On 9 April 2015 the Commonwealth Grants Commission (CGC) released publicly its report presenting its recommendations for the distribution of the GST revenue to the States and Territories for 2015-2016, and the results of the CGC’s review of the methodologies used to determine the States’ and Territories’ relative fiscal capacities. The report is entitled Report on GST revenue sharing relativities 2015 review. It is the CGC’s response to a request made on 21 June 2013 to review the methods used to calculate the relativities for distributing the pool of Goods and Services Tax (GST) among the States and Territories, to apply from 2015-2016.
The CGC’s objective is to ensure that the GST revenue is distributed on the basis of horizontal fiscal equalisation (HFE) so that each of Australia’s States and Territories has the same fiscal capacity, under average policies, to provide general government infrastructure and services.
The result of the methodology review is to broadly retain the assessment principles and approaches used in previous years, but a range of improvements have been adopted in specific areas. These respond to matters raised in the CGC’s terms of reference, changing data sources, suggestions made by States and Territories and analysis of key issues. The main changes in this review are a more comprehensive assessment of State and Territory housing and public transport infrastructures and services, the adoption of new data sources and methods in health and schools, responses to new funding arrangements for disability services and aged care, and a revised assessment structure for mining revenues.
Existing methods, applied consistently to all assessments, provide the most reliable, practical and appropriate outcome consistent with achieving HFE over a run of years (albeit with a lag since reliable data are only available on a historical basis). The CGC has retained the three year averaging approach adopted in the 2010 Review which balances competing considerations of practicality, data reliability, contemporaneity and policy neutrality, and which provides for some readily predictable smoothing of payment flows over time.
The full texts of the report and supporting documents are available here.