West Australian Premier Mark McGowan has slammed a "pathetic" campaign by the NSW government to reduce his state's GST revenue intake.
NSW's budget papers, released on Tuesday, include a statement criticising the carve-up of GST revenue as "fiscally unsustainable" and "profoundly unfair".
WA, which forecast a $1.2 billion budget surplus last month, is set to cash in on $1.5 billion in commonwealth top-up payments this financial year under GST reforms negotiated in 2018 which ensure the state receives at least 70 cents to the dollar.
"Over the next four years, Western Australia is set to receive an additional $10.8 billion because of these changes," the NSW budget statement said.
"At the same time, Western Australia continues to enjoy significant fiscal advantage from its mineral royalties due to the strength of global iron ore prices.
"This means the Western Australian government is being insulated from the economic and fiscal impacts of the COVID-19 pandemic."
The NSW Treasury statement said WA's forecast budget surplus came at a time when every other state was in deficit.
"More and more, the Australian government's (horizontal fiscal equalisation) changes appear fiscally unsustainable, as well as being profoundly unfair," it said.
WA's Labor premier accused NSW Liberal counterpart Gladys Berejiklian of seeking to distract from the state's "financial mismanagement" after forecasting a $16 billion budget deficit.
"They are using this cheap GST argument to cover up their own failures," Mr McGowan said on Wednesday.
"We will not stand for it. We will fight this.
"The GST deal ensures that WA receives a base of 70 cents in the dollar. NSW is currently getting 92 cents in the dollar and they say it is unfair - I mean, seriously.
"All I'd say to the NSW government and premier is back off, it's pathetic, it is unwinding a deal that guarantees fairness for one third of the continent and the state that provides the biggest boost, ironically, to NSW."
Mr McGowan and Ms Berejiklian have traded barbs throughout the pandemic in regards to their respective handling of the virus.
The NSW premier last month claimed WA owed her state "around $7 or $8 million" in quarantine costs for returned travellers.
Mr McGowan hit back, saying WA was taking the most returned overseas travellers per capita and pointing to "serious corruption" exposed in the Berejiklian government.