The Australian Government today released its interim response to the Productivity Commission inquiry report on the current system of Horizontal Fiscal Equalisation, which lays out the Government’s preferred model of how billions of dollars in the revenue from the Goods and Services Tax (GST) distributed among the States and Territories.

The proposed model involves moving to a new benchmark that will ensure the fiscal capacity of all States and Territories is at least the equal of NSW or Victoria (whichever is higher). The Government will also implement a floor of 70 cents per person, per dollar of GST, below which no State’s relativity can fall, from 2022-23, rising to 75 cents from 2024-25.

Treasurer Scott Morrison said the Government has chosen not to proceed with the Productivity Commission’s recommendation to equalise to the standard of the average off all states and territories as the Productivity Commission’s preferred model would move too far from the ‘fair go’ principle of HFE, and risk leaving smaller states behind.

He said no state will be financial disadvantaged under the Government preferred model.

The Productivity Commission’s proposed model would see Western Australia and New South Wales gain more GST revenue at the expense of other states.


Further Readings

Productivity Commission Inquiry Report – Overview & Recommendations

Productivity Commission Inquiry Report – Full Report

Government Interim Response to Productivity Commission Inquiry

Media release by the Treasurer

The National and Regional Consequences of Australia’s Goods and Services Tax by James Giesecke and Nhi Tran

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