Part 4: Federal Financial Relations

This part provides information concerning goods and services tax (GST) revenue provided to the States and Territories (the States), as well as specific purpose payments to the States and local governments. More detailed information about payment arrangements is provided in Budget Paper No. 3, Federal Financial Relations 2007-08.

In total, the Australian Government paid $68.1 billion to the States in 2006-07 (Table 31), an increase of $3.0 billion (4.6 per cent) over the amount paid in 2005-06. An overview of historical payments to the States is provided in Attachment A.

Table 31: GST and Australian Government payments to the States

The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act) provides for the distribution of all GST revenue to the States. The GST provides the States with a robust, secure and growing source of revenue to spend according to their own budget priorities.

GST revenue has grown significantly since its introduction. The States received GST revenue of $39.6 billion in 2006-07. This was $2.1 billion more in revenue from the GST than they would have received had the previous financial arrangements continued.

In return for receiving all of the GST revenue, the States agreed to abolish a range of inefficient indirect taxes that were impeding economic activity. The States themselves nominated the taxes to be abolished. The commitment to abolish these taxes was included in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. Timetables are now in place for the abolition of all but one of the state taxes listed for abolition in the Intergovernmental Agreement. The revenue foregone from taxes already abolished represented a saving to taxpayers of an estimated $5.1 billion in 2006-07.

The Australian Government also provided the States with specific purpose payments of $26.5 billion in 2006‑07. In addition, local governments received $2.1 billion in Australian Government funding in 2006-07.