It’s one of Australia’s more efficient taxes in its collection but how its revenue is carved up is an annual bone of contention among states and territories, particularly in Western Australia.

The Productivity Commission is due on Tuesday to hand down its final report on a proposed system change on GST distribution to the Turnbull government.

Whether any of the recommendations will soothe the annual share-out issues remains to be seen but any changes suggest if a larger slice of the $66 billion in GST revenue goes to one jurisdiction, others will lose out.

The commission handed down an interim report into changing the horizontal fiscal equalisation (HFE) system last October, to which Treasurer Scott Morrison said he wanted a proper fix rather than more “band-aids and bolt-ons”.

Problems surrounding the present system came to a head when WA’s share shrank to less than 30 cents in the GST dollar, even as the mining boom was ending.

It forced the federal government to make a $1.2 billion top-up payment, while Labor has promised a further $1.6 billion payment should it win the next federal election.

But the commission has said providing top-ups or setting a GST floor are not longer-term solutions.

It also found the present system means states and territories have a disincentive to undertake positive changes to their tax systems and make the most of the resources and minerals they have.

As changes to a state’s performance take time to work through the HFE system and influence the revenue share-out, even now WA will only get 47 cents in the GST dollar in next financial year while NSW gets 86 cents, the nation’s strongest state at present.

The interim report recommended resetting the HFE system to a more “reasonable” standard, using the second strongest state or average as the basis of the carve-up rather than the strongest.

Commonwealth Grants Commission secretary Michael Willcock, who is charged with carving up the revenue pie, told a Senate committee in March all states and territories except WA would lose money under changes being looked at by the Productivity Commission.

This would force them to either cut services, raise tax or increase debt.

Using the example of Queensland and based on the 2017/18 financial year, Mr Willcock said the state would receive $729 million less in GST.

The HFE system has been in place since the GST was introduced in 2000 under the Howard government and was backed by all states and territories at the time, as all legislation has to be surrounding the consumption tax.

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