The GST and the Aussie fair go
No matter where you live in this country, you shouldn’t be left behind. That’s the Aussie fair go, and for almost a century it’s been built into the way we share money among the states.
The principle is called horizontal fiscal equalisation (HFE). It’s a mouthful, but the idea is simple: every state should have equal capacity to deliver public services and infrastructure. It goes back to 1933, when a state threatened to leave the Federation, and it’s been the basis for sharing the GST since the GST began. Its contributed to Australia having the lowest discrepancy in living standards across jurisdictions.
In 2018, the major parties changed the rules to win votes in marginal Perth seats ahead of the 2019 Federal Election. WA now receives billions more, taking almost $22 billion of the $23 billion cost of the changes between 2019 and 2025, while Victoria has received no additional funding. The other states are only protected from losing out by a guarantee that ends in 2030.
The Productivity Commission is now reviewing the arrangements. If this is the moment we turn our backs on the fair go, we should do it with our eyes open, not as a knee-jerk political decision to buy votes. I’ve made a submission arguing for an informed national conversation about how our federation works for us, and how federal, state and local governments can work together in our interests.
What has the Aussie fair go got to do with the GST?
The GST is shared among the states based on need, not just population. The Commonwealth Grants Commission assesses each state’s ability to raise its own revenue and the cost of delivering services, so that states with greater needs receive a greater share. That’s the fair go in action.
What did the 2018 changes do?
WA gets billions more, while the other states receive what they would have before the changes. If the guarantee protecting them were removed, every state would lose GST revenue to WA.
What does this mean for Victoria?
A quarter of Victoria’s total revenue comes from the GST, and we can spend it wherever it’s needed, including hospitals, schools and roads. If the extra $23 billion had been allocated based solely on need, Victoria would have received around a quarter of it.
What are the risks?
The guarantee runs out in 2030. The Victorian Budget estimates that without it, Victoria would be $8.3 billion out of pocket between 2025–26 and 2028–29, and the Productivity Commission’s Interim Report found the reforms are costing more than expected.
Doesn’t the GST punish states for performing well?
No. The Grants Commission goes to great lengths to make sure the dollars flow according to each state’s circumstances, not its policy choices. WA’s share fell because of its massive capacity to raise revenue during the Mining Boom, not as punishment for success. WA also benefited from decades of support under the same principle. Would it have been in a position to capitalise on the Mining Boom if the fair go hadn’t applied to it in 1933?