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Attachment D

Australia's Federal Relations

This part provides information on payments for specific purposes and general revenue assistance, including GST payments, provided to the States and Territories (the States).

On 29 November 2008, the Council of Australian Governments agreed to a new Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement) which provides the overarching framework for collaboration between the Commonwealth and the States.

The Intergovernmental Agreement, which commenced on 1 January 2009, involves significant reforms to payments for specific purposes. Under the new framework, some payments for specific purposes under the previous arrangements have been: incorporated into the new National Specific Purpose Payments (National SPPs); deemed to be National Partnership payments; or paid as general revenue assistance since 1 January 2009. The first full year of operation of the new framework is 2009‑10.

More detailed information on the Intergovernmental Agreement and new payment arrangements is provided in Budget Paper No. 3, Australia's Federal Relations 2009‑10.

Overview of payments to the States

The States receive significant financial support from the Commonwealth. In 2009‑10, total payments to the States will be $93.8 billion, or 27.6 per cent of total Commonwealth expenditure. This represents an 11.7 per cent increase compared with 2008‑09. The Commonwealth will provide the States with payments for specific purposes of $51.1 billion and general revenue assistance, including all GST revenue, of $42.7 billion.

Table 3.21 shows payments for specific purposes and general revenue assistance to the States.

Table 3.21: Commonwealth payments to the States, 2009‑10 to 2012‑13

Table 3.21: Commonwealth payments to the States, 2009-10 to 2012-13

State allocations are not yet finalised for a number of payments.
State totals do not include unallocated payments.

Chart 3.5 shows the state shares of total payments from the Commonwealth in 2009‑10.

Chart 3.5: State shares of Commonwealth payments, 2009‑10

Chart 3.5: State shares of Commonwealth payments, 2009-10

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 will be 15.0 per cent of total Commonwealth expenditure in 2009‑10. The States will receive $51.1 billion in payments for specific purposes, an increase of 22.7 per cent compared with the $41.7 billion the States received in 2008‑09.

The increase mainly reflects the full year effect of implementing the Building the Education Revolution and Investment in Social Housing initiatives under the Nation Building and Jobs Plan (announced in February 2009), the COAG reform package (announced in November 2008) and the First Home Owners Boost (announced in 2008). As the Nation Building and Jobs Plan and First Home Owners Boost programs unwind, payments are expected to return to a pre‑economic stimulus level.

Since the 2009‑10 Budget, payments to the States for specific purposes are estimated to be higher by $1 billion in 2009‑10. The main changes include:

an increase in the primary schools for the 21^st Century component of Building the Education Revolution, mainly reflecting higher than estimated enrolments and the higher take‑up rate than originally expected;
rephasing of payments for remote Indigenous housing, owing to implementation plans for the National Partnership agreement being finalised later than expected, with some milestone payments now becoming due in 2009‑10; and
lower than expected payments for 2008‑09 on the social housing component of the Nation Building and Jobs Plan, with the expenditure now expected to be in 2009‑10.

Table 3.22 shows total payments for specific purposes by function.

Table 3.22: Payments for specific purposes, 2009‑10 to 2012‑13

Table 3.22: Payments for specific purposes, 2009-10 to 2012-13

Of the $51.1 billion to be provided to the States for specific purposes in 2009‑10:

$36.6 billion will be provided 'to' the States to help fund state government functions;
$13.4 billion will be paid 'through' the States, where the State governments distribute the payments to other organisations — this includes payments for non‑government schools and financial assistance grants for local governments; and
$1.1 billion will be paid direct 'to' local governments.

Chart 3.6 shows the state shares of payments for specific purposes from the Commonwealth in 2009‑10.

Chart 3.6: State shares of payments for specific purposes, 2009‑10

Chart 3.6: State shares of payments for specific purposes, 2009-10

Payments for specific purposes cover most functional areas of state and local government activity — including health, education, community services, housing, infrastructure and environment. Detailed tables of payments for specific purposes, including state shares of each payment, are provided in Annex A.

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 2009‑10, total general revenue assistance to the States will be 12.6 per cent of total Commonwealth expenditure. The States will receive $42.7 billion in general revenue assistance from the Commonwealth, comprising $42.3 billion in GST payments and $444 million of other general revenue assistance. This is a 0.9 per cent increase in general revenue assistance, compared with the $42.4 billion the States received in 2008‑09.

Table 3.23 summarises general revenue assistance payments to the States. Detailed tables of general revenue assistance, including state shares of each payment, are provided in Annex A.

Table 3.23: General revenue assistance, 2009‑10 to 2012‑13

Table 3.23: General revenue assistance, 2009-10 to 2012-13

This amount reflects the net impact of the underpayment of the Commissioner of Taxation's determination of GST revenue in 2008‑09 of $19 million less the resulting overpayment in budget balancing assistance of $9 million.

GST payments

GST revenue variations since the 2009‑10 Budget

Table 3.24 is a reconciliation of the GST revenue estimates since the 2009‑10 Budget. The reconciliation accounts for policy decisions, parameter and other variations. There have been no policy decisions since Budget that have had a direct effect on GST revenue.

GST revenue in 2009‑10 has been revised up by $630 million since Budget, reflecting higher forecast growth for taxable consumption.

Table 3.24: Reconciliation of GST revenue estimates since 2009‑10 Budget

Table 3.24: Reconciliation of GST revenue estimates since 2009-10 Budget

Refer the measure GST — Government response to Board of Taxation report — minor changes.

Reconciling GST revenue and GST payments to the States

In accordance with the Intergovernmental Agreement, the Commonwealth administers the GST on behalf of the States and all GST revenue is paid to the States.

Up until the end of 2008‑09, the Commissioner of Taxation has estimated the level of GST receipts in June, prior to the end of each financial year. That estimate formed the basis of GST payments to the States for that financial year. A balancing adjustment was subsequently made in the following financial year to ensure that the States received their full entitlement of GST payments for a financial year. The last balancing adjustment under these arrangements will be made in 2009‑10.

From 2009‑10, GST advances will be paid during the relevant financial year and the Treasurer will determine the level of GST receipts based on the final budget outcome. A balancing adjustment will still be made to ensure that the States receive their full entitlement of GST payments for a financial year.

In addition to these balancing adjustments, GST revenue for a financial year also varies from the amount of GST payments to the States for that year because of:

GST revenues that are recognised on a Commonwealth whole‑of‑government basis, but are not 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 3.25.

Table 3.25: GST revenue and GST payments to the States

The Commissioner's determination for 2008‑09 was $19 million lower than the final outcome. This amount will be paid in 2009‑10.

Distribution of GST payments among the States

As agreed by all parties 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.

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 Intergovernmental Agreement provides that 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 used to distribute the GST payments. The calculations for the distribution of the GST pool are shown in Table 3.26.

Table 3.26: Distribution of the GST pool, 2009‑10^(a)

Table 3.26: Distribution of the GST pool, 2009-10(a)

The Commonwealth Grants Commission is currently undertaking a review of its fiscal equalisation methodology. The outcome of the review may have a significant impact on the GST relativities and the distribution of the GST pool in 2010‑11.

State shares of GST payments for 2009‑10 are shown in Chart 3.7.

Chart 3.7: State shares of GST payments, 2009‑10

Chart 3.7: State shares of GST payments, 2009-10

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 3.27.

Table 3.27: GST administration budget, 2008‑09 to 2012‑13

Table 3.27: GST administration budget, 2008-09 to 2012-13

Preliminary outcome for 2008‑09 pending confirmation by the Australian National Audit Office.

The preliminary outcome for the 2008‑09 GST administration expenses of $602 million differs from the amount paid by the States and the prior year adjustment by $29.9 million. Once the outcome for GST administration in 2008‑09 is audited, this difference will be incorporated into the States' administration costs for 2009‑10.

Annex A

Payments to the States

This annex provides accrual estimates of Commonwealth payments to the States and local governments. This includes Commonwealth advances (loans) to the States, including new advances, interest on advances and repayments of advances. Most of these advances were funded from borrowings made on behalf of the States under previous Australian Loan Council arrangements.

Each table presents estimated payments to the States for the period 2009‑10 to 2012‑13 as follows:

A.1 — health;

A.2 — education;

A.3 — community services;

A.4 — housing;

A.5 — infrastructure;

A.6 — environment;

A.7 — other purposes;

A.8 — contingent liabilities;

A.9 — general revenue assistance;

A.10 — advances, repayment of advances and interest payments;

A.11 — local government payments included in tables above; and

A.12 — payments presented on the Australian Bureau of Statistics Government Finance Statistics (GFS) functional basis.

Table A.1: Estimated payments to support state health services, by year and State

Table A.1: Estimated payments to support state health services, by year and State (continued)

The Commonwealth has met its future payment commitment in respect of these payments by providing a single payment in 2009‑10 and ceasing future annual payments.
State allocations are not yet finalised for this payment.
State totals do not include unallocated payments.

Table A.2: Estimated payments to support state education services, by year and State

Table A.2: Estimated payments to support state education services, by year and State (continued)

State allocations are not yet finalised for part of this payment. $80.1 million has been included in the total payment in 2009‑10 and $100.0 million in 2010‑11 and is not reflected in state totals.
State allocations are not yet finalised for the non‑government schools component of this payment.
State totals do not include unallocated payments.
Non‑government schools payments are net of GST.

Table A.3: Estimated payments to support state community services, by year and State

Table A.3: Estimated payments to support state community services, by year and State (continued)

There is no basis on which to estimate state allocations.

Table A.4: Estimated payments to support state housing services, by year and State

Table A.4: Estimated payments to support state housing services, by year and State (continued)

The Commonwealth has met its future payment commitment in respect of this payment by providing a single payment in 2009‑10 and ceasing future annual payments.

Table A.5: Estimated payments to support state infrastructure services, by year and State

Table A.5: Estimated payments to support state infrastructure services, by year and State (continued)

There is no basis on which to estimate state allocations.

Table A.6: Estimated payments to support state environmental services, by year and State

Table A.6: Estimated payments to support state environmental services, by year and State (continued)

Whilst this payment is made in 2009‑10, the payment has been accrued to 2008‑09 as per Table 38 of Final Budget Outcome 2008‑09.

Table A.7: Estimated payments to support other state services, by year and State

Table A.7: Estimated payments to support other state services, by year and State (continued)

The Commonwealth has met its future payment commitment in respect of this payment by providing a single payment in 2009‑10 and ceasing future annual payments.

Table A.8: Estimated contingent payments to the States, by year and State

Table A.9: General revenue assistance payments to the States, by year and State

Table A.9: General revenue assistance payments to the States, by year and State (continued)

Western Australia and South Australia elected to repay their overpayment in 2008‑09.

Table A.10: Other financial flows — estimated advances, repayment of advances and interest payments, by year and State

Table A.10: Other financial flows — estimated advances, repayment of advances and interest payments, by year and State (continued)

Table A.11: Estimated payments to support local government services^(a)

Table A.11: Estimated payments to support local government services(a)

Table A.11: Estimated payments to support local government services (continued)^(a)

Table A.11: Estimated payments to support local government services (continued)(a)

Table A.11: Estimated payments to support local government services (continued)^(a)

Table A.11: Estimated payments to support local government services (continued)(a)

Table A.11: Estimated payments to support local government services (continued)^(a)

Table A.11: Estimated payments to support local government services (continued)(a)

Payments presented here are payments to local governments already included in Appendix tables A.1, A.5, A.6 and A.7.
There is no basis on which to estimate state allocations.

Table A.12: Total payments to the States and Territories by GFS function

Table A.12: Total payments to the States and Territories by GFS function (continued)

State allocations are not yet finalised for healthy communities grants and digital education revolution and are not reflected in state totals.
There is no basis on which to estimate state allocations for National reciprocal transport concessions and are not reflected in state totals.

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