The GST cake: How horizontal fiscal equalisation works


The Commonwealth Grants Commission (CGC), when asked to comment on Bob Beadman’s opinion piece arguing for a needs-based – not race-based – GST distribution, said it is not a policymaking body.
“Our task is to make recommendations on the GST distribution based on instructions from the Commonwealth Treasurer.
“We are unable to comment on direction or outcomes of future arrangements.”
However, CGC spokesperson Alison Harper says she is able to provide information “about how we take account of Indigeneity in our calculations” – including a graphic example of health expenditure in the bush.
Ms Harper says: “The CGC provides recommendations for the distribution of GST among the States and Territories based on the principle of horizontal fiscal equalisation, or HFE.
“The recommended distribution seeks to provide all States and Territories with the capacity to provide the average level of services if they make the average effort to raise revenue from their own sources.
“The reference to ‘average level of services’ in the definition of HFE could be misunderstood.
“It is important to note that the CGC’s methodology distinguishes between different population groups when assessing how much each State and Territory needs to spend to provide the average level of services,” says Ms Harper.
“For example, in the health assessment the CGC calculates that the average spending on a remote Indigenous person aged 45 to 64 years is $10,481, whereas the average spending on a similar non-Indigenous person is $1,652.
“A State or Territory with more remote Indigenous people will be assessed to have higher spending needs.
“The CGC’s most recent update report includes a table showing the main drivers of difference from an equal per capita distribution of GST in 2018‑19.
“The table shows that the Northern Territory was assessed as needing $2.109 billion more than an equal per capita amount of GST in 2018-19.
“Two of the main reasons for the redistribution are Indigenous status ($703m) and remoteness and regional costs ($765m).
“It is important to note that the redistributions shown in the table (below) are indicative only; the redistributions are based on assessed spending not actual spending; and States and Territories can use GST revenue for any purpose, that is, it is untied.”


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