4 January 2018
Australia’s Productivity Commission has delayed by nearly five months the release of its final report on the distribution of goods and services tax (GST) revenue.
In May 2017, the Commission was asked by federal Treasurer Scott Morrison to conduct an inquiry into the efficiency and stability of the horizontal fiscal equalization system. Morrison said that his aim was to “fix the system, not plaster over a part of it.”
A draft report was published in October 2017. Since then, the Commission has held a number of public hearings and received written submissions on the draft.
The final report was due by January 31, 2018. However, Morrison has now announced that, following a request by the Commission, the final report will now not be due until May 15, 2018.
“It is important that the Commission has sufficient time to work through all this information and to undertake further analysis and consultation on key issues, as necessary, in order to finalize its recommendations to Government,” Morrison said.
Under HFE, all GST revenue (less the cost of administration) is passed to the states and territories. It is based on the concept that each state would have the fiscal capacity to provide services and infrastructure at the same standard, if each made the same effort to raise own-source revenue and operated at the same level of efficiency.
Morrison said that the inquiry “has already demonstrated in its interim report that the system is broken and needs a real fix,” and that this “needs to be achieved in a way that takes account of the impact during any transition period.”
Morrison stressed that, in order to establish appropriate transition arrangements, it will be necessary “to get a clearer view of expected distributions into the future based on the current model, so the impact of any possible changes can be assessed.”
In its draft report, the Commission concluded that Australia achieves a high degree of HFE and that GST payments are less volatile than other source of state government revenue. However, it is noted that the potential for HFE to distort state policy is pronounced for mineral and state energy resources, and that HFE can make worse the fiscal impact of economic cycles when states experience large economic shocks. It put forward a range of options for alternative approaches to HFE.
Morrison said: “The Coalition Government remains committed to the ‘fair go’ principle of HFE and putting in place a real solution that does the right thing by our national economy. Our goal is straightforward, to deliver a fairer, more durable, and more efficient system for implementing HFE into the future in the national interest.”
The current system was agreed by all states prior to the introduction of the GST in 2000. Reform has been held back as unanimous approval by the states and territories, many of which benefit from the current division, is necessary.