The annual GST carve-up should be abandoned and replaced with a system that would deliver WA billions of dollars and stop mendicant States from bludging off the rest of the nation, a report out today argues.

Compiled by the right-leaning Institute of Public Affairs, the report found WA had lost $16 billion to other parts of the Commonwealth since the current GST allocation system was introduced.

Over the same period South Australia had reaped $19 billion from other States including WA, NSW and Victoria.

The Productivity Commission is investigating the GST allocation system, with its draft report backing changes that it says would deliver more money to cash-strapped WA while taking money from poorer States such as SA and Tasmania. It has come under fire from smaller States as well as from Victoria.

Play Video After years of complaints of our GST share, there might be some light at the end of the tunnel. The West Australian Video After years of complaints of our GST share, there might be some light at the end of the tunnel.

IPA research fellow and report author Morgan Begg said some proposals being examined by the commission would deliver more cash to WA but were “second-best” options.

He said the current system was deeply flawed and reduced incentives for States to build their economies and compete against other parts of the country in areas such as tax or bureaucratic oversight.

But in a radical shift, Mr Begg said the country would be better off giving each State the right to strike its own rate of GST and keep that cash to do as they wished.

“More reform is required, decentralising the GST by allowing the States to set the rate that applied in their respective jurisdictions and keeping the revenue raised would unlock the benefits of competitive federalism,” he said.

Mr Begg said the continuing problem for many States was the dominance of the Federal Government when it came to allocating cash across the Commonwealth.

He said horizontal fiscal equalisation penalised States that were prepared to make their government operations more efficient while rewarding those that took no action.

Prime Minister Malcolm Turnbull has previously raised the concept of allowing States to take income tax powers while some jurisdictions, including SA, have pressed for changes to the GST.