Draft laws to be introduced on Thursday include safeguards to ensure every state and territory will be in a better financial position as a new system of carving up GST revenue is rolled out from 2021/22 to 2026/27.

An inquiry will be held in 2026/27 to check if the new system is working as it should.

Federal Treasurer Josh Frydenberg had previously rejected the need for a legislated guarantee, but backed down in the face of pressure from his backbench and state governments to instead propose the new law.

"It will see a floor under which no state can fall, at 75 cents in the dollar. It will see states benchmarked to the stronger of NSW and Victoria," he told reporters in Canberra on Tuesday.

"It will see the Commonwealth put an additional $9 billion over the decade to the states and territories to ensure they are no worse off."

The changes were initially proposed to protect Western Australia's GST share, which crashed to less than 30 cents in the dollar after the mining boom.

"I have spoken to state treasurers, Liberal and Labor, and they support this way forward as a reasonable, sensible approach," Mr Frydenberg said.

Shadow treasurer Chris Bowen said it was the right decision.

"Labor has called it out early and again the Liberal party has followed in its wake," Mr Bowen told reporters.

But Mr Bowen did not say whether Labor supported the transition process, which Mr Frydenberg says was necessary otherwise Australia would have to run two sets of GST books forever.

"In 2026/27, the Productivity Commission will undertake a review to assess whether the new system of the GST distribution is working efficiently and effectively," the treasurer said.

South Australian Treasurer Rob Lucas called the move a "win", while NSW Treasurer Dominic Perrottet said the states and territories had delivered a great result.

"We have stood shoulder to shoulder to ensure that this change be effected," Mr Perrottet told reporters in Sydney.

WA's GST share has been regularly topped up under the coalition government, as the state struggled following the mining boom.

The coalition and Labor will also battle for a number of marginal seats at the next election in WA, where the GST share has been a major issue.

Australian Associated Press