Payments for specific purposes
The Commonwealth provides payments to the States for specific purposes in order to pursue important national policy objectives in areas that may be administered by the States. Payments to the States for specific purposes constitute a significant proportion of Commonwealth expenditure — 11.4 per cent of total Commonwealth expenditure in 2007‑08.
These payments cover most functional areas of state and local government activity — including education, health, social security and welfare, housing and community amenities, and transport and communication — as illustrated in Chart 2.
Chart 2: Composition of payments for specific purposes, 2007‑08
In 2007‑08, the States received $32.0 billion in payments for specific purposes, an increase of 12.2 per cent compared with the $28.5 billion the States received in 2006‑07. Total payments for specific purposes by function are shown in Table 25.
Table 25: Payments for specific purposes
Of the $32.0 billion provided for specific purposes in 2007‑08:
- $23.8 billion was provided 'to' the States to help fund State government functions;
- $5.9 billion was paid 'through' the States, where the State governments distribute the payments to other organisations — this includes payments for non‑government schools;
- $1.8 billion was provided as financial assistance grants for local governments; and
- $554 million was paid to direct to local governments.
Chart 3 shows the state shares of payments for specific purposes from the Commonwealth in 2007‑08.
Chart 3: State shares of payments for specific purposes, 2007‑08
Detailed tables of payments for specific purposes for 2007‑08, including state shares of each payment, are provided in Attachment A.
Payments to local governments
The Commonwealth provides a financial contribution to local governments to enhance their capacity to provide services to the community. Funding is paid through the States to be passed on to local government, as well as directly to local government. In 2007‑08, total payments to local government were $2.3 billion.
Financial assistance grants to local governments
The Commonwealth provided $1.8 billion in financial assistance grants to local governments in 2007‑08, an increase of $92 million (5.4 per cent) from 2006‑07. Table 26 provides details of these grants for each of the six States and the Northern Territory. These grants are provided to the States to be distributed to local governments in each State. An analogous payment is made to the Australian Capital Territory.
Financial assistance grants are increased annually on the basis of an escalation factor determined each year by the Treasurer. The 2007‑08 grants were based on an estimated escalation factor of 1.0455 and incorporated an underpayment of $2.4 million in respect of 2006‑07.
Table 26: Financial assistance grants to local government (cash), 2007‑08
- There was an underpayment in 2006‑07 because the estimated escalation factor of 1.0406 was less than the final factor of 1.0421. A balancing adjustment of $2.4 million was paid in 2007‑08.
- Total financial assistance grants are the actual cash payment that each State receives on behalf of local government. They are equal to the estimated entitlement for a given year, adjusted for an overpayment or underpayment from the previous year. The difference between the estimated entitlement and the final entitlement for the current year will be adjusted in the following year. The information presented in this table differs from that in Table 25 and Table 34, which are prepared on an accrual basis.
The final 2007‑08 escalation factor as determined by the Treasurer, on the basis of the Australian Statistician's determination of population and the All Groups Consumer Price Index, is 1.0571. The difference between the estimated and the final escalation factor for 2007‑08 has resulted in an underpayment of $19.6 million in 2007‑08 for which there will be an adjustment in 2008‑09, as provided for under the Local Government (Financial Assistance) Act 1995.
Payments for specific purposes direct to local governments
The Commonwealth provides payments for specific purposes direct to local governments to help fund local roads and infrastructure, child care, and disability and other services administered by local governments. These payments totalled $554 million in 2007‑08. They mainly comprised AusLink funding, which assists local councils with upgrading and maintenance works on local roads.
Detailed tables of payments for specific purposes to local governments for 2007‑08, including state shares of each payment, are provided in Attachment A.