In essence, the Bill will change the method used to distribute Goods and Services Tax (GST) grants from the Australian Government to the Australian states and territories (the states). It will achieve this by changing the method of Horizontal Fiscal Equalisation, introducing a floor guaranteeing the states a minimum proportion of the GST pool, and by increasing the GST pool.
In May 2018, the Productivity Commission (PC) released a final Inquiry Report into Horizontal Fiscal Equalisation. The PC notes that the report:
… assesses the influence of the current system of Horizontal Fiscal Equalisation (HFE) on productivity, efficiency and economic growth; the incentives for the States to undertake reforms that improve the operation of their jurisdictions; and on the States’ abilities to prepare and deliver annual budgets.
In July 2018, after tabling the PC final report, the Government published an Interim Response. This echoes contextual material in the PC report, and outlines the position of the Australian Government on the PC recommendations. Importantly, it sets out the basis for the changes the GST Bill aims to achieve. These include a shift to ‘reasonable equalisation’, the introduction of a floor and a commitment that all states would be ‘better off’—to be achieved by increasing the size of the distribution pool using non-GST revenues.
Generally speaking, under the current federal financial relations (FFR) framework, any changes to the GST tax base, rate or distribution method are to be agreed to by all members of the Council for Federal Financial Relations (CFFR)—effectively treasurers from each state and the Commonwealth. The CFFR met in Melbourne on 3 October 2018. The media release from that meeting noted ‘there were … discussions on the distribution of the GST and the Commonwealth’s proposed reforms, following the recommendations handed down by the Productivity Commission’. This included an announcement by Mr Frydenberg that the Bill would be introduced in the next sitting of Parliament.
On 3 August 2018, prior to the CFFR meeting, state treasurers met independently of the Australian Government under the Board of Treasurers arrangement. The media release following that meeting suggested that the states were seeking to work cooperatively with the Commonwealth on proposed changes, noting a preference that the states be ‘no worse off’, that the proposed changes ought to be detailed, that an independent body should assess and monitor impacts of the changes and that any additional funding would not affect alternative funding sources.
On the issue of assessing and monitoring the impact of any change to the system of HFE, the Bill tasks the PC to inquire into whether the changes are ‘operating efficiently, effectively and as intended’ and to examine the ‘fiscal implications’ for the states at a time determined by the minister responsible for the Productivity Commission Act 1998.
The Bill was referred to the Senate Standing Committee on Economics on 18 October 2018 for inquiry and report by 8 November 2018.
Additional resources that may assist parliamentarians in the short term include: