The head of a new Western Australian political party backed by some wealthy business figures says senators should block supply unless the GST system is changed to give the state a larger share.
Julie Matheson, who established Western Australia Party along with prominent figures including retired judge Peter Nisbet QC and property developer Nigel Satterley, told a Productivity Commission inquiry in Perth that the GST system is creating a "welfare nation".
WA's share of the GST revenue has plunged in recent years, due to the complicated horizontal equalisation formula that is supposed to allocate funds based on need and how a state is performing economically.
This year WA received only 34 cents for every dollar raised despite its slow economy, while NSW got back 88 cents, Victoria 93 and the rest were all well above 100 cents.
The WA government says if it received a per capita share of GST revenue it would add an estimated $10.5 billion to WA's budget bottom line over the next three years.
Federal Treasurer Scott Morrison had the power to change the system and should do so, because it was in the national interest that WA's economy grows rather than prop up other states, Ms Matheson said after appearing at the GST inquiry.
"If he doesn't change the GST system, then Western Australia needs to take a stronger view on how it participates in Australia federally," she said.
"The senators that we have in parliament should be blocking supply if they don't get a fair share of GST for Western Australia, we have party members in the Senate only looking after their party as opposed to looking after their state.
"Our party believes the current GST system is creating a welfare nation, we are calling it the GST welfare for Australia, it discourages innovation and the growth of a state."
That was a reference to the Productivity Commission report this year that found states and territories had a disincentive to make positive changes to their tax systems or exploit resources and minerals, especially natural gas, because mining royalties would go to other states.
Ms Matheson said her Western Australia Party would target three Senate seats at the next federal election.
The WA Chamber of Commerce and Industry also appeared and proposed an overhaul of the "broken GST system", in which it would be replaced by "equalisation to the average," of all states, giving more incentive to grow economies.
To ensure no state was worse off during a three-year transition, the federal government should pay at least $5 billion in top-up payments to weaker states, chamber economist Rick Newnham told the inquiry.
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