Swan warns states on cash carve-up

Treasurer Wayne Swan has warned the states the federal government will act to protect the broader economy when it considers its review of the distribution of GST revenues.

Mr Swan released yesterday the interim report of the independent GST Distribution Review, which is considering whether tax distribution arrangements can be improved in light of the structural changes re-shaping the Australian economy. The review - being conducted by former premiers John Brumby and Nick Greiner, and businessman Bruce Carter - has identified three avenues of future work by the panel.

It is also working on a second interim report on issues relating to state taxes and mineral royalties due mid this year.

A final report will be delivered later this year, at which stage Mr Swan will convene a meeting with state and territory treasurers to discuss the findings.

''While we understand that states and territories will naturally pursue their individual interests, the Gillard government will continue to act in the broader national interest to ensure a strong economy and high-quality services for all Australians,'' Mr Swan said in a statement.

The panel has found certain aspects of the implementation and communication of GST distribution are not meeting expectations ''and need to be 'fixed' even if nothing else in the system changed''.

It also raised the question over whether there should be a shift in the fundamental goal of the GST distribution from pursuing the same fiscal capabilities for jurisdictions towards a ''broader concept of providing comparable capacities''.

Finally, the panel asks whether there should be incentives for reform, which may mean making room for other goals in the distribution process. The review was the result of complaints from the mining states, particularly Western Australia, that they were getting less GST in the annual carve-up, under the so-called horizontal fiscal equalisation, because their economies were doing so well. The interim report agrees that the arrangements do not appear to recognise mining-related infrastructure costs, mining expenses and economic development costs ''appropriately''.

The panel is seeking submissions in response to the 181-page report.AAP