Australia’s richest state will receive an extra $5.5bn in GST revenue thanks to a sweetheart deal struck with Western Australia in 2018, as the New South Wales premier attacked the latest distribution calculation as unfair and “past its use-by date”.

The Commonwealth Grants Commission on Friday released its recommendations on how a projected $102.5bn in goods and services tax should be carved up between the states and territories in 2026-27.

In the coming financial year NSW emerged as the main “loser” from a complex formula which aims to “provide a broadly comparable standard of government services” between states and territories with very different fiscal capacities.

NSW will be allocated a bit over a quarter of the total GST pie in 2026-27, equivalent to a projected $26.1bn, and up from $25.8bn in this financial year.

But NSW’s share of GST revenue relative to its population will shrink from 0.86 to 0.82, sparking outrage from Chris Minns, who said “this is the lowest share of GST NSW has received since the tax was introduced in 2000”.

“This GST system is past its use-by date,” Minns said.

“We need to move to a fairer system based on population. No one objects to the commonwealth supporting smaller jurisdictions like the ACT, the Northern Territory and Tasmania – but it makes no sense for big, wealthy states like Victoria.”

Mike Callaghan, the chair of the CGC, said the NSW premier was wrong to say the state was receiving its lowest relativity on record. He defended the system, saying that the relativities were based on complex but transparent calculations according to economic and budgetary data.

Callaghan said that for an accurate historical comparison you would have to take out the impact of the 2018 legislation, which handed WA a greater slice of the GST pie.

Excluding that impact, NSW’s relativity would have been 0.89, he said.

Victoria’s GST relativity fell slightly from 1.07 to 1.06, but because of a larger projected total pool (which lifted the tax take for all jurisdictions) the state’s revenue from the tax was forecast to increase to $27.9bn in 2026-27, from $26.4bn.

But the elephant in the room remained Western Australia, which thanks to a law change eight years ago has been guaranteed a minimum share of GST regardless of its needs, which independent economist Saul Eslake has frequently referred to as the “worst policy decision of the 21st century”.

WA has run a series of surpluses thanks in large part to the ongoing iron ore boom that has filled the state’s coffers, even as other states and territories are mired in budget deficits and increasingly onerous debt levels.

On capacity alone, the CGC calculated WA would receive a GST share equivalent to only 0.25 of its population share. Instead, it will receive the same as NSW, at 0.82.

WA “is by far the fiscally strongest state in the federation”, Callaghan said.

The fact that WA receives more than its “fair” share under the allocation methodology leaves less of the fixed GST pool for the other states and territories.

To ensure no jurisdiction is left worse off under the deal, the commonwealth provides “top up” payments which totalled $5.5bn in 2026-27, bringing the cumulative cost to the budget since 2018 to $36bn, Eslake said.

He described the current situation as “heads, Western Australia wins and tails, the federal government loses”.

“If iron ore went to US$400 a tonne, then WA would still get the same relativity as NSW, and if it collapsed to US$20, they would get more.

“How can Jim Chalmers and Anthony Albanese reconcile giving Australia’s richest state $36bn over eight years so it can run even bigger surpluses when every other government is running deficits?

The Productivity Commission is conducting an inquiry into the 2018 GST reforms, with an interim report due by August, and a final report by the end of the year.