Part 4: Federal Financial Relations
This Part provides information concerning goods and services tax (GST) revenue, general revenue assistance, revenue replacement payments, general purpose assistance to local government and Specific Purpose Payments to the States and Territories (the States) in 2002-03. The information supplements material provided in Budget Paper No. 3, Federal Financial Relations 2003-04.
Under The New Tax System, which came into effect on 1 July 2000, Commonwealth-State financial relations have been substantially reformed. All GST revenue collected is received by the States. This provides the States with access to a secure, growing and broad based revenue source. States can spend the GST revenue according to their own budget priorities.
The implementation of The New Tax System has also enabled the abolition of a range of narrow and inefficient State taxes. This includes Financial Institutions Duty and stamp duty on quoted marketable securities which were abolished from 1 July 2001.
The new system of Commonwealth-State financial relations has also provided for the introduction of the First Home Owners Scheme.
In addition, the Australian Government has made a commitment to provide assistance to the States in the transitional years to ensure that each individual State will be no worse off than it would have been had the reforms not been implemented. To meet this guarantee, the Australian Government pays the States Budget Balancing Assistance (BBA) to cover any shortfall of GST revenue below the Guaranteed Minimum Amount (GMA) which is a calculation of the amount of funding each State would have had available to it under the previous system of financial relations.
GST revenue provision
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act) provides that the States receive all GST revenue. The GST revenue pool is distributed to the States on the basis of recommendations of the Commonwealth Grants Commission (CGC), which applies the principles of Horizontal Fiscal Equalisation to help determine State revenue shares. Budget Paper No. 3, Federal Financial Relations 2003-04 provides more details on Horizontal Fiscal Equalisation.
Under the Act, the Commissioner of Taxation is required to make a determination by 15 June each year of the estimated GST revenue collections for the year. In accordance with the Commissioner of Taxation’s determination of GST revenue on 11 June 2003, a total of $30,479.1 million in GST revenue was provided to the States in 2002-03. This reflects a GST revenue estimate for 2002-03 of $30,690.0 million less a $210.9 million adjustment for the difference between the Commissioner’s 2001-02 determination and the 2001-02 GST revenue outcome. The Commissioner’s estimate of GST for 2002-03 was broadly consistent with both the estimate at Budget, and the final GST revenue outcome as reported in Appendix A and in Note 15 in Part 3.
The final provision of GST revenue to the States in 2002-03 is illustrated in Chart 1.
Chart 1: GST revenue provision to the States and Territories
The calculation of the distribution of GST revenue to the States is shown in Table 27. The distribution differs marginally from estimates shown in Budget Paper No. 3, Federal Financial Relations 2003-04, reflecting final determinations made under the Act.
The 2002-03 GST revenue was distributed, in accordance with the Act, using GST relativities recommended in the CGC Report on State Revenue Sharing Relativities 2002 Update.
Table 27 shows the per capita relativities applied to the States’ populations (as at 31 December each year) in order to arrive at a weighted population share for each State. A State’s share of GST revenue is equal to its weighted population share of the combined GST revenue and unquarantined Health Care Grants (HCGs), less the unquarantined HCGs it receives.
Table 27: GST revenue provision to the States and Territories
General revenue assistance
In 2002-03, general revenue assistance to the States comprised Budget Balancing Assistance (BBA), National Competition Policy Payments (NCPPs) and Special Revenue Assistance (SRA).
Budget Balancing Assistance
As previously noted, the Australian Government has guaranteed that in each of the transitional years following the introduction of tax reform, each State’s budgetary position will be no worse off than had the reforms not been implemented. This is given effect to by the payment of transitional assistance in the form of BBA.
In June 2002-03, it was determined that the States were entitled to a total of $994.0 million of BBA. Queensland and the Northern Territory did not require BBA in 2002-03 as their respective shares of GST revenue exceeded their Guaranteed Minimum Amounts by a combined total of $86.0 million.
The calculation of BBA entitlements for 2002-03 is shown in Table 28 and is broadly consistent with estimates at Budget.
Consistent with the terms of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, the Australian Government advanced BBA to the States in four quarterly instalments in 2002-03. These advances were based on the estimated BBA entitlements of the States at the time of each advance. The upward revision to GST revenue estimates in the Budget resulted in lower than previously estimated BBA entitlements of the States. On the basis of the determined BBA entitlements, the advances to the States in 2002-03 exceeded the States’ final entitlements to BBA in 2002-03 by $544.9 million. This is shown in Table 29.
Consistent with the provisions of the Act, the Australian Government will deduct the amount of excess BBA paid in 2002-03 from payments to be made to the States under the Act in 2003-04.
Table 28: Guaranteed Minimum Amount components, GST revenue provision and Budget Balancing Assistance to the States and Territories
Table 29: Overpayment of Budget Balancing Assistance
National Competition Policy Payments
National Competition Policy Payments are distributed between the States on an equal per capita basis. Payment is subject to States achieving satisfactory progress in implementing specified reforms under the Agreement to Implement the National Competition Policy and Related Reforms. The amount of NCPPs paid is shown in Table 30.
Table 30: National Competition Policy Payments
Special Revenue Assistance
In 2002-03, in accordance with the recommendations of the Commonwealth Grants Commission, SRA of $14.7 million was paid to the Australian Capital Territory.
Financial assistance grants to local government
Table 31 provides details of the Australian Government payments to local government authorities in 2002-03 for each of the six States and the Northern Territory, and an analogous payment made to the Australian Capital Territory.
In 2002-03, local government financial assistance grants were increased on the basis of an annual escalation factor determined by the Treasurer. The payments made to the States in 2002-03 and shown in Budget Paper No. 3, Federal Financial Relations 2003-04 were based on an estimated escalation factor of 1.0392, estimated in June 2002, and take into account an underpayment of $19.5 million in 2001-02.
On 26 June 2003, the Treasurer determined the final 2002-03 escalation factor to be 1.0435 on the basis of the Australian Statistician’s determination of population and Treasury’s estimate of the ongoing CPI. The difference between the estimate and the final escalation factor for 2002-03 has resulted in an underpayment of $6.0 million in 2002-03 for which there will be an adjustment in 2003-04, as provided for under the Local Government (Financial Assistance) Act 1995.
Table 31: Financial Assistance Grants to local government
(a) Total General Purpose Assistance is the actual cash payment that the State receives on behalf of local government. It is equal to the estimated entitlement for a given year adjusted for an over or under payment from the previous year.
Specific Purpose Payments
Tables 32 and 33 provide information on Australian Government Specific Purpose Payments (SPPs) to the States and local government together with details of repayments and interest on advances (loans) to the States. The majority of these advances were funded from borrowings made on behalf of the States.
Details are classified as follows:
• SPPs;
– current;
– capital;
• repayments of advances;
• details of new advances made; and
• interest on Australian Government advances.
SPP information is presented on a functional basis, which aggregates payments directed toward like objectives and purposes. SPPs are further divided into those paid ‘to’ the States (by far the larger group by number) and those judged to be paid ‘through’ the States to other groups. Payments in the latter group are indicated within the table by (*) and separate totals for ‘to’ and ‘through’ are provided in the summary at the end of the table.
Table 33: Specific Purpose Payments direct to local government authorities, 2002-03
