On 9 February 2023, the Commission received terms of reference requiring it to review the methods used to calculate the relativities for distributing GST revenue among the states and territories (states), to apply from 2025–26.
The 2025 Methodology Review provided the opportunity for the Commission to ensure that the assessment methods and supporting principles it uses in developing recommendations on GST distribution are appropriate and use the latest fit-for-purpose data.
Review Outcomes includes a chapter for each assessment category the Commission uses to assess states’ relative fiscal capacities, covering the Commission’s final position on the issues considered in the review. It also includes chapters for the geography, socio‑economic status and wage costs drivers, which apply across a number of assessment categories.
Each chapter contains:
an overview of the issues considered in the review
a summary of state views raised in the consultation process and the Commission’s response
the Commission’s decision on each issue.
There are also chapters on:
the Commission’s approach to horizontal fiscal equalisation, supporting principles and assessment guidelines
flexibility to consider method changes between reviews.
The GST impacts of method changes are included where there has been a change to the method.
In line with the terms of reference, the 2025 Review provides the Commission’s recommendations on GST relativities for 2025-26, which incorporate assessment method changes from the review.
Commission’s Assessment Methodology contains a description of the methods used by the Commission, following the 2025 Review, to assess state relative fiscal capacities.
The review was undertaken using a staged approach and involved extensive consultation with the states.
Fiscal equalisation, supporting principles and assessment guidelines
On 21 April 2023, the Commission issued a consultation paperon fiscal equalisation, supporting principles and assessment guidelines for the 2025 Review and invited state submissions.
The Commission decided to retain the approach to horizontal fiscal equalisation articulated in the 2020 Review as the first step in determining GST distributions in accordance with the GST distribution legislation.1
The Commission identifies influences, referred to as ‘drivers’, beyond the direct control of states that cause their relative fiscal capacities to diverge. By assessing these influences, the Commission seeks to estimate the GST share each state requires to have the fiscal capacity to provide a comparable level of services if it makes the average effort to raise revenue. The Commission has developed 4 supporting principles to guide it in designing and evaluating assessment methods. The supporting principles, which are subsidiary to the objective of horizontal fiscal equalisation, are: ‘what states do’, policy neutrality, practicality, and contemporaneity. The Commission has also developed assessment guidelines to support a consistent approach to developing and applying assessment methods.
In its position paper, the Commission concluded that this set of supporting principles and assessment guidelines remained appropriate. The Commission recognises that trade‑offs between principles may be necessary, and judgements are often required in their application.
Review Outcomes contains a chapter outlining the Commission’s consultation with the states on fiscal equalisation, supporting principles and assessment guidelines. Commission’s Assessment Methodology contains a chapter outlining its approach to fiscal equalisation, supporting principles and assessment guidelines.
1 Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of the GST) Act 2018 (Cth)
Consultation
The Commission sought to ensure all states had sufficient opportunity to engage with the review. This was to enable them to convey their views comprehensively and to understand the basis for the Commission’s decisions.
A major part of the consultation arrangements with the states on assessment methods and data sources involved the Commission releasing Tranche 1 and Tranche 2 consultation papers which included the Commission’s preliminary position on possible changes to assessment methods. The Commission invited and received submissions for both Tranche 1 and Tranche 2 consultations papers.
The Commission visited each state in late 2023 and early 2024 and held online bilateral and multilateral meetings with states in the development of the Draft Report. Numerous discussions were held between states and Commission staff during the review.
The detailed steps and timeline for the review’s consultation arrangements are outlined inFigure 1.
Draft Report
The 2025 Methodology Review Draft Report was released in July 2024. The report provided a detailed analysis and the Commission’s response to issues raised by the states in their submissions to the Commission’s consultation papers, along with the Commission’s draft positions on each issue. Following the Draft Report, the Commission released addendums to the transport and mining chapters. The Commission invited and received state comments on the Draft Report and addendums.
Significant changes since the Draft Report
Consistent with the terms of reference, the Commission issued a paper in November 2024 outlining significant changes in its positions since the Draft Report. These changes resulted from state comments on the Draft Report and the availability of new data. The Commission received state comments on the paper.
Flexibility to consider method changes between reviews
The terms of reference for the 2025 Review asked the Commission to:
Consider if there is a case for the Commission to be given the flexibility to consider alternative methods in cases where there is a significant unanticipated shock (such as pandemic) or where major policy reforms are enacted in between reviews.
In August and September 2023, the Commission held a bilateral meeting with each state, seeking views on relevant issues to be included in a consultation paper on this topic. The Commission used the consultation paper and the Draft Report to consult further with states on this matter. It received submissions to the consultation paper and submissions to the Draft Report.
The Commission’s response to state comments and its decision on the issues are outlined in the flexibility to consider method changes between reviews chapter of Review Outcomes.
GST relativities 2025-26: New Issues
In advance of preparing its recommendations for the GST relativities for 2025–26, the Commission issued a discussion paper in October 2024 on relevant new issues and Commonwealth payments, including the implications of some of the method changes proposed in the 2025 Review. The Commission sought the views of the Commonwealth and states.
