Acknowledged some premiers are strongly committed to change: Tony Abbott.

Acknowledged some premiers are strongly committed to change: Tony Abbott. Photo: Alex Ellinghausen

Tony Abbott has admitted some audit commission recommendations aimed at reforming the federation, such as a plan to allow the bigger states to keep the tax revenue raised in their jurisdictions, face a difficult future because consensus between the states may not be possible.

He acknowledged that some premiers were strongly committed to change, especially regarding distribution of the GST, which will be considered as part of a federation white paper.

It means the GST – considered too hot to handle by the previous Labor government which did not even include it in the Henry tax review – will now be studied by a comprehensive taxation review, and by the separate white paper on the federation, given its role as a purely state-directed revenue stream.

Premiers and chief ministers agreed on the white paper, which will look at ways to give more autonomy to states, however the terms of reference for the potentially divisive study have been put on hold for now.

Giving hope to both the pro-reform states such as Western Australia, NSW and and Victoria, Mr Abbott said he favoured the principle that the people who raise the money should ideally get to spend it, but he also cautioned against assuming change was easy.

Mr Abbott believes much of what the federation does it does well, but said there were many areas of duplication, arguing he wants each level of government "to be more sovereign in its own sphere". 

"We are not going to turn the world on its head here," he said amid open disagreement between South Australia's Labor Premier, Jay Weatherill, and WA's Liberal Premier, Colin Barnett, a fierce campaigner for a fundamental shift in the formula governing the allocation of Commonwealth funds.

Mr Barnett said it was the agreed position of all of the main populations states that GST funds should be returned to the states on a per-capita basis.

"After several years of making this point, the four big states, NSW, Victoria, Queensland and Western Australia, all agree that the GST should be primarily allocated on a population basis," Mr Barnett said.

"Now those four big states represent 90 per cent of the Australian population, and 90 per cent of the Australian economy. I think the commission of audit report has taken a similar view, so I guess – at the moment – I feel like I've won the argument.

The strong comments followed a rare frontal attack on the WA-led push to keep tax revenue by Mr Weatherill, who used the normally polite post-COAG joint press conference to slam the principle of money being retained by wealthier states.

He said until 2006, WA had been a net receiver of funds and it was only since the mining boom that the west had found itself contributing more than it received back in Commonwealth allocations.

"They've struck it rich and they suddenly want to cut themselves adrift from the rest of the federation," he said.

In an unusually light agenda in which school reform was mysteriously taken off the agenda without explanation, first ministers agreed to move forward on a plan to provide a new national inter-country adoption service for all Australians wanting to adopt a child overseas.

Then, government leaders signed up to the federal government's "recycling" fund – an incentive program which gives federal money to state governments who sell off existing infrastructure assets and reinvest in new economy-enhancing projects.