Commonwealth payments to the states

Budget Review 2013–14 Index

Daniel Weight

In 2013–14, the Australian Government is estimated to provide $95.3 billion in payments to the states and territories (states).[1] Of these payments, $11.5 billion is designated for local government.[2]

Two types of payments are made to states: specific purpose payments (SPPs) and general revenue assistance (GRA). SPPs are made according to agreements between the Australian Government and the various states. The total amount of SPPs to be paid to the states in 2013‑14 is estimated to be $44.1 billion.[3] The largest categories of SPPs in 2013–14 relate to health ($16.1 billion) and education ($14.5 billion).[4]

GRA is financial assistance that may be spent upon any purpose, and is mainly comprised of the Goods and Services Tax (GST) revenue. In 2013‑14, total GST revenue collected is estimated to be $53.1 billion, however the states will only receive $50.3 billion because of adjustments to final payments mostly due to the timing of receipts.[5] Following the GFC and associated decline in consumer confidence and retail activity, the rate of increase in the GST revenue pool stagnated. This led some commentators to propose broadening the GST tax base to ensure that it continued to be a source of growth funding for the states.[6] The most recent receipts and projections, however, suggest that the rate of increase in the GST revenue pool has begun to recover (see table 1 below).

Table 1: GST revenue pool

 

07‑08

08‑09

09‑10

10‑11

11‑12

12‑13*

13‑14*

14‑15*

15‑16*

GST revenue pool—$b

44.4

42.6

46.6

48.1

48.8

50.2

53.1

55.8

58.9

Change—%

n.a.

-4.1

9.4

3.2

1.5

2.9

5.7

5.0

5.7

* Treasury estimate
Source: Australian Government, Final budget outcome (various years), accessed 17 May 2013; Australian Government, Australia’s federal relations: budget paper no. 3: 2013–14, p. 114, accessed 17 May 2013.

The ultimate amount each state receives is based upon the principle of horizontal fiscal equalisation (HFE). In its 2010 Review, the Commonwealth Grants Commission (CGC)—the body which advises the Commonwealth on how to distribute the GST—adopted the following definition of HFE:

State governments should receive funding from the pool of goods and services tax revenue such that, after allowing for material factors affecting revenues and expenditures, each would have the fiscal capacity to provide services and the associated infrastructure at the same standard, if each made the same effort to raise revenue from its own sources and operated at the same level of efficiency.[7]

The effect of HFE is that each state can receive either more or less than it otherwise would if the GST revenue was distributed on an equal per capita basis. The amount each state receives is represented by a factor known as its ‘GST relativity’. The relativity can be loosely equated to the amount of GST a state receives for each dollar of GST collected in that state. Relativities since 2000–01 are shown at table 2 below.

Table 2: GST relativities since 2000–01

 

NSW

Vic

Qld

WA

SA

Tas

ACT

NT

00‑01

0.91

0.87

1.02

0.98

1.18

1.51

1.11

4.16

01‑02

0.92

0.88

1.00

0.98

1.18

1.50

1.15

4.02

02‑03

0.91

0.87

1.01

0.98

1.19

1.55

1.15

4.24

03‑04

0.89

0.87

1.02

0.97

1.21

1.60

1.15

4.39

04‑05

0.87

0.87

1.06

1.03

1.20

1.56

1.13

4.27

05‑06

0.87

0.88

1.04

1.03

1.20

1.55

1.14

4.27

06‑07

0.87

0.90

1.02

1.00

1.19

1.55

1.15

4.33

07‑08

0.89

0.90

1.01

0.95

1.21

1.54

1.16

4.37

08‑09

0.91

0.93

0.97

0.88

1.21

1.53

1.17

4.52

09‑10

0.93

0.92

0.92

0.78

1.25

1.62

1.27

5.25

10‑11

0.95

0.94

0.91

0.68

1.28

1.62

1.15

5.07

11‑12

0.96

0.90

0.93

0.72

1.27

1.60

1.12

5.36

12‑13

0.95

0.92

0.98

0.55

1.28

1.58

1.20

5.53

13‑14*

0.97

0.90

1.06

0.45

1.26

1.61

1.22

5.31

14‑15*

0.98

0.89

1.08

0.35

1.25

1.70

1.27

5.47

15‑16*

0.99

0.90

1.05

0.37

1.21

1.78

1.29

5.40

16‑17*

0.99

0.91

1.05

0.38

1.20

1.76

1.28

5.28

* Treasury estimate
Source: Australian Government, GST distribution review – interim report, March 2012, p. xii, accessed 17 May 2013;
Australian Government, Australia’s federal relations: budget paper no. 3: 2013-14, p. 115, accessed 17 May 2013.

The highest relativity is that of the Northern Territory (NT). The NT’s relativity is significantly affected by a high proportion of indigenous persons relative to the average in other states (30 per cent versus 2.5 per cent),[8] which the CGC considers creates greater demand for, and cost in, service delivery. Accordingly, this results in a significantly higher relativity, making comparisons between the NT and other states difficult.

Western Australia’s relativity has been strongly affected by the resources boom. Until 2007–08, WA received about the same amount of GST revenue as was collected in that state. Since 2008–09, however, WA’s relativity has rapidly declined, reflecting its increased revenue raising capacity. The 2013‑14 Budget estimates that WA will receive only around 35 cents for every dollar paid in 2014‑15. This however, is an improvement from the 2012–13 Budget, where WA was estimated to receive only around 29 cents for every dollar in 2014–15.[9]

In response to concerns raised by the states—particularly WA—about the current arrangements for the distribution the GST revenue pool, the Commonwealth government announced the review of the GST distribution on 30 March 2011.[10] The review was conducted by the Hon John Brumby, Mr Bruce Carter and the Hon Nick Greiner AC. An interim report was released by the Commonwealth Treasurer on 23 April 2012[11] and a final report was released on 30 November 2012.[12] To date, the Commonwealth government has not responded to that review, and a response prior to the commencement of the 2013 election caretaker period appears unlikely.



[1].       Australian Government, Australia’s federal relations: budget paper no. 3: 2013–14, p. 139, accessed 17 May 2013.

[2].       Parliamentary Library calculation based on Ibid, p. 139, table B1.

[3].       Ibid, p. 18.

[4].       Ibid, p. 19.

[5].       Ibid, p. 114.

[6].       G Daily and M Dunckley, ‘States tax battle erupts’, Australian Financial Review, 17 December 2012, p. 1, accessed 17 May 2013.

[7].       Commonwealth Grants Commission, Report on GST sharing relativities — 2010 review vol 1 main report, 2010, p. 34, accessed 17 May 2013.

[8].       Australian Government, GST distribution review – interim report, March 2012, p. 111, accessed 17 May 2013.

[9].       Australian Government Australia’s federal relations: budget paper no. 3: 2012–13, p. 123, accessed 17 May 2013.

[10]       J Gillard (Prime Minister) and W Swan (Deputy Prime Minster and Treasurer), ‘Review of GST distribution’, media release, 30 March 2011.

[11]       W Swan (Deputy Prime Minister and Treasurer), ‘GST Distribution review interim report’, media release, 23 April 2012, viewed 22 May 2013.

[12]       W Swan (Deputy Prime Minister and Treasurer), ‘Release of the GST distribution review final report’, media release, 30 November 2012, accessed 22 May 2013.

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