At least four states and territories could be penalised under a plan now endorsed by Treasurer Scott Morrison to withhold GST revenue if they refuse to develop gas reserves, including controversial coal seam gas.
Mr Morrison gave his support to the idea which is being looked at by the Productivity Commission as part of a review into the distribution of GST revenue.
The review was commissioned following constant complaints by Western Australia that it was being ripped off over the GST, primarily because its earnings from mining royalties were taken into account under the distribution formula.
Now, with the WA economy tanking and Labor in power at a state level, the state is no longer a stronghold for the Coalition and it risks losing a number of seats there.
In Perth on Thursday, Mr Morrison again threw his weight behind the proposal.
"It's one thing to ensure that Australians, wherever they live in whatever state and territory, can get the same access to the same quality services," he said.
"But at the same time, if states and territories aren't going to realise the opportunities that they have, particularly with their resource base, like Western Australia has here, if they're not going to do that, then you've got to ask yourself, is it a fair enough thing that states like Western Australia which have taken those steps would be penalised.
"This was put in the terms of reference for the Productivity Commission. I've asked them to look carefully at this. I'm deadly serious about it. We want all states and territories to be making the right choices to secure the better days ahead that are there for our economy.
"WA over many years has been doing that in making sure it takes advantage of the resource opportunities that are there, and if other states and territories are going to turn their back on that, well, this is a serious question which the Productivity Commission I'm sure will give me advice on."
While such an approach will be popular in WA it does put the Treasurer on a collision course with others, including the Liberals in SA who, if they win the next election, will place a moratorium on CSG extraction in the state's fertile south-east. The Liberal NSW government also has an effective moratorium on further CSG extraction, while Victoria bans any form of conventional onshore gas as does the Northern Territory.
Mr Morrison first supported the idea when in Darwin on Wednesday, earning a tongue-lashing on Thursday from NT Treasurer Nicole Manison whose jurisdiction earns $4 in GST revenue for every dollar it contributes.
She called Mr Morrison's threat to start fracking or lose money "absolutely disgusting" and "outrageous".
