NSW and Queensland have led criticism of the $89 billion allocation for 2024/25, when both will lose hundreds of millions of dollars while the shares surge ahead for other states and territories.
NSW Treasurer Daniel Mookhey lambasted the "broken" distribution system on Tuesday, furious the state will be $1.65 billion worse off than its government had expected for the coming financial year.
"We budget on four-year cycles, we should have the information from the Commonwealth Grants Commissioner for four-year cycles," he said.
Mr Mookhey called for a wholesale overhaul of the GST-sharing system during a meeting with federal treasurer Jim Chalmers and state and territory counterparts on Friday.
"States should also be able to see each other's submissions of what service delivery costs in their state, so we can all keep each other honest," he said.
Daniel Mookhey wants the GST-sharing system overhauled. (Dean Lewins/AAP PHOTOS)
Victorian Premier Jacinta Allan backs the four-year proposal, and has urged the commission to provide more certainty to state governments instead of just "bouncing from one year to the next".
"It gives us certainty about how we fund our hospitals and schools, employ our teachers and nurses and invest in the things that Victorian families rely on," she said.
Queensland Treasurer Cameron Dick also wants change, saying he supports longer forecast windows that mirror the forward-estimates process for state budgets.
But the states still remain sharply at odds over a push from NSW for GST to be handed out on a per-capita basis, with smaller states' funds topped up with federal grants as needed.
Mr Dick said a per-capita system was "designed only to run what (NSW Premier Chris Minns) has described as the resources they need to run major metropolises".
"A per-capita system would have cost Queensland $9 billion over the last decade and would not support the ongoing funding needs of a large decentralised state," he said.
The states are odds over a push from NSW for the GST to be distributed on a per-capita basis. (Lukas Coch/AAP PHOTOS)
Victorian leaders previously launched a stinging attack on Mr Minns after the NSW premier branded his southern neighbour a "welfare state".
Mr Chalmers said more than one jurisdiction was experiencing budget challenges and it was "easy but wrong" to blame the commonwealth government for those issues.
"We will always do what we can afford to do to invest in the states to deliver for the people and communities we all represent and serve," he said in a statement.
"We believe this is best done by working together not taking shots at each other."
Both NSW and Queensland will receive less GST funding in 2024/25 than for the previous financial year after the Commonwealth Grants Commission found rising coal royalties put them in stronger budget positions than other states.
All other states and territories should receive more, including an extra $3.7 billion for Victoria.
Independent economist Saul Eslake said the GST-sharing system was designed to ensure each state had the capacity to provide a similar quality of services, but it had become too complex, opaque and difficult to predict.
The system had also been corrupted after legislation introduced in 2018 under the Morrison government "perversely" benefited Western Australia, which received a guaranteed minimum share of GST despite being "the richest state in the nation".
"The federal government needs to direct the Productivity Commission to conduct a broader review for recommendations on how to achieve a simpler, more transparent, more understandable and more predictable model," he told AAP.
But he also dismissed NSW calls for a per-capita distribution, which he said would benefit WA even further and would "crucify the Northern Territory and the smaller states".
