The Productivity Commission is expected in October to release a draft report on horizontal fiscal equalisation,  under which the GST revenue some states and territories get from Canberra is wildly different to how it would be if it was on a per capita basis, with an aim of allowing them to provide similar levels of services.

A final report, as requested by federal Treasurer Scott Morrison,  is scheduled for January as WA ramps up  claims it gets an unfair deal.

Economist Saul Eslake has calculated Tasmania would lose about $1.1 billion if GST distribution was changed to a per capita basis.

That would likely lead to state tax hikes, slashed spending on services or a run of budget deficits, or some combination of all of those.

Supporters of change argue the current system rewards states for inefficiency, laziness and governments ducking economic reforms.

The state government, Labor Leader Rebecca White and Greens Leader Cassy O’Connor backed the current arrangements in initial  submissions to the inquiry.

The state government said: “HFE has not been an impediment to smaller states like Tasmania in undertaking economic reform and it has a strong record in managing its budget and exercising fiscal discipline.”

“When the mining boom was at its peak and the resource rich states were enjoying strong economic growth, this also had a negative impact on other states such as Tasmania.

“The decreasing state relativities of Western Australia and for a period, Queensland, have drawn considerable attention and raised arguments that these resource rich states are bearing an unfair equalisation burden.

“However, this overlooks the fact that they were recipient states and beneficiaries of the HFE system as recently as the mid-2000s and, in Queensland’s case, it has returned to being a beneficiary of HFE since 2013-14.”

Ms White said:  “The model is based on the fundamental belief that all Australians should have access to the same level of basic services, regardless of where they choose to live.”

“Any cut to Tasmania’s share of the GST would critically undermine our ability to fund essential services like health and education.”

Ms O’Connor said the current system was fair.

“Without a stabilising revenue from the GST distribution, Tasmania would be unable to maintain stability in basic service delivery,” she wrote.

The WA government argued WA’s GST relativity (receipts compared to what they would be if GST was distributed on a per capita basis)  had been below 38 per cent for four years, while no other state had been below 67 per cent (on GST or its predecessors) from 1942-43.

Mr Eslake said the extent to which WA’s capacity to raise revenue (via mineral royalties and mining-boom related increases in payroll tax and stamp duty) had risen relative to that of the rest of the nation since the early 2000s was also unprecedented.

The WA submission said: “While Western Australia agrees with the concept of HFE that weaker states should be supported, the way in which HFE is currently practiced in Australia not only fails to achieve its aims, but also creates perverse incentives in the process.”

“Reform to the system would promote efficiency and economic growth across Australia.

“Recipient states are encouraged to adopt a welfare mentality.

“The motivation to ... reform is diminished ...”