we have developed a system called the Horizontal Fiscal Equalisation, that has become increasingly sophisticated.
In effect, it means smaller, less well-off states should have the resources to offer the same level of services as richer states based on the principle no Australian should be worse off than any other simply because of where they live.
Rich states are expected to subsidise their neighbours.
A quick look through the numbers shows Western Australia has been on the receiving end of support from the other states for most of the past 117 years.
From 1910 — when the numbers first were recorded — to 1942, it was the most subsidised state, closely followed by South Australia.
After the Commonwealth took control of income tax in 1942, it merely recorded the amounts doled out to each state, rather than the relative amounts, so the subsidies are difficult to determine.
But from 1981, when the relative amounts were calculated, WA was on the receiving end of handouts until 1997. It was a minor contributor until 2004 but for the next three years, it went back to being subsidised.
It was only after 2007, when it received 95 cents in every dollar of GST collected, that it became a major donor, falling to just 30c this financial year.
How the west wasted the boom
The mining boom saw iron ore prices soar. From less than $US15 a tonne at the turn of the century, they scaled heights never before imagined, peaking at $US190 a tonne in 2012. In 2015, however, they collapsed into the $US30 realm as supply flooded the market.
WA's iron ore royalties surged in spectacular style. From $305 million in 2003, they hit $2.7 billion in 2010.
When the Federal Government tried to introduce a mining tax, the Barnett government responded by turbocharging its royalty fees because of a loophole in the new federal tax.
A clause in the hastily rejigged federal tax meant Canberra had to reimburse the mining companies for any royalties they paid the states.
Barnett and his treasurer, Christian Porter, wasted no time. They first eliminated the discount royalty concessions enjoyed by BHP and Rio Tinto and then doubled the royalty on iron ore fines — or powder — to bring it into line with iron lumps.
During the next four years, royalties trebled what already was a deluge and WA became the richest state in the federation, effectively diverting all the revenue that was supposed to flow to the Commonwealth via the mining tax.
When the newly elected Tony Abbott axed the mining tax, the big miners thought Colin Barnett would cut the royalties given they were designed to denude the Gillard government of any proceeds. The WA government, however, refused.
Under the formula for divvying up the national wealth, the WA government knew the huge revenue gains during the boom would result in a massive cut in its GST share.
That's because each state's share is calculated with a time delay, determined by its needs over the three previous years.
So when the cash was flooding into WA's coffers up until 2013, the formula was working heavily in its favour, delivering it a far greater share of GST revenue than it would have been entitled if the funding "reforms" it now wants were implemented.
What the Barnett government never counted on was a collapse in resource prices and a slump in revenue, right when the expected GST cuts kicked in.
To make matters worse, it has emerged from the greatest resources boom in history with a $3 billion deficit and state debt estimated to rise to $41 billion by the end of the decade.
Show me the money
This year, the Commonwealth Grants Commission will dole out $62.3 billion in GST revenues to the states. The problem is, there is just one pot of cash. And any change to the formula that benefits one state, will cost the others.
WA this year will receive just $2.3 billion, less than any other state, with NSW entitled to $17.6 billion, or 90c in the dollar.
The Turnbull Government has asked the Productivity Commission to run the ruler over the system to see if it could be improved.
But the Prime Minister has hinted any changes may only be implemented in a few years' time, when WA's share is expected to automatically lift.
That is a smart move by the Prime Minister.
For WA is well aware any change to the system now may deliver it some short-term pain relief.
But longer term, if its mining royalties remain in the doldrums, the other states eventually will come to the rescue and the West will be worse off under the changes it now proposes.
The looming tax grab
That, however, doesn't solve WA's immediate dire financial position.
When Mr Weatherill stunned the banking world with his very own levy last Thursday, it emerged he had been in contact with his WA counterpart, the newly elected Mark McGowan.
The irony was that a Labor government was aping a newly imposed federal levy from a Coalition government. So there's no way the Feds can oppose it philosophically.
But it has opened the door for a shift back towards state taxes, many of which were eliminated when the GST was introduced in 2000.
Clearly, a desperate McGowan government, having made political capital from the inept fiscal performance of its predecessors is considering not just a bank levy, but a range of new taxes.
That could well be a retrograde step, especially for businesses operating nationally.
Again, though, it will be a difficult one for the Turnbull Government to argue against. Last year, it briefly floated the idea of allowing the states to re-introduce their own income taxes.
For more than a century, power has devolved to Canberra. That now looks to be reversing.
Topics: government-and-politics, tax, budget, states-and-territories, banking, business-economics-and-finance, wa, australia, sa
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