Let state governments keep royalties: BHP

BHP Billiton's head of Australian mining has criticised the nation's GST system, saying it is blocking the country from becoming wealthier.

Mike Henry says mining states such as Western Australia should be allowed to keep more of their royalties.

That would create more of an incentive for states to develop resources projects and stimulate their economies, unlike the current GST system that does the opposite, the BHP Minerals Australia president told a business lunch in Perth.

GST distribution is being investigated by the Productivity Commission over flaws such as WA receiving far less than anyone else - only 30-34 cents on the dollar.

"If states with resources are able to retain some of that royalty stream outside of the pooling, all other things being equal they are going to be more incentivised to stimulate development and resources," Mr Henry told reporters.

"If the overall wealth pie of Australia grows there will be more opportunity being created... Even those states that aren't directly benefiting from getting more of the resource royalties will be indirectly benefiting through the bigger pie."

States that had banned onshore gas development, such as Victoria and NSW, would have more interest in allowing it, and that would bring down household bills and support manufacturing, he said.