Prime Minister John Howard has rejected accusations from opposition politicians and Labor state governments that GST is to blame for the high cost of housing which is pricing many first-time buyers out of the market.

"We think the taxation laws of this country are sound," Mr Howard announced in an ABC radio interview. Instead, the Prime Minister points an accusing fingure at the state governments themselves, which he says are responsible for a myriad of fees and taxes on house purchases.

"It is not an attack on the states but everybody who understands anything about housing in this country knows that the land release policies of state governments, the charges imposed by local governments, things like stamp duty, things like land taxes, all the revenue and costs that come from different levels of government, they are important factors," Howard observed.

"To start with, the GST doesn't apply to existing dwellings; it applies largely to the construction component of a new house and land package," continued the PM, adding: "Secondly, when the GST was introduced, we also brought in a first home owners' grant scheme which was designed substantially to offset the cost impact of the GST."

"We didn't have a first homeowners' scheme in this country for 20-25 years and one was brought in on the 1st of July 2000, with the GST at $7,000, to help offset the cost of the GST on new houses," Mr Howard went on to add, concluding that:"in any event ... the proceeds of the GST go to the states, every last dollar."

The Prime Minster mentioned that whilst the Productivity Commission inquiry was free to come up with any conclusion it sees fit, ultimately, it will not have the power to change any laws.