Productivity Commission invites submissions on GST distribution reforms

Last Friday (21 November), the Productivity Commission (commission) released its issues paper for its scheduled review of state GST arrangements, and invited Australians to have their say before the submissions deadline of 27 February 2026.

“The inquiry will examine the extent that the 2018 changes to the GST distribution system are operating efficiently, effectively and as intended, and the PC of the changes for each state and territory and the Commonwealth,” the commission noted.

In 2018, parliament legislated changes to the GST revenue distribution process to ensure that each state got to keep at least 75 cents for every dollar of GST revenue it raised. This followed concerns from the WA government that it wasn’t getting a fair GST deal.

Before the reforms, WA’s mining royalty revenues – which peaked at $11.4 billion in 2020–21 – resulted in the state being assessed as requiring a much smaller share of GST revenue. This saw its GST relativity fall to a low of 0.3 in 2015–16, meaning it kept only 30 cents per dollar of GST it raised.

The updated distribution process stipulated that the Commonwealth government would “top up” the GST pool to ensure that no state or territory would be worse off than it would have been before the deal.

In its issues paper, the PC estimated that the 2018 deal would cost the Commonwealth $26.3 billion over the four years from 2025–26 to 2028–29 in equalisation payments, making up revenue shortfalls in states other than WA.

With its review, the Commission has set out to investigate whether the current GST distribution arrangements enabled states to have similar capacities to provide public services, minimise GST revenue volatility and support fiscal sustainability for Commonwealth, state and territory governments.

Before the 2018 reforms, the system sought to achieve full horizontal fiscal equalisation (HFE), meaning GST revenue would be distributed to the states in a manner that would leave them equally equipped to provide public services.

Following the reforms, the goal was to achieve a reasonable level of HFE, determined as the fiscally stronger of either NSW or Victoria. The PC invited Australians to comment on what they viewed as a reasonable level of equalisation, and whether current settings were delivering.

“The PC recognises there are differing views about what constitutes reasonable equalisation and would welcome the input of stakeholders on what reasonable equalisation is and how it can be achieved,” the issues paper noted.

It also asked stakeholders to propose ideas for alternative GST arrangements which could fulfil the objectives of the 2018 reforms.

“A wide range of alternative approaches to horizontal fiscal equalisation have been proposed over time,” the issues paper read.

“The PC will explore the extent to which the goals of the 2018 changes might be served by alternative approaches, including proposals put to this inquiry. In doing so, the PC will explore the merits of alternative proposals by applying a transparent and consistent framework.”

Ahead of the release of the PC’s issues paper, Treasurer Jim Chalmers reaffirmed the Labor government’s support for the existing GST arrangements, noting that the review had been pre-scheduled when the reforms were put into place in 2018.

“We support the deal that’s been struck with the people of Western Australia to ensure that WA gets its fair share of the GST,” Chalmers said at a Perth press conference last week.

“For as long as this government is in office, WA will get a fair share of the GST. And the review that’s been put in place by our predecessors back in 2018 will give people the opportunity to express their views about that around the country. But our position has been made really clear.”