Prime Minister Julia Gillard orders review of GST carve-up for the states

JULIA Gillard has ordered a full-scale review of the annual GST carve-up, promising to reward states that improved productivity and services.

The Prime Minister said she wanted to make the annual tax carve-up simpler, more transparent and more predictable for the states.

She said the current system discouraged reform by boosting payments to under-performing states.

"Instead of states facing penalties for economic growth and rewards for economic underperformance, the GST distribution process should encourage economic reform and better delivery of services, and provide States with certainty," Ms Gillard said.

However, she said the GST split would continue to be guided by the principle of "a fair go", offering poorer states a helping hand.

"There is therefore an obligation on the stronger states to help the weaker states and that obligation must continue. It's the Australian way," she said.

The review's terms of reference enshrine the principle that jurisdictions should have equal capacity to provide infrastructure and services to citizens.

The review will be conducted by former premiers John Brumby, Nick Greiner and South Australian businessman Bruce Carter.

The panel will provide an interim report by February next year and a final report by September 2012. Submissions from state governments and the public will be sought.

The GST carve-ups in 2011-12 and 2012-13 will be conducted in accordance with the current arrangements.

The Commonwealth Grants Commission would continue to make recommendations on the distribution of GST revenue but its formula would be modified based on the recommendations of the review, Ms Gillard said.

The distribution of GST revenues enraged Victorian Treasurer Kim Wells this year after $417 million of his GST revenues was handed to Western Australia, Queensland and Northern Territory.

In a statement this afternoon, Mr Wells called for the cuts to Victoria's revenue to be suspended in light of the review.

"It is clear that the Commonwealth has no confidence in the existing formula," he said.

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