Most states and territories could get a smaller-than-expected slice of the $57 billion GST pie in a bid to shore up Western Australia's budget.
WA has been hit by what federal Treasurer Joe Hockey calls a "perfect storm" of lower tax revenue from falling iron ore prices and a recommendation from the independent Commonwealth Grants Commission that its share of GST revenue be cut.
Speaking after a meeting with state and territory treasurers in Canberra on Thursday, Mr Hockey said he would consult further on changing the recommendation of WA's GST share falling from 37 cents to 30 cents in the dollar.
"Frankly, the fundamental question is, does it really help the federation for the first time to have a state receiving 30 cents in the dollar from the GST that is contributed by its citizens," he said.
"At what point do you say this is just a little bit unfair?"
Such a change to the grant commission's independent finding has not been made by a federal government since the early 1990s.
The issue will be discussed at a COAG meeting chaired by Prime Minister Tony Abbott next week.
South Australian treasurer Tom Koutsantonis said Mr Hockey was entitled to give WA some extra money via a one-off grant or other means.
"But if he attempts to redistribute the GST using his power, that would be an unprecedented use of his power," he said.
"These type of thought bubbles need to stop."
Tasmanian treasurer Peter Gutwein said his state had "no interest at all" in assisting WA to fix its budget problem.
Victorian Treasurer Tim Pallas said the WA government had received "rivers of gold" in the mining boom years but had failed to put the money away for the long term.
Mr Pallas said he wanted a decision from Mr Hockey before his state's budget on May 5, but in the meantime he will use the GST figures as recommended by the grants commission.
He said the states had some sympathy with WA, but it was more important to maintain the integrity of the commission's process.
Mr Hockey talked down the idea of dipping into his own budget for WA, saying he did not have a "magic pudding".
The states are due to share $57.2 billion in GST revenue in 2015/16 - up from $53.7 billion this year.
The Northern Territory will receive $5.57 for every $1 of GST paid, while WA will get just under 30 cents in the dollar.
The top three beneficiaries are NSW ($17.3 billion), Victoria ($12.8 billion) and Queensland ($13 billion).
The grants commission report said it had taken into account WA's ability to raise mining royalties and the extra cost servicing remote communities.
Federal shadow treasurer Chris Bowen said he had discussed WA's problems with Labor MPs from that state.
A key problem was the WA Liberal government - which faces the polls in March 2017 - had managed the budget poorly, shown in the loss of its triple-A credit rating, he said.
Mr Hockey also flagged the need for WA to undertake "politically painful reform" as other states had already done.
He has asked for written submissions from the states and will be meeting with the WA government in coming weeks.
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