Distributing GST revenue to the states: Where is the revenue raised and what is a ‘relativity’?

Parliament house flag post

Distributing GST revenue to the states: Where is the revenue raised and what is a ‘relativity’?

Posted 30/07/2014 by Tarek Dale

Discussions of the distribution of revenue from the Goods and Services Tax (GST) to the Australian States and Territories often refer to the GST that a particular state ‘collects’, or GST raised in a particular state. These are actually references to ‘relativities’, a term which describes the portion of GST a state gets relative to an equal per-capita distribution. This flagpost outlines how the location of GST collection differs from the per-capita approach and ‘relativities’ that underlie the actual distribution of GST revenue.

GST revenue is collected by the Commonwealth, and then distributed to the State and Territory governments (‘the states’). The current GST distribution framework is not based on where transactions physically take place, or in which state GST revenue is raised. In fact, it could prove complicated to try and allocate particular transactions to one location – sales that are liable to GST made across a state border would need to be allocated to one state or another. As the Commonwealth Grants Commission (CGC) notes in its 2014 annual update (p. 36):

Some people have misinterpreted a relativity to be the proportion of the GST revenue raised in a State which is returned to that State. This would only be true if the GST collected per person were the same in every State, which given differences among the States appears unlikely.

The starting point for the CGC (the body which provides advice on the distribution of GST) is the population distribution. Specifically, the CGC estimates the share of GST revenue that the states would receive if GST was distributed according to each state’s population (an equal, per-capita distribution).

The CGC also uses a complex assessment to calculate a ‘relativity’ for each state. As described in the Budget papers:

The relativities determine how much GST each State receives compared with an equal per capita share and are determined such that, if each State made the same effort to raise revenue from its own sources and operated at the same level of efficiency, each State would have the capacity to provide services and the associated infrastructure at the same standard.

The CGC has written extensively on how it calculates relativities (their frequently asked questions provide a high level summary, and their annual updates include extensive detail). A 2012 review of GST distribution also examined the process in detail.

Multiplying a state’s equal per-capita share of GST revenue by its relativity gives the actual share of GST it receives (there are some minor adjustments when the GST revenue is more or less than expected). A relativity greater than one means the state gets more than it would on an equal per-capita basis; a relativity less than one means it gets less revenue than on an equal per-capita basis. In the table below, a state’s actual share (C) is calculated by multiplying its equal per-capita share (A) and its relativity (B).  

 

State or Territory Share if GST were distributed on an equal per-capita basis (A) 2014–15 relativity (B) 2014–15 actual GST share after adjusting by the relativity (C)
NSW 32.00% 0.975 31.20%
VIC 24.92% 0.88282 22.00%
QLD 20.30% 1.07876 21.90%
WA 11.16% 0.37627 4.20%
SA 7.14% 1.28803 9.20%
TAS 2.20% 1.63485 3.60%
ACT 1.62% 1.23600 2.00%
NT 1.04% 5.66061 5.90%

Source: Parliamentary Lbrary estimates based on Australian Government, Federal financial relations: budget paper no. 3 2014–15, Table 3.7.

The chart below shows historical relativities, and the projected relativities in the 2014-15 Budget. For most states, relativities have generally been unchanged since the introduction of the GST. However, some states, particularly Western Australia and the Northern Territory have experienced significant changes in the relativities.

In its most recent update, the CGC stated (p. XX):

Western Australia’s above average revenue raising capacity drives its fiscal strength … The relatively low fiscal capacities of South Australia, Tasmania and the ACT stem mostly from below average capacities to raise revenue while Queensland and the Northern Territory face very high costs of providing services.

 Historical relativities for the States and Territories between 2000-01 and 2014-15, and projections from the 2014-15 Budget

Sources: Commonwealth Grants Commission, Report on 2014 Revenue Sharing Relativities, Table E-1, p. 135. Treasury projections for 2015–16 onwards are from the 2014–15 Budget, Budget Paper No. 3, Table 3.2.

Authored by Tarek Dale and Alicia Hall, with assistance from Daniel Weight.

Economics Section and Statistics and Mapping Section, Parliamentary Library


Thank you for your comment. If it does not require moderation, it will appear shortly.

Add your comment

[Click to expand]

We welcome your comments, or additional information which is relevant to a post. These can be added by clicking on the ‘Add your comment’ option above. Please note that the Parliamentary Library will moderate comments, and reserves the right not to publish comments that are inconsistent with the objectives of FlagPost. This includes comments that are not relevant to the article, factually incorrect or politically partisan, as well as spam, profanity and personal abuse. We will close comments after three months.




Captcha
Generate a new image
Type characters from the image:

Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

refugees asylum immigration climate change Australian foreign policy parliament social security elections welfare reform welfare policy school education Australian Defence Force health financing higher education emissions trading indigenous Australians women private health insurance people trafficking Employment illicit drugs gambling health reform federal election 2010 Middle East disability Sport Australian Bureau of Statistics statistics United Nations Asia Taxation Afghanistan income management Medicare health forced labour Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget Industrial Relations Carbon Pricing Mechanism politics dental health Australian Electoral Commission WADA criminal law transport aid child protection environment poker machines Australia in the Asian Century steroids National Disability Insurance Scheme detention aged care 43rd Parliament slavery health system ASADA Law Enforcement Australian Federal Police Fair Work Act Australian Public Service governance labour force people smuggling debt international relations constitution New Zealand food Australian Crime Commission pharmaceutical benefits scheme OECD corruption pensions public service reform children's health Aviation federal election 2013 foreign debt gross debt net debt defence capability parliamentary procedure Senate Senators and Members ALP Newstart Parenting Payment multiculturalism Youth Allowance sea farers UK Parliament election results voting mental health Federal Court terrorist groups science social media Higher Education Loan Program HECS federal state relations accountability Papua New Guinea youth paid parental leave same sex relationships coal seam gas customs planning doping crime health risks International Women's Day Gonski Review of Funding for Schooling sex slavery Special Rapporteur Northern Territory Emergency Response social policy violence against women domestic violence China ADRV terrorism transparency research and development welfare ASIO intelligence community Australian Security Intelligence Organisation carbon tax mining High Court military history electoral reform employer employee renewable energy regional unemployment fishing by-election European Union family assistance skilled migration banking United Nations Security Council Australian economy forestry food labelling vocational education and training Drugs welfare systems Indonesia children Constitutional reform local government codes of conduct terrorist financing homelessness Parliamentary remuneration money laundering Trafficking in Persons Report energy social inclusion human rights paternalism national security fuel disability employment Tasmania integrity standards NATO Australian Secret Intelligence Service sexual abuse World Trade Organization Australia public health housing affordability bulk billing political parties water productivity health policy Governor-General US economy trade unions export liquefied natural gas foreign bribery firearms question time speaker superannuation public housing expertise public policy climate Intergovernmental Panel on Climate Change leadership Department of Agriculture Fisheries and Forestry regulation Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets animal health middle class welfare Census Indigenous constitutional recognition of local government referendum consumer laws PISA competition policy royal commission US politics language education baby bonus Leaders of the Opposition citizen engagement policymaking Australia Greens servitude Trafficking Protocol forced marriage Population rural and regional alcohol entitlements ministries Hung Parliament social citizenship maritime Iran ANZUS regional students school chaplains federal budget 2011-12 salary Medicare Locals primary care Building the Education Revolution EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation Members of Parliament Scottish referendum early childhood education Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine asylum refugees immigration political finance donations foreign aid Economics efficiency human rights; Racial Discrimination Act employment law bullying asylum seekers Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies same-sex marriage disorderly conduct retirement Parliament House standing orders prime ministers election timetable sitting days First speech defence budget submarines workers financial sector Canada Somalia United Kingdom GDP world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders live exports infant mortality honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Rent Assistance obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant regional engagement social determinants of health abortion Members suspension workplace health and safety marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament Korea rebate Australian Greens presidential nomination Racial Discrimination Act political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing political education Social Inclusion Board early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin sanctions Norway hospitals republic President Barack Obama Presidential visits qantas counselling Korean peninsula Work Choices biosecurity hendra environmental law federalism federation preselection therapeutic goods Therapeutic Goods Administration plebiscites computer games pests suicide nuclear COAG Ministerial Councils floods ADHD stimulant medication advertising electricity extradition conscience votes poverty preventative health rural health coastal erosion Parliamentary Budget Office work-life balance

Show all
Show less
Back to top