MOMENTUM is building for a serious shake-up of Australia’s GST distribution system.

It comes as analysis of how GST distribution affects Western Australia (WA) shows the state would be better off if it didn’t claim iron ore royalties.

Earlier this year, Treasurer Scott Morrison confirmed he had tasked the Productivity Commission with undertaking an Inquiry on Horizontal Fiscal Equalisation in Australia.

The inquiry will examine the system of “horizontal fiscal equalisation”, which has been used as the basis for the distribution of GST revenue in Australia since federation.

The current system has the Commonwealth Grants Commission redistribute money from wealth-creating states such as Western Australia and gives to the poorer states to achieve equality.

Industry is arguing the system benefits those states placing burdens on the development of their own resources, but holds back those who are proactive in developing their resources.

Across the past decade, figures show every dollar raised from iron ore royalties in WA were lost to other states, with $39 billion redistributed in the annual GST share-out.

The Commission has decided WA will receive only 34¢ in the dollar this financial year, while other states receive between 89¢ and $1.81 per dollar of the GST they collect.

Scrutiny of the figures within the Minerals Council of Australia’s submission to the Productivity Commission inquiry reveal WA has accumulated $4.3 billion in annual royalties across the past three years but given back an average of $4.5 billion due to the current method of dispersing GST to other states and territories.

Responding to the Productivity Commission inquiry into Australia’s system of horizontal fiscal equalisation, AMMA supports the MCA’s submission calling on GST reform to better incentivise States encouraging resources and energy developments.

AMMA’s Chief Executive Steve Knott said GST reform is the answer to encouraging Australian states to develop their own natural resources.

“We need a system reflective of the jobs and economic opportunities that come with development, and incentivises states to encourage resource projects, not those with policies holding the industry back,” Mr Knott said.

“The current GST distribution system isn’t promoting crucial economic growth in Australia and this urgently needs to be addressed.

“The nature of revenues from resource and energy developments needs overhauling.

“State governments are currently disadvantaged for encouraging the development of their resources and energy projects and those who reject developments are rewarded.

“Inaction comes at the expense of both the resources and energy sector, but also the economies of states who aren’t encouraged to tap into the economic opportunities from the industry.”

MCA’s submission calls for mining revenue be discounted by 25 per cent for the purposes of GST distribution, and highlights the system is unfavourably impacting on national productivity by deterring development.

During a recent address to the Chamber of Commerce and Industry WA in Perth, Treasurer Scott Morrison said he had “great sympathy” that WA was being penalised.

Mr Morrison has also threatened to deny GST revenue for states that don’t develop gas reserves, saying it’s unfair that the Northern Territory receives four times as much GST revenue as raised in the Territory while imposing a moratorium on fracking exploration.

The West Australian revealed yesterday the State Government would have to turn its back on gas fracking bans across the South West and open the Margaret River area to coal mines if WA wanted a better share of the GST distribution.

Terms of the Reference for the Inquiry put forward to the Production Commission by Mr Morrison showed that State laws or policies constraining the development of energy resources, would be integral to part of the GST system review’s outcomes.