Horizontal fiscal equalisation

Public inquiry

The Australian Government asked the Productivity Commission to undertake an inquiry into Australia's system of horizontal fiscal equalisation (HFE), which underpins the distribution of GST revenue to the States and Territories (States).

Guidance note 19 May 2017
Draft report 9 Oct 2017
Final report 5 Jul 2018

A note provided guidance as to the questions the Commission sought to ask and answer to meet the terms of reference, and may be of assistance to those preparing initial submissions. Initial submissions were due by 30 June 2017.

The Commission sought further information and feedback following release of the draft report.

Read the draft report

The final inquiry report was handed to the Australian Government on 15 May 2018 and publicly released on 5 July 2018.

The report assesses the influence of the current system of Horizontal Fiscal Equalisation (HFE) on productivity, efficiency and economic growth; the incentives for the States to undertake reforms that improve the operation of their jurisdictions; and on the States’ abilities to prepare and deliver annual budgets. It makes recommendations to improve the system, including its governance arrangements.

Read the inquiry report

The inquiry considered the influence the current system of HFE has on productivity, efficiency and economic growth, including the:

movement of capital and labour across state borders
incentives for the States to undertake fiscal (expense and revenue) reforms that improve the operation of their own jurisdictions
States' abilities to prepare and deliver annual budgets.

The inquiry also considered whether there are preferable alternatives to the current system and the implications for equity across jurisdictions, efficiency and simplicity.