West Australian Premier Mark McGowan is threatening not to connect a gas pipeline to the east coast until his state gets a fairer share of GST revenue.
The WA Labor leader made the threat sitting next to Prime Minister Malcolm Turnbull and other premiers at the Council of Australian Governments meeting in Hobart on Friday.
The COAG meeting ended with no resolution on changing the GST revenue sharing system.
Tasmanian Premier Will Hodgman, who hosted the meeting, said he was delighted there had been no agreement on changing the formula, as the current system was based on the notion of a "fair go for all Australians no matter where they live".
But Mr McGowan told reporters his state, which gets back 34 cents in the dollar from the GST, had been "comprehensively dudded".
"WA is a major gas producer in the nation but we would expect action on GST before such time as we approve a gas pipeline across WA to connect to the eastern states," he said.
"We are prepared to take tough measures and take the issue up forcefully."
Mr McGowan proposed to the meeting that a proportion of state mining royalties be excluded when calculating a state's capacity to raise revenue.
"If you exclude 25 per cent of mining royalties from the GST distribution, the states that have a mining industry and encourage it will be rewarded for doing so," he said.
He also suggested counting gambling revenues in the formula, which would also work as an incentive to reduce the number of poker machines - which WA does not allow.
"You get more GST if you have less gambling," he said.
Mr McGowan reiterated his support for a floor in the GST, which the prime minister has previously backed but indicated would need to wait until it could be guaranteed no state loses out.
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