Treasurer Scott Morrison orders Independent GST inquiry

Treasurer Scott Morrison has ordered the Productivity Commission to review how the GST is distributed among the states and territories.

The Commonwealth Grants Commission, through the existing system of horizontal fiscal equalisation, recommends the distribution so each state ends up with a comparable level of government services.

It has been in place since the GST was introduced in 2000.

However, in recent years, Mr Morrison says some have suggested that this approach creates disincentives for reform, including moves to enhance revenue raising capacities or drive efficiencies in spending.

"In commissioning this inquiry, the government seeks an examination of the issues underlying these claims," Mr Morrison said in a statement on Sunday.

Western Australia has been particularly critical of the system because it is getting just 30 cents in the dollar of GST revenue because of the state's prior strength from the mining boom.

There is a three-year lag in the distribution determinations.

"It is important for Australia's future prosperity that our system underpinning Commonwealth-State financial relations supports productivity, efficiency and economic growth across the country," Mr Morrison said.

The Productivity Commission is due to report back to the government on January 31, 2018.