2. Review of literature

Modelling in this space is generally either a point estimation exercise or a more considered scenario-based approach. Table 1 provides a summary of relevant studies.

The first publicly released estimates on the new system were published in the Commonwealth’s Interim Response to the Productivity Commission Inquiry into HFE (PC 2018). The analysis took one set of variables to forecast a single ‘point’ estimate that showed the new system would benefit the states. This included forecasts of GST relativities taken from the Productivity Commission’s inquiry report, which were based on forecasts provided by some of the states. The Commonwealth concluded that none of the states would be worse off under the new system of GST.

Following the Commonwealth’s analysis, stakeholders have advanced their approach to modelling the impacts of the new GST system by using multiple scenarios. In scenario-based approaches, the model is either based on assumed GST relativities (a top-down approach) or inputs into the GST relativity calculation (a bottom-up approach).

Previous studies based on assumed relativities have typically taken historic relativity values. Victoria’s submission to the 2018 Commonwealth Senate Inquiry used this approach to model six scenarios (the second study in Table 1). Using historic relativities has the advantage of being simple to model as it does not require the calculation of GST relativities and avoids modelling potentially unrealistic scenarios by not making assumptions around how the factors affecting the GST distribution might interact in future.

The second approach to setting scenarios is to model the underlying variables that influence relativities. This approach provides flexibility to model potential future scenarios, as opposed to being bound by historical circumstances. The ACT Government’s 2021 submission to the Victorian Parliamentary Inquiry into Commonwealth Support for Victoria employed this methodology (ACT 2021). The ACT set scenarios by altering one variable at a time from a baseline projection, applied consistently across states. In the ACT submission, mining production for WA, specifically iron ore production volumes, was varied in isolation to demonstrate the impact of sustained high mining revenues. The analysis estimated that the total impact of the new system would be at least $2.6 billion in 2021–22, not including states that gained from the new system, which in this case was only WA.

To date, nine publications have estimated the potential impacts of the new GST system. The initial Commonwealth Government estimate from 2018 is the only work concluding that states, other than WA, would be better off under the new system. All other estimates show that states would be worse off.

Table 1: Results of previous modelling of the impacts of the new system on states

^{Notes:
a. Figure is a single published estimate, not an average.
b. Payments to Tasmania only.
c. Payments to South Australia only.}