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Part 6: Accountabilities under the Federal Financial Relations Framework

Overview

The Intergovernmental Agreement describes the institutional arrangements for the federal financial relations framework:

• COAG is the key decision making body with respect to implementing the framework, and will monitor progress on all aspects of the framework;
• the Ministerial Council for Federal Financial Relations has responsibility for the general oversight of the operation of the Intergovernmental Agreement and the ongoing monitoring and maintenance of reforms, including ensuring that National Agreements and National Partnerships are aligned with the design principles of the Intergovernmental Agreement;
• sectoral Ministerial Councils have responsibility for proposing policy in respect of National Agreements and National Partnerships; proposing new National Partnerships; and making recommendations to COAG on the development of objectives, outcomes, outputs and performance indicators for National Agreements; and
• all payments to the States are subject to the framework and are centrally administered through monthly payments from the Commonwealth Treasury to the state treasuries.

These arrangements under the Intergovernmental Agreement flow through to accountabilities across the Commonwealth.

Commonwealth accountabilities

Policy and payment accountability arrangements

Under the framework, policy outcomes and objectives have been separated from funding arrangements to ensure that the policy focus is on achieving better services for all Australians and addressing social inclusion.

National Agreements establish the policy objectives in the key service sectors. They set out the objectives, outcomes, outputs and performance indicators which are mutually agreed between all jurisdictions.

National Agreements are not funding agreements. Funding is provided separately in National Specific Purpose Payments (National SPPs), which are specified in the Intergovernmental Agreement. The provision of funding under National SPPs is not contingent on achieving the outcomes or performance benchmarks outlined in National Agreements. The only condition on National SPPs is that the funding be spent in the sector for which it is provided.

National Agreements may be associated with a National SPP, but this is not a requirement. For example, the National Indigenous Reform Agreement outlines the mutually agreed objectives for Indigenous reform, with the Commonwealth and the States each having flexibility in funding the achievement of those reforms. There is no associated National SPP.

National Partnership Agreements also outline the mutually agreed policy objectives to achieve service delivery improvements or nationally significant reform. National Partnerships may provide for payments on the achievement by the States of performance indicators/targets or for delivering reform progress. However, National Partnerships do not need to provide a financial contribution to the States.

For both National Agreements and National Partnership Agreements, the primary responsibility for policy is with the relevant portfolio Minister.

Under the centrally administered payment arrangements of the framework, all payments are processed by the Commonwealth Treasury and paid directly to each state treasury. State treasuries are responsible for distributing the funding within their jurisdiction. In the Commonwealth, the Treasurer is accountable for the appropriations, estimates and efficient payments under the framework. These arrangements are implemented through the Federal Financial Relations Act 2009.

Having state treasuries distribute Commonwealth‑sourced funding to state portfolio agencies helps reinforce that state agencies are primarily accountable to their own Parliament and public for their service delivery performance, including their delivery of programs for which the Commonwealth provides a financial contribution.

As noted in Part 2, there will be new funding arrangements for the National Health and Hospitals Network with payments flowing through a National Health and Hospitals Network fund. Amendments will need to be made to the Federal Financial Relations Act 2009 to reflect these new payment arrangements.

The distinction between policy and funding flows through to accountability arrangements at the Commonwealth level under the framework. These accountability arrangements are summarised in Table 6.1.

Table 6.1: Commonwealth policy and payments accountability arrangements

1. The Ministerial Council for Federal Financial Relations is also accountable to COAG under the Intergovernmental Agreement for ensuring to the fullest extent possible that National Agreements and National Partnerships are aligned with the framework's design principles.
2. On advice from the portfolio Minister.

National SPPs

For National SPPs, the Treasurer is accountable for:

• negotiation of the funding levels and growth factors;
• the appropriations and the efficient processing of payments;
• estimates of payments;
• reporting in respect of payments; and
• each National SPP being expended by the States within the relevant sector.

National Agreements

For National Agreements, portfolio Ministers are accountable for the development of objectives, outcomes, outputs and performance indicators and all relevant policy matters. The Treasurer is responsible for ensuring that National Agreements align with the design principles described in Schedule E — National Policy and Reform Objectives of the Intergovernmental Agreement.

National Partnerships

Portfolio Ministers are responsible for policy relating to National Partnership payments and for proposing new specific projects and reforms which could be supported by National Partnerships.

For Commonwealth Own Purpose Expenses, which can be provided to assist in the achievement of objectives for National Partnership Agreements, payment and policy are the responsibility of the relevant portfolio Minister.

For National Partnership payments, the Treasurer is accountable for:

• ensuring to the fullest extent possible that National Partnerships are aligned with the design principles described in Schedule E — National Policy and Reform Objectives of the Intergovernmental Agreement;
• ensuring that National Partnerships in a sector which is covered by a National Agreement are aligned with the objectives of that National Agreement;
• ensuring that National Partnerships support the delivery of clearly specified outputs or projects, or facilitate the implementation of, or reward the delivery of, reforms of national significance;
• negotiating base funding levels for National Partnership incentive payments;
• developing principles for the funding levels of National Partnership project payments;
• assessing whether expiring National Partnerships should be converted into existing or new National SPPs or general revenue assistance; and
• appropriations for, and the efficient provision of, payments.

General revenue assistance

The Treasurer has accountability for the estimates of, appropriations for, and efficient payment of, GST payments and other general revenue assistance. The terms and conditions upon which payments are made are set out in Schedule D — Payment Arrangements of the Intergovernmental Agreement. The Federal Financial Relations Act 2009 provides for the Treasurer to credit amounts to the COAG Reform Fund for payments of general purpose financial assistance other than GST payments.

Where there is policy or legislation associated with general revenue assistance — for example, revenue sharing arrangements of royalties in the Offshore Petroleum and Greenhouse Gas Act 2006 — that policy responsibility rests with the relevant portfolio Minister, with the Treasurer accountable for payments.

Reporting accountability arrangements

Reporting accountabilities within the Commonwealth reflect the policy and payment accountabilities in the federal financial relations framework. These are outlined in Table 6.2.

Table 6.2: Commonwealth reporting accountabilities

There are some exceptions to the accountabilities shown in Table 6.2. Some payments from special accounts have different accountabilities. For example, payments from the Nation Building Funds are processed by Treasury, but the appropriations and payment accountabilities are with the portfolio Ministers. Most payments for non‑government schools and payments for interstate road transport are also treated this way.

Financial reporting

The Treasury Portfolio Budget Statements present financial information for payments to the States in respect of the following appropriations:

• assistance under each of the five National SPPs (Programs 1.5 to 1.9);
• general revenue assistance payments (Program 1.4); and
• assistance under National Partnerships (Program 1.10).

Tables 2.5 to 2.11 in the Treasury's Portfolio Budget Statements provide detailed information on all programs for which appropriations have been provided under the Federal Financial Relations Act 2009.

This Budget Paper provides detailed whole‑of‑government information on the Commonwealth's payments to the States.

• Part 2 provides information on Commonwealth payments to support specific state services.
• Part 3 provides information on GST payments and general revenue assistance.

Non‑financial reporting

Non‑financial reporting accountabilities are as follows:

• the Treasurer is accountable for all aspects of policy in respect of National SPPs;
• the Treasurer is accountable for the federal financial relations framework and payments made under the Federal Financial Relations Act 2009;
• the relevant portfolio Minister is accountable for all aspects of policy in respect of National Agreements;
• the relevant portfolio Minister is accountable for all aspects of policy in respect of National Partnership Agreements, including in respect of the performance benchmarks which may trigger the requirement that a project payment be made;
• the Treasurer is accountable for all aspects of payments and estimates in respect of all general revenue assistance; and
• the relevant portfolio Minister is accountable for policy in respect of general revenue assistance that is legislated through, and falls within, their portfolio — otherwise the Treasurer is accountable.

Performance reporting framework

In agreeing to the federal financial relations framework, the Commonwealth and the States committed to ongoing performance reporting to enhance public accountability. The performance reporting framework focuses on the achievement of mutually agreed objectives and outcomes, efficient service delivery and timely public reporting.

The key components of the performance reporting framework are outlined in Chart 6.1.

Chart 6.1: Performance reporting information flows

1. Steering Committee for the Review of Government Service Provision.
2. Australian Bureau of Statistics.
3. Australian Institute of Health and Welfare.

The COAG Reform Council provides annual reports to COAG containing the performance data and a comparative analysis of the performance of governments in meeting the objectives of the National Agreements. The reports will also highlight examples of good practice and performance so that, over time, innovative reforms or methods of service delivery may be adopted by other jurisdictions.

The Steering Committee for the Review of Government Service Provision is responsible for collecting and providing the agreed performance information to the COAG Reform Council. The Commonwealth and the States provide the COAG Reform Council with any additional information necessary for it to fulfil its role. In preparing its performance reports, the COAG Reform Council may draw upon other data collection agencies and subject experts it considers relevant to its work.

In relation to the performance reporting framework, the Ministerial Council for Federal Financial Relations is responsible for:

• progressing the implementation of the performance reporting framework, including continually improving the quality and timeliness of data, and development and oversight of a new National Performance Reporting System; and
• maintaining a register of the National Minimum Data Sets required to allow comparative reporting of governments' achievements against agreed objectives and outcomes.

The development of the performance reporting framework provides the opportunity to move, as far as possible, to a single, integrated, national reporting system that will reduce collection costs and confusion in interpreting performance.

The Ministerial Council for Federal Financial Relations consults with other relevant Ministerial Councils and data collection agencies in undertaking its roles.

Determining achievement against outcomes and benchmarks

The performance of the Commonwealth and the States in achieving mutually agreed outcomes and performance benchmarks specified in National Agreements are monitored and assessed by the COAG Reform Council, which reports publicly on an annual basis. Specifically, the COAG Reform Council:

• publishes performance information for all jurisdictions against National Agreement outcomes and performance benchmarks;
• produces an analytical overview of performance information for each National Agreement, and National Partnerships to the extent they support the objectives in a National Agreement;
• independently assesses whether predetermined performance benchmarks have been achieved before an incentive payment is made to reward nationally significant reforms under National Partnerships; and
• monitors the aggregate pace of activity in progressing COAG's agreed reform agenda.

In addition, the Productivity Commission has been tasked by COAG to report every two to three years on the economic impacts and benefits of COAG's agreed reform agenda.

Implementing the performance reporting framework

The COAG Reform Council has published reports on the National Education Agreement and the National Agreement on Skills and Workforce Development. It is expected that the COAG Reform Council will publish reports on the remaining National Agreements on Health, Disability, Affordable Housing and Indigenous Reform in the next month or so. Those reports provide baseline data against the performance indicators in the agreements and comparative analysis. Reports in future years will track progress against these baselines.

To facilitate comparative reporting of governments' achievements against agreed outcomes and benchmarks, work is also underway on a National Minimum Data Sets register. The initial register will provide links to performance indicators and benchmarks in National Agreements and will be available on the Ministerial Council for Federal Financial Relations website in the next few months.

Under the Intergovernmental Agreement, the Commonwealth and the States have committed to the continuous improvement of performance data to enhance the quality and timeliness of performance indicators and to promote public accountability. In its reports on National Agreements, the COAG Reform Council provides advice to COAG on improvements to performance reporting. COAG agreed to a number of changes to indicators in the National Education Agreement and the National Agreement on Skills and Workforce Development following advice from the COAG Reform Council.

Complementing this, the Heads of Treasuries review of National Agreements, National Partnerships and Implementation Plans (outlined in Part 1) will consider the quantity and quality of performance indicators and benchmarks in respect of individual agreements.

This review has clear linkages with data improvement work also being conducted by Treasuries, in consultation with Commonwealth and State central and portfolio agencies, the COAG Reform Council, the Secretariat for the Review of Government Service Provision and data collection agencies.

Accountabilities

Although there are no performance benchmarks associated with National SPPs, States are required to expend funding in the relevant sector — the Treasurer is accountable for ensuring this occurs. To demonstrate compliance, each state treasurer provides a report to the Ministerial Council for Federal Financial Relations within six months of the end of every financial year, detailing how much funding was spent in the relevant sector and, if required, provides a detailed explanation for any discrepancy with the amounts provided by the Commonwealth.

Each state treasurer provided this report to the Ministerial Council for Federal Financial Relations for the 2008‑09 year. These reports satisfied the requirements for funding provided by the Commonwealth to be spent in the relevant sector.

National Partnership project payments involve set funding arrangements that specify funding to be provided at a certain time, and may be subject to the satisfactory attainment by the States of performance benchmarks or milestones. Portfolio Ministers will determine, based upon expenditure or performance reporting arrangements set out in the National Partnership, whether the project payment will be made.

As National Partnership facilitation payments have no performance benchmarks, the Treasurer will generally determine whether to make such payments specified in a National Partnership Agreement.

Table 6.3: Accountabilities for determining benchmark achievements

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