Western Australia is looking down the barrel of a massive $3.1 billion budget deficit this year and debt levels that could peak at $39 billion within four years.
A "perfect storm" of plummeting iron ore prices, a sluggish economy that included lower tax collections and the state's share of the national GST revenue have been blamed for the latest forecast, which was part of the state's mid-year review on Monday.
It is worse than the $2.7 billion deficit projected when the state budget was handed down in May.
Another $3 billion deficit is expected in 2016/17 before a return to surplus.
WA is also expected to lose $17 billion in revenue over four years, which Treasurer Mike Nahan says is the biggest revenue shock to any Australian economy since the Great Depression.
Net debt for this financial year has been revised down since the budget to $29.6 billion, but is projected to jump to $39 billion by 2018/19.
But Dr Nahan made the bold move to "guarantee" that would not happen due to the proceeds of asset sales, such as the Perth Marketing Authority and the Utah Point port facility in the Pilbara.
Despite controversy surrounding the Perth Freight Link, Dr Nahan remained confident the sale of Fremantle Port would proceed.
The government has flagged expanding the asset sale program, but Dr Nahan would not give any indication about the potential sale of major assets such as Western Power.
Asked whether the WA government should have seen the budget problems coming, Dr Nahan replied: "Treasury does not hire clairvoyants."
A $1.3 billion savings package has been introduced, including capping wage increases to CPI levels and a freeze on public sector recruitments - except for teachers and police - until June 30.
Dr Nahan admitted that if the iron ore price dropped to about $US30/t and stayed there, the state would be under further pressure from credit rating agencies.
The treasurer added that if WA received a per capita share of GST, it would have a surplus of $1.3 billion.
Premier Colin Barnett said the GST was effectively a Commonwealth tax on WA and discriminatory.
"The role of the Commonwealth is to ensure that the weaker states still have viable funding for their services," he said.
"But at the moment, the full burden of supporting other states is being borne by Western Australia.
"(The) prime minister understands that issue and in fact, I think he's quite horrified."
Shadow treasurer Ben Wyatt said it was not a GST shock, but a comprehensive failure in financial management.
He said the asset sales program had made a "minuscule impact" on WA's debt, but did not rule out considering similar action if Labor won the next election in 15 months.
Unions WA secretary Meredith Hammat said for the state to be in such a poor financial situation after a boom was unforgivable, adding money should not have been spent on so many big infrastructure projects.
Chamber of Commerce and Industry chief executive Deidre Willmott called for the government to rein in public expenditure, focus on public service reform and expand asset sales.
