Howard optimistic over GST funding

CANBERRA - Australian prime minister John Howard remains optimistic a solution can be found to resolve the impasse over future GST funding to the states.

Talks to abolish a range of state taxes broke down yesterday, with state treasurers and the federal government setting a six-week deadline to come up with a new plan.

Federal Treasurer Peter Costello had called on the states to use an expected A$16 billion ($17.3bn) GST windfall over the next five years to axe A$8.8 billion worth of indirect taxes, such as stamp duty on mortgages, from July 2006.

He argued the states were obliged to cut the taxes under an agreement they signed in 1999 which guaranteed they would receive all GST revenue collected by the Commonwealth.

He also put a A$330 million last-minute sweetener on the table to help fund the tax cuts.

But the states dug in their heels and rejected Costello's offer, saying they wanted a better deal.

They will spend the next month to six weeks drawing up an alternative timetable to axe state taxes and Howard today said the government was serious in its resolve to find a solution.

"We are not playing games," Howard told radio 3AW.

"We are serious and Peter (Costello) was talking for the government when he went into that meeting yesterday.

"It's a matter that we've discussed and we hope that the states will come back with a proposal consistent with both the spirit and the intent of the original agreement, so I remain optimistic."

- AAP