Tasmanians live where there are no jobs and no prospects because of the way the GST is carved up, WA Treasurer Mike Nahan says.
Instead they should be moving to States such as WA that prop up Australia's growth.
In a speech to an economics forum yesterday on how Australia can move towards a more effective federation, Dr Nahan described the distribution of GST as a "dead weight on the growth of the nation".
He said 65 cents in every dollar earned in WA was redistributed to other States when WA needed the money for infrastructure to promote the State and for growth.
"(The Commonwealth Grants Commission) is telling Tassie 'if you lock up all your forests and lock up all your minds and destroy growth, you will get compensated for it from the proceeds of WA'," Dr Nahan said.
"Tasmania has very high unemployment rates. It's a beautiful place, I sympathise for them, but in reality it is better to put a dollar of investment in Karratha than in north-west Tasmania."
He said a dollar invested in Karratha "will create many hundreds of jobs and a dollar in north-west Tasmania probably won't create any".
Dr Nahan also criticised stamp duty as a source of State revenue as a dumb and inefficient tax.
But he said the Government had no plans to overhaul stamp duty because it did not have an alternative source of revenue.
Stamp duty on housing was WA's biggest tax base after payroll tax and he said "a tax on people moving house is about as dumb as you can get".
"Even when the GST was put in it was agreed that stamp duty is among the worst, particularly transfer fees on housing," Dr Nahan said. "It's a bad tax but it's a very important tax to us and we have no alternative."
He wanted to use the GST debate to try to change the way the tax was distributed. In four years, he expected WA to get no more than 11 65 cents of every GST dollar back.
Shadow treasurer Ben Wyatt said Dr Nahan's comments were an echo in a Government that was out of ideas. He said there was no point complaining about stamp duty after the Government recently moved to increase it.