Treasurer Jim Chalmers has announced a Productivity Commission inquiry into the 2018 changes to the Goods and Services Tax (GST) distribution, as required under legislation.

According to the terms of reference, the Productivity Commission will inquire into the operation of the 2018 legislation, including whether the 2018 changes to the GST distribution system are operating efficiently, effectively and as intended and the fiscal implications for each state and territory, and for the Commonwealth, of the changes made by the 2018 legislation.

The commission is to investigate:

  • To what extent the current arrangements are:
    1. Delivering a reasonable level of horizontal fiscal equalisation;
    2. Appropriately balancing the objective of responsiveness to changing circumstances with the objectives of reducing volatility and improving the certainty of GST revenue streams to support state fiscal planning;
    3. Supporting states and territories to pursue reforms, including to the efficiency of service delivery and state and territory revenue bases; and
    4. Fiscally sustainable for the Commonwealth and states and territories.
  • Whether alternative arrangements would better achieve some or all of these outcomes.
  • The interaction between GST payments and other Commonwealth payments to states, including the principles for exempting payments from the Commonwealth Grants Commission’s assessments.

Any recommendations made by the Commission should include an assessment of implementation feasibility and risks, and be cognisant of the Commonwealth’s policy commitments in relation to GST distribution. In its recommendations, the Commission should provide a range of options including options with a funding relativity floor comparable to the current level, with and without top-up funding from the Commonwealth.

In 2018, the Parliament legislated changes to the way GST revenue is distributed among the states to address concerns about the volatility of this revenue source. This was the first significant change made to the GST since it was introduced in 2000.

The 2018 legislation requires that the operation of the changes be reviewed by the Productivity Commission by the end of 2026.

The Productivity Commission will provide an interim report to Government by 28 August 2026 and a final report before 31 December 2026.

 

 

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