Today I have agreed to a request from the Chair of the Productivity Commission to extend the timeframe for the PC’s inquiry into the impact on our national economy of Australia’s system of horizontal fiscal equalization (HFE) which underpins the distribution of GST revenue to the States and Territories (States).

As requested, the PC will now be required to provide its final report to the Government by 15 May 2018.

The PC has undertaken extensive consultation as part of this inquiry. Since releasing its draft report on 9 October, the PC has held public hearings around the country – in Perth, Melbourne, Adelaide, Darwin and Hobart. In addition to participating in these public hearings, many stakeholders have provided feedback on the PC’s draft report via written submissions.

The PC recently wrote to me to request an extension to the timeframe for this inquiry. It is important that the Commission has sufficient time to work through all this information and to undertake further analysis and consultation on key issues, as necessary, in order to finalise its recommendations to Government.

Of course, this means ensuring there is sufficient opportunity to address appropriate transition arrangements to any possible revised HFE system. These will need to be fully considered, in close consultation with the States and Territories and other stakeholders.

To achieve this it is also necessary to get a clearer view of expected distributions into the future based on the current model, so the impact of any possible changes can be assessed. Comparisons with previous years’ distributions are misleading and an unreliable guide to future impacts as distributions are only determined a year in advance, not over the forward estimates.

It is important to get this right. The PC inquiry has already demonstrated in its interim report that the system is broken and needs a real fix. This also needs to be achieved in a way that takes account of the impact during any transition period.

Extending the timeframe for this inquiry will give the PC more time to work through these important issues. The Commonwealth will continue to consider any shorter-term impacts of the current weaknesses in the GST distribution system in the normal budgetary cycle.

The Coalition Government remains committed to the ‘fair go’ principle of HFE and putting in place a real solution that does the right thing by our national economy, Our goal is straightforward, to deliver a fairer, more durable and more efficient system for implementing HFE into the future in the national interest.

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