The Turnbull government has unveiled major reforms to the GST formula, promising no states will be worse off and injecting an extra $9 billion in federal money over the decade to make sure no state falls below a fixed benchmark.
GST distribution is designed so wealthy states like NSW and Victoria support poorer states like Tasmania, and key government services are matched to the highest standard.
But in the peak of the mining boom, the old system led to Western Australia’s share dropping down to just 30 cents in the dollar as it supported the rest of the country.
Under the sweeping reforms – the biggest since the GST was introduced in 2000 – the government will move to lock in a 70 cent floor for every state in the year 2022, rising to 75 cents in 2024.
"For a long time, everything was going along swimmingly. People could largely predict what was happening," Mr Morrison told reporters at Parliament House on Thursday.
The problem here is that the GST system was never built ... to cope with a big shock like a minerals boom."
The move would have seen backlash from other states as more money flowed back to Western Australia and New South Wales.
But to prevent that reaction, the government has committed to making federal top-ups a permanent feature of the system so no state is worse off.
The scheme will cost the federal treasury around $9 billion over the first 10 years, with future increases pegged to the rate that the overall GST tax pool increases.
The funding will be untied, meaning governments will be able to spend it as they see fit to deliver services in their state, including schools, hospitals, roads and rail.
The government will now seek an agreement with the states and territories.
But Mr Morrison indicated the government was prepared to legislate without the full cooperation of every state.
"It's not disputed that the Commonwealth can act alone on this," he said.
Western Australia is expected to be the only state with less than a 70 cent share during the phase-in time from next financial year.
The states and territories are slated to receive $67.3 billion in GST payments in 2018/19, rising to $112.25 billion, including the top-ups, in 2028/29.
The system under which GST is shared, known as horizontal fiscal equalisation, has not been changed significantly since the consumption tax was introduced in 2000.
The benchmark for HFE will shift over eight years to a new standard that will ensure the fiscal capacity of all states and territories is at least the equal of NSW or Victoria (whichever is higher).
The government has rejected the recommendation of a Productivity Commission review to use an "average" figure to equalise the payments, which Mr Morrison said would have left smaller states behind.
Treasurers will meet in September with a final agreement expected by the end of 2018.
