The Commonwealth Grants Commission (CGC) provides advice to the Australian Government on the relative fiscal capacity of State and Territory governments to inform the GST distribution. We are part of the wider Treasury Portfolio.
The CGC has played a central role in Commonwealth-State financial relations since 1933.
Operating under the Commonwealth Grants Commission Act 1973, we are a small independent agency comprising:
- A Commission which makes decisions about how to measure the relative fiscal capacities of the States
- A Secretariat who are responsible for collecting & assessing data, and undertaking research to provide considered advice to the Commission.
We work closely with State and Territory governments to develop recommendations for the distribution of GST revenue that reflect their relative fiscal capacities.
For further information about Our Commissioners, please see their biographies.
As the States that came to comprise the Commonwealth of Australia were established, their borders were primarily based upon lines of longitude and latitude. This was largely due to the extraordinary distances involved and relative lack of knowledge of interior geography by the UK authorities who were defining them. The basis for particular lines of longitude and latitude was somewhat arbitrary. However the result was large discrepancies both in access to revenue sources, and areas of land requiring services, across the States.
Some States found the move to federation more fiscally challenging than other States. By the beginning of the 1930s the concept of making payments to the less populous States was well established, and the depression had shown that the fiscal differences between States were larger than previously acknowledged and not temporary in nature.
The CGC was established in 1933 with the task of providing advice to the Commonwealth on the payment of special grants to States in recognition of these fiscal differences. Early in its existence, the Commission developed its principle for determining a special grant as being that amount necessary to make it possible for a State to function at a standard not appreciably below that of other States.
The Commission’s role expanded greatly in the late 1970s, when under the ‘new federalism’ policies of the Fraser government, the Commission was given the task of assessing the relative financial capacity of all States. The purpose was to allow the CGC to recommend to the Commonwealth the allocation of Financial Assistance Grants so that each State could provide government services at standards not appreciably different from the standards of government services provided by the other States.
In practical terms, this meant that the Commonwealth, under advice from the Commission, would recognise the favours and constraints placed upon States by the arbitrary nature of their borders in providing them with financial assistance. The outcome of this policy, known as horizontal fiscal equalisation, is that all Australians can expect to receive a comparable level of schooling, access to hospitals, justice services, transport infrastructure and public housing availability, regardless of what State they reside in.
From 2019-20, changes to government policy have seen a gradual move away from full and comprehensive equalisation to reasonable equalisation. The transition from full equalisation to reasonable equalisation will be completed in 2026-27. The main elements of the new government policy are:
- introducing a minimum GST revenue sharing relativity (relativity floor)
- permanently boosting the GST revenue pool with additional Commonwealth financial assistance
- transitioning the HFE system from full equalisation (so-called equalising to the strongest State) to 'reasonable' equalisation, based on the fiscal capacity of the stronger of New South Wales and Victoria.
The new policy is outlined in the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Act 2018, which amends the Commonwealth Grants Commission Act 1973 and the Federal Financial Relations Act 2009. The amendments were passed on 14 November 2018.
In celebration of its 50th anniversary, the activities of the Commission were documented in the publication Equality in Diversity. This publication was updated in a second edition, coinciding with the Commission’s 60th anniversary, first released in 1995. Most recently, the Commission’s activities have been documented in a third publication, released in January 2009.
Commonwealth Grants Commission - 1983-2008 (PDF 1.77 MB)
Commonwealth Grants Commission - 1983-2008 (DOCX 922 KB)
Equality in Diversity - Second Edition (PDF 28.48 MB)