Western Australia's take of the GST is set to dive to less than 30 cents in the dollar next year, prompting cries of foul from that state and an acknowledgement from Federal Treasurer Joe Hockey that the distribution would be "unreasonable" and "extreme".

A meeting of state and territory treasurers with Mr Hockey in Canberra on Thursday ended in acrimony with no deal struck on how the $57.2 billion in GST proceeds should be divided.

Mr Hockey has revealed the latest recommendation from the Commonwealth Grants Commission — which calculates how much each state and territory should receive — states that Western Australia's share should fall from 37 cents in the dollar to less than 30 cents in 2015-16, or less than $2 billion of the GST pie.

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"I think most Australians would consider it unreasonable that a state would have a situation where only 30 cents of every dollar spent on the GST by its citizens are sent back to that state," he told a press conference when the meeting had broken.

"I think the fairness test would suggest that going to 30 cents .. is at the extreme end."

Mr Hockey said he would consult the Prime Minister and state and territory leaders before making any decisions.

WA Treasurer Mike Nahan said it was now up to his federal counterpart to "follow through", or WA would pull back from cooperating with the Commonwealth.

"If you get a state like Western Australia that gets less than 30 per cent of its GST back, that's not a good deal, there's no incentive for us to participate," he said.

"There is a serious anomaly when our state gets less than 30 per cent of its GST back, at a time when our major revenue flow, iron ore royalties - and the reason for our low GST share - is plummeting."

The options on the table for the Federal Government include accepting the commission's recommendations, freezing the rates at this year's levels, increasing WA's take, or changing the system entirely.

Mr Hockey said the argument had left him fearing for the Federation.

"It's not about robbing Peter to pay Paul," Mr Hockey said.

"It's about what is fair for the future of our Federation. After all, we are all Australians."

Any increase to Western Australia's GST take would come at the expense of smaller states South Australia and Tasmania.

SA's Treasurer Tom Koutsantonis warned against any federal interference in the Commonwealth Grants process.

"If [Mr Hockey] wants to give a one-off grant, or he wants to do something outside the grants commission, that entirely within his purview," he said.

"But if he attempts to redistribute the GST using his powers as Treasurer that would be an unprecedented use of his powers."

Victorian Treasurer Tim Pallas also said Mr Hockey's failure to simply apply the Grants Commission funding was the "most worrying aspect" and if the Commonwealth believed WA deserved more money it should "put its hand in its own pocket".

"[WA has] been making hay while the sun shines but they've not been putting any of it away," Mr Pallas said.

"And when they find themselves in deficit, when they find themselves in need, the first thing they do is cry foul. It's the mentality of an unreconstructed mendicant."

Revenue from the GST is set to increase by $3.5 billion from this financial year to next, and every jurisdiction - bar the ACT and WA - will receive a larger slice.

GST distribution (figures in $m)