PC reports on GST
The Productivity Commission has recommended some tweaks to the GST formula, but no major overhaul.
The commission was called in by Treasurer Scott Morrison earlier this year amid ongoing bickering between states as to who is being caught short by GST distribution.
In its report, the Productivity Commission concluded that the current system of equalising to the level of the strongest state “is too great for any jurisdiction to bear” and could become volatile during large structural change.
The GST carve-up is meant to ensure states and territories receive the “same standard” of services and infrastructure funding, benchmarked against the nation's strongest economy.
“The system is beyond comprehension by the public, and poorly understood by most within the government — lending itself to a myriad of myths and confused accountability,” the draft report observed.
“Reforming horizontal fiscal equalisation (HFE) will deliver benefits to the Australian community. But ultimately, greater benefits will only come from more fundamental reforms to Australia's federal financial relations.”
The Productivity Commission said the current GST distribution methodology does enable “an almost complete degree of equalisation, unique among OECD countries.”
Treasurer Scott Morrison said the report showed “the system goes too far, creating significant weaknesses.”
“The finding reinforces one of the core reasons I commissioned the PC to do this work back in May. We need to fix the system, not plaster over it.”
But the report warns that any material overhaul of the GST carve-up in the “current extreme environment” could be counter-productive.
“Timing and careful transition are paramount, especially to ensure the fiscally weaker states are not significantly disadvantaged,” it warned.