FEDERAL FINANCIAL RELATIONS 1997-98

CIRCULATED BY THE HONOURABLE PETER COSTELLO, M.P., TREASURER OF THE COMMONWEALTH OF AUSTRALIA, AND THE HONOURABLE JOHN FAHEY, M.P.,MINISTER FOR FINANCE

FOR THE INFORMATION OF HONOURABLE MEMBERS ON THE OCCASION OF THE BUDGET 1997-98 13 MAY 1997

PREFACE

This Budget Paper presents information on the Commonwealth Government's financial relations with State, Territory and local governments.

Figures for 1996-97 and 1997-98 are estimates.

RELATIONSHIP WITH OTHER BUDGET PAPERS AND TERMINOLOGY

In examining government finances, the most relevant aggregates for economic analysis are usually those relating to payments on a net basis - that is, after recoveries or repayments. In Budget Paper No. 1, this distinction is evident in the use of the term 'payment' as a gross measure and the term 'outlay' as a net measure, an approach that is also adopted in other budget papers and the national accounts. However, repayments lag the initial advances and, in many cases, are made in respect of programmes which have already terminated. Moreover, the direct relationship between payments and the programmes to which they nominally relate is not always clear. Largely for these reasons, this Paper presents information on payments on a gross basis, although some tables showing repayments are also included.

Consistent with the focus in Budget Paper No. 1 on the underlying rather than the headline budget balance, Chapter I of this Paper examines trends in the public sector underlying deficit of the States. The underlying deficit closely approximates the national accounts net lending measure and hence provides a good estimate of the savings-investment gap for the relevant sector. As explained in Statement 7 of Budget Paper No. 1, the definition of the underlying deficit differs from the Australian Bureau of Statistics' (ABS) definition of the adjusted deficit in the treatment of provisions.

The Appendix to this Paper provides information on the level and interstate distribution of specific purpose payments, repayments, advances and interest. Information on the level and interstate distribution of Commonwealth payments to local government authorities is also included.