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PM versus states and territories over GST

PM Malcolm Turnbull Source: AAP

Prime Minister Malcolm Turnbull is facing a robust fight with the states and territories over planned changes to the way GST revenue is distributed.

Prime Minister Malcolm Turnbull is facing a robust fight with the states and territories over planned changes to the way GST revenue is distributed.

Malcolm Turnbull says the GST formula needs to be fair for all Australians.

However, successive governments have pledged not to change the GST payment formula without agreement from all the states and territories, making Mr Turnbull's proposal unlikely to succeed.

Malcolm Turnbull says setting a minimum, below which a state or territory's share of the GST cannot fall, means no other state would be disadvantaged based on their projected GST share.

The GST is calculated by the Commonwealth Grants Commission using a complicated formula based on an average of the income a state received during the previous three years.

Under this system, a huge spike in mining royalties followed by a large drop in iron ore and other commodity prices means Western Australia has been faced with plunging royalty incomes and a declining GST share.

Mr Turnbull says Australia should take the opportunity to ensure the GST payments do not disadvantage anyone - "The purpose of The GST formula is to ensure that the standards of services, such as hospitals and schools provided by state governments, are comparable for all Australians regardless of the state or territory in which they live.* In the past, Western Australia has been a beneficiary of this. However, the huge gap between what Western Australians pay in GST and what they receive back is unprecedented and Western Australians have every right to feel aggrieved."

W-A Premier Colin Barnett says setting a floor price (minimum level) is an ideal proposal - "A floor is absolutely critical. West Australia has suffered. We should never suffer that again, nor should any other state. And having a floor - whether it's 75 cents of 67 cents in the dollar - will allow Western Australia to plan with confidence on future public works and expenditure to have the funding to maintain our superb school and health system and be able to maintain strong budget surpluses."

But other state leaders are far less impressed with a situation that could potentially reduce the amount of GST currently allocated across the board.

Victoria, Tasmania, Queensland and South Australia are opposed to the change.

Tasmanian Premier Will Hodgeman has told the ABC the proposal would hurt his state.

Mr Hodgeman says the idea isn't a new one and he's expecting another fight with the federal government over the issue - "They're not new ideas, these concepts have been flagged (before). In this case, West Australia is arguing for something that we believe would fundamentally disadvantage Tasmanians so we are sending a very clear message on day one to the federal government that we will not support such a change."

Western Australia is unhappy because it's receiving less than 40 cents for every dollar its residents pay in GST -  this is down down from 79 cents in 2009-10.

Some states and territories receive more GST revenue than their residents pay.

Figures show the Northern Territory receives $5.60 for every tax dollar, Tasmania $1.63, South Australia $1.28, the ACT $1.24 and Queensland $1.08.

Except for Western Australia, no state or territory's share has ever dropped below 82 cents in the dollar

South Australian premier Jay Weatherill says numerous expert studies have shown the existing method of distributing GST is the fairest and most efficient.

Mr Weatherill says he believes the move is simply to designed to take the focus of other issues - "I think the whole thing does horribly look like a distraction designed to divide and conquer the states so we don't start talking about things like cuts to health care funding and all the other difficult issues the commonwealth doesn't want to talk about."

Queensland Premier Anastacia Palaszczuk has accused accused Malcolm Turnbull of making policy on the run.

She says it needs to be discussed at the next Council of Australian Governments (COAG) meeting - "He has not raised this with anyone. We are yet to confirm a COAG meeting date. I would expect this issue would be discussed front and centre. I am opposed to where one state benefits above every other state. To me that is discrimination."

Opposition Treasury spokesman Chris Bowen has dismissed the plan. 

Mr Bowen says the Prime Minister has no credibility on federalism and tax, and now he's got an idea to change the GST distribution where no-one loses and everyone wins.

But Treasurer Scott Morrison says the other states shouldn't panic about their share of the GST because the prime minister its making the point that it's not working the way it should and needs to be changed at some time in the future.