General revenue assistance
General revenue assistance is a broad category of payments, including GST payments, which are provided to the States without conditions, to spend according to their own budget priorities. In 2007‑08, total general revenue assistance to the States represented 15.2 per cent of total Commonwealth expenditure.
In 2007‑08, the States received $42.5 billion in general revenue assistance from the Commonwealth, as shown in Table 27, comprising $42.3 billion in GST payments and $123 million of other general revenue assistance. This is a 7.3 per cent increase in general revenue assistance, compared with the $39.6 billion the States received in 2006‑07.
Table 27: General revenue assistance
GST payments
Reconciling GST revenue and GST payments to the States
In accordance with the Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations, the Commonwealth administers the GST on behalf of the States and all GST revenue is paid to the States. This provides the States with a robust, secure and growing source of revenue to spend according to their own budget priorities. In 2007‑08, GST revenue was $44.4 billion — an increase of $3.4 billion (8.2 per cent) from 2006‑07.
The Commissioner of Taxation estimates the level of GST receipts in June, prior to the end of each financial year. That estimate forms the basis of GST payments to the States for that financial year. A balancing adjustment is usually made in the following financial year to ensure that the States receive their full entitlement of GST payments for a financial year.
GST revenue for a financial year also varies from the amount of GST payments to the States for that year because of:
- GST revenues which are recognised on a Commonwealth whole of government basis, but are not recognised by the Commissioner of Taxation in his June determination, because the revenues will not be remitted to the Australian Taxation Office until the following financial year; and
- penalties, other than general interest charge penalties, which are not included in the definition in the Intergovernmental Agreement of GST to be paid to the States.
The reconciliation of GST revenue and GST payments to the States is provided in Table 28.
Table 28: GST revenue and GST payments to the States
- General interest charge (GIC) penalties are defined in the Intergovernmental Agreement as being a part of the Commonwealth's GST revenue that is paid to the States. However, while other GST related penalties are also recognised in the Commonwealth's GST revenue, non‑GIC penalties are not defined in the Intergovernmental Agreement as being a part of the GST revenue that is paid to the States.
- This is the GST component of sales by Commonwealth agencies which has been collected by those agencies but which, as at 30 June in each year, will not have been remitted to the Australian Taxation Office, because it is not due to be paid until the next Business Activity Statement is lodged (typically on 21 July in the following financial year).
- The Commissioner's determination for 2007‑08 was $49 million lower than the final outcome. This underpayment will be paid in 2008‑09.
- The Commissioner's determination for 2006‑07 was $20 million higher than the final outcome. This overpayment was recovered in 2007‑08.
Distribution of GST payments among the States
As agreed by all States in the Intergovernmental Agreement, GST payments are distributed among the States in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission.
State shares of GST payments for 2007‑08 are shown in Chart 4.
Chart 4: State shares of GST payments, 2007‑08
GST relativities
The Commission recommends state revenue sharing relativities (the GST relativities) to be used in calculating each State's share of GST payments such that, if each State made the same effort to raise revenue from its own sources and operated at the same level of efficiency, each State would have the capacity to provide services at the same standard.
The GST relativities for 2007‑08 were endorsed by the Ministerial Council for Commonwealth‑State Financial Relations in March 2007. The relativities for 2007‑08 are shown in Table 29.
Table 29: GST relativities
Applying the GST relativities to the GST pool
The Intergovernmental Agreement defines the GST pool for a financial year to consist of GST payments plus health care grants provided by the Commonwealth under the Australian Health Care Agreements. Some health care grants are quarantined from the GST pool.
The GST relativities are applied to estimated state populations in order to determine an adjusted population for each State. Each State's share of the adjusted population is then applied to the combined pool of GST payments and unquarantined health care grants to estimate weighted shares of the GST pool. The final distribution of GST payments is determined by deducting the unquarantined health care grants, which are separately provided to the States, from each State's share of the GST pool. The calculations for the distribution of the GST pool are shown in Table 30.
Table 30: Distribution of the GST pool, 2007‑08
GST administration costs
Because the GST has a national tax base, the Intergovernmental Agreement provides for the Australian Taxation Office to administer the GST on behalf of the States. As all GST revenue is provided to the States, the States compensate the Commonwealth for the agreed costs incurred by the Australian Taxation Office in administering the GST, as shown in Table 31.
Table 31: GST administration
- Preliminary outcome for 2007‑08 pending confirmation by the Australian National Audit Office.
In March 2007, the Ministerial Council for Commonwealth‑State Financial Relations agreed to a GST administration budget of $636.0 million for 2007‑08. This was subsequently revised to $633.0 million owing to a lower revised estimate of the costs.
The preliminary outcome for the 2007‑08 GST administration expenses of $631.4 million differs from the amount paid by the States and the prior year adjustment by $1.6 million. Once the outcome for GST administration in 2007‑08 is audited, any adjustment required because of this difference will be incorporated into the States' administration costs for 2008‑09.
Other general revenue assistance
Budget balancing assistance
In the Intergovernmental Agreement, the Commonwealth guaranteed that the budget position of each State would be no worse than it would have been had tax reform not been implemented. The guaranteed minimum amount is an estimate of the revenue that each State would have received under the previous system of Commonwealth grants and if their own taxes had not been abolished as part of the reforms.
The Commonwealth will pay budget balancing assistance to the States during the transitional period (which will expire on 30 June 2009) if a State's share of GST payments in a financial year is less than its guaranteed minimum amount for that year. No budget balancing assistance is payable when GST revenue exceeds the guaranteed minimum amount.
In 2008‑09, all States will receive GST payments that exceed their guaranteed minimum amount, as shown in Table 32. Consequently, no State will require budget balancing assistance.
Table 32: Guaranteed minimum amount, GST payments and budget balancing
assistance, 2007‑08(a)
- No budget balancing assistance is payable when GST revenue exceeds the guaranteed minimum amount. As part of the agreement with the States to abolish most of the state taxes listed for review under the Intergovernmental Agreement, the Commonwealth has extended the transitional period (in which budget balancing assistance may be paid) from 30 June 2006 to 30 June 2009.
National Competition Policy payments
Between 1997‑98 and 2005‑06, the Commonwealth provided National Competition Policy payments to the States for implementing National Competition Policy and related reforms.
In 2005‑06, the Commonwealth suspended $43.2 million in National Competition Policy payments, following recommendations provided by the National Water Commission. This included water reform suspensions for outstanding obligations relating to interstate trading in the southern Murray Darling Basin, and for lack of progress and outstanding reforms with respect to water planning.
On 13 September 2007, the Commonwealth lifted the suspensions following a subsequent recommendation by the National Water Commission that satisfactory progress by the States in implementing their water reform commitments had been achieved.
Consequently, the suspended payments of $43.2 million were paid in 2007‑08. These payments are the final payments under the previous National Competition Policy arrangements.
Compensation
Compensation for impact on royalties of excise amendment
The Commonwealth is removing the current exemption of condensate from crude oil excise. This will result in a consequential reduction in revenue from the offshore petroleum royalty.
As the Commonwealth pays two thirds of the royalty revenues to Western Australia, the Government decided to provide compensation for the loss of royalty revenue. An initial payment of $80 million was made to Western Australia in 2007‑08, with payments in subsequent years calculated to equal the impact on Western Australia's share of royalties of removing the condensate exemption.
GST compensation for small business concession
In 2004‑05, the Commonwealth and the States agreed to allow small businesses and non profit organisations which voluntarily registered for the GST to pay and report GST on an annual rather than monthly or quarterly basis. The measure was designed to reduce the compliance costs faced by these organisations and has the effect of deferring some GST revenue from one financial year to the next. The Commonwealth agreed to compensate the States for this deferral of GST revenue.
The Commonwealth and the States agreed that the annual payments should be suspended from 2006‑07 because final tax return data indicated that the impact of the measure on GST revenue was much lower than forecast. Consequently, no compensation payments were made in 2007‑08.