Western Australian Premier Colin Barnett has had few positive things to say about the GST review panel's report, labelling it a missed opportunity.
The panel said the current "horizontal fiscal equalisation" system, which aims to ensure states and territories have financial capacity to provide services such as education and health of the same standard, was functioning satisfactorily, internally consistent and well established.
The Liberal leader has long pushed for the GST to be distributed on a per capita basis, saying the resources-rich state was being ripped off.
"WA is penalised for having a successful mining industry, and the royalties earned from that, while the revenue other states earn from activities such as gambling is ignored," he said.
"Nevertheless, we are pleased the review panel's final report, like its first interim report, appears to recognise that many aspects of the current GST distribution system are broken."
Mr Barnett said the WA government strongly opposed any interference with the states' flexibility to collect mining royalties, which would undermine their sovereignty and capacity to achieve the best returns for their communities as owners of the minerals.
Federal Treasurer Wayne Swan has repeatedly threatened to penalise states and territories for increasing mining royalties that are creditable under the federal government's controversial mining tax.
The panel said the federal government's design of the mining and petroleum rent taxes had created an opportunity for states to seek to increase their royalty revenue at the expense of the Commonwealth, describing this as "an undesirable and unsustainable situation, which needs to be resolved".
"The Commonwealth and the states should negotiate an integrated resource charging system, addressing how the revenue is shared between them," the panel said.
Opposition treasury spokesman Joe Hockey said those comments represented a rebuke to the Gillard government.
"Only Labor could introduce a tax that raises no money, yet increases Australia's sovereign risk profile, adds record levels of red-tape for business, and still hangs as a threat over successful mining companies," Mr Hockey said.
"This is Labor's new low benchmark in public policy."
WA's Chamber of Commerce and Industry was also critical of the report, saying it had failed to recommend reforms of the scale that were "clearly needed to fix the system".
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