Commonwealth-State Financial Relations
The States will receive revenue and payments totalling an estimated $57.0 billion in 2003-04 (Table 1) and $60.2 billion in 2004-05 (Table 2).
All GST revenue is paid to the States under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. The GST revenue pool is distributed to the States on the basis of recommendations by the Commonwealth Grants Commission (CGC). The CGC’s recommendations are based on the principles of Horizontal Fiscal Equalisation.
From 2004-05 onwards, all States will fully benefit from tax reform, with GST revenues for each State and Territory in excess of what they would have received from Australian Government Financial Assistance Grants and their own inefficient taxes abolished under tax reform.
Since tax reform commenced on 1 July 2000, the Australian Government has been paying Budget Balancing Assistance to the States to cover any difference between GST revenue and a State’s Guaranteed Minimum Amount. This has ensured that no State is worse off after the changes made to Commonwealth-State financial relations as part of the Australian Government’s New Tax System. From 2004-05 onwards, Budget Balancing Assistance will no longer be required as each State and Territory will receive an amount in excess of its entitlement had the old system continued.
The Australian Government also provides the States with National Competition Policy Payments to implement National Competition Policy and related reforms, as well as Specific Purpose Payments, including Financial Assistance Grants to local government, to contribute towards the costs of state and local government responsibilities.
Other features of Commonwealth-State financial relations include the First Home Owners Scheme and mirror tax arrangements.
Table 1: GST revenue provision and total Australian Government payments to the state/local sector in 2003-04 (estimated)
- The GST estimate has been adjusted by $57 million to account for the final 2002-03 outcome, reflecting cash collections in 2002-03 exceeding the Commissioner’s determination.
Table 2: GST revenue provision and total Australian Government payments to the state/local sector in 2004-05 (estimated)
- Individual state and territory AusLink allocations are not yet available and accordingly are not included in individual state and territory estimated amounts for 2004-05. These allocations will be announced as part of the AusLink White Paper in June 2004. The aggregate AusLink amount of $1,323.4 million for 2004-05 is included in the aggregate state and territory total.