Mr Morrison has asked the Productivity Commission to conduct an inquiry into the impact on the national economy of what is known as horizontal fiscal equalisation, the model that underpins GST distribution.

The inquiry will examine the impact of the current system - which has been in place since the early days of Federation and applied to the GST in 2000 - on productivity, efficiency and economic growth.

The GST carve-up is a particularly hot-button issue in Western Australia, where the state government believes it is being dudded. WA will get only a return of 34 cents for every dollar in GST revenue it raises next financial year, despite having the worst-performing economy in the country.

The review comes after years of intense behind-the-scenes lobbying from WA MPs led by Finance Minister Mathias Cormann, Social Services Minister Christian Porter and Foreign Minister Julie Bishop.

"They have been effective voices for their state in government," Mr Morrison acknowledged in a statement on Sunday.

The announcement is designed to buoy the government's political fortunes in the west, where a number of MPs - including rising stars Mr Porter and Andrew Hastie - are at threat of losing their seats at the next election.

Under the current system the Commonwealth Grants Commission recommends a GST distribution to the states that gives each the capacity to provide its citizens with a comparable level of government services. Effectively, the model takes money from rich states and gives it to poorer ones.

But critics say this approach does not adequately consider a state's circumstances and creates disincentives for reform. They also criticise a three-year lag in the carve-up that can punish states during a downturn.

The inquiry will examine the impact the system has on the movement of capital and labour across state borders, policies affecting energy and resources,

Mr Morrison said the inquiry was important for Australia's future prosperity.

"Ultimately, all Australians benefit when the states actively pursue reforms seeking to improve productivity, efficiency and economic growth within their own jurisdictions," he said.

South Australian Treasurer Tom Koutsantonis said the announcement had come "out of the blue" and accused the government of using the commission to try and improve its political stocks in WA: "It's got absolutely nothing to do with the productivity of this nation."

???The NSW government welcomed the review but Tasmanian Premier Will Hodgman said: "We will fight any proposal to change the GST tooth and nail. Tasmania deserves our fair share."

Victorian Treasurer Tim Pallas said the state was happy to participate in the review but "won't accept Victorians being short-changed to prop up other states that are not doing their bit".

ACT Chief Minister Andrew Barr said the current method of GST distribution had served Australia well for many years. "There is no need for change. The ACT Government will join with the majority of states and territories in backing the current system."

The commission is due to report to the government by January 31, 2018.

The Gillard government ordered a review of GST distribution in 2012, led by former state premiers John Brumby and Nick Greiner. It recommended no major changes, largely backing the current system.