Under the proposal, states and territories will receive 15 per cent of the assessed value of the asset under sale but will only be eligible to receive it if the proceeds from the sale are used for the development of productive infrastructure.
Incentive payments will be available for five years with payments ending 30 June 2019.
Mr Hockey said the initiative would ease the fiscal constraints of state governments and increase the pipeline of projects to “improve Australia’s quality tackle congestion, reduce business costs and help firms better link with their employees and customers”.
“This is an important initiative to remove debilitating infrastructure bottlenecks, stimulate construction and drive real activity in the economy when it is most needed, as investment in the resources sector declines,” said Mr Hockey.
According to Mr Hockey, at least $100 billion in commercial infrastructure assets are currently tied up on government balance sheets and could be sold.
The Association of Superannuation funds of Australia (ASFA) has also endorsed Mr Hockey's proposal.
ASFA cheif executive Pauline Vamos said the intiative will facilitate superannuation fund investment in infrastructure, by providing a "much-needed pipeline of investable projects".
"There's no doubt superannuation funds have an appetite to invest in infrastructure, however investment has often been stifled due to a lack of suitable, available projects," said Ms Vamos.
"Providing incentives to the states to recycle their infrastructure capital will help deliver a pipeline of projects which are a better fit for many superannuation fund portfolios."
The Financial Services Council (FSC) has likewise welcomed the initiative stating superannuation funds have a strong appetite for infrastructure and are willing buyers of proven assets.
FSC chief executive John Brogden said Australian superannuation funds and infrastructure funding are a "natural fit because of the long-dated nature of funds' investment horizon".
Mr Hockey is also looking at the level of GST applied to imported goods, which currently has a threshold of $1,000.
