Equalisation has been a core concept for Australia in one form or another since Federation. Since the establishment of the Commonwealth Grants Commission in 1933, successive Commonwealth and state governments have supported horizontal fiscal equalisation, recognising the role it plays in supporting Australians’ access to a broadly similar standard of government services. 

This occasional paper explores whether the GST distribution system is too complex. The Commission and external reviews have considered how the GST distribution system could be simplified. All have concluded that it is not possible to achieve fundamental simplification that produces results comparable to the best estimates of states’ relative fiscal capacities.

Key points

• There is inherent complexity in a system that assesses the factors that influence each state’s main areas of expenditure and revenue.
• There is a trade-off between assessing states’ relative fiscal capacities as comprehensively as possible and simplifying assessment methods.
• Any significant move to simplify the system would likely need agreement between the Commonwealth and states.