Horizontal fiscal equalisation attempts to address differing economic financial circumstances of the state governments by redistributing GST revenue according to an elaborate relativity formula.
However, the equalisation mechanism is associated with a number of conceptual and practical problems. There is no justifiable rationale for jurisdictional equalisation, while in practice the process is riddled with uncertainty and complexity.
As a consequence of redistribution, this paper calculates that there is a significant misallocation of funding based on the principles of equal per capita distribution (where states receive GST revenue according to their share of the national population) and state of origin distribution (where GST revenue is distributed according to the amount that is attributable to each state).
This paper calculates the proportion of GST revenue that has been raised in each state over the life of the GST, compared to what has been distributed over that time under the horizontal fiscal equalisation mechanism. The result of equalisation is a division of permanent winners and losers among the states and territories over the life of the GST.