Ending the annual row over how $66 billion of GST revenue should be shared between the states and territories will be difficult if no one is to lose out.
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But NSW Treasurer Dominic Perrottet has been assured by Scott Morrison such reform will be his focus before the next federal election.
The federal treasurer is due to receive the final report and recommendations on how GST revenue should be carved-up from the Productivity Commission on Tuesday.
The commission handed down an interim report into changing the distribution mechanism - known as horizontal fiscal equalisation - last October, to which Mr Morrison said he wanted a proper fix rather than more "Band-aids and bolt-ons".
Senior federal minister and former WA treasurer Christian Porter said it was the first authoritative report that found there are "significant deficiencies" in the present system.
Whether the recommendations will soothe the annual argy-bargy remains to be seen but any changes suggest if a larger slice of the GST revenue pie goes to one jurisdiction, others will lose out.
"It's a very difficult area to get all the states to agree on something like the GST," Mr Perrottet told Sky News on Monday.
"What I am willing to cop is a change that ensures NSW stops subsidising inefficient, particularly Labor states, that don't embark on the bold reform that is needed."
Problems surrounding the present system came to a head when WA's share shrank to less than 30 cents in the GST dollar, even as the mining boom was ending.
As changes to a state's performance take time to work through the HFE system and influence the revenue share-out, even now WA will only get 47 cents in the GST dollar next financial year while NSW gets 86 cents, the nation's strongest state at present.
While the federal government has been forced to make several top-up payments to WA and Labor has promised a further payment should it win the next federal election, the Productivity Commission has said these are not long-term solutions.
It also found the present system means states and territories have a disincentive to undertake positive changes to their tax systems and make the most of the resources and minerals they have.
In its initial thoughts, the interim report recommended resetting the HFE system to a more "reasonable" standard, using the second strongest state or average as the basis of the carve-up rather than the strongest.
Australian Associated Press
