Part 2: Payments for Specific Purposes
The Commonwealth makes payments to the States to support specific state services through National Specific Purpose Payments (SPPs) and National Partnership payments. This part outlines these payments.
From 2011‑12, Commonwealth payments to the States will be modified to implement the National Health and Hospitals Network. This part also explains the changes to payments for specific purposes.
Overview of payments
The Commonwealth provides the following types of payments to the States:
- National SPPs in respect of key service delivery sectors;
- three types of National Partnership payments — project payments, facilitation payments and reward payments; and
- general revenue assistance, consisting of GST payments and other general revenue assistance.
From 1 July 2011, with the commencement of the National Health and Hospitals Network, the Commonwealth will also provide National Health and Hospitals Network funding which will be sourced from:
- the current National Healthcare SPP;
- GST payments dedicated and retained by the Commonwealth for health and hospital services; and
- from 2014‑15, a Commonwealth top‑up payment.
The Intergovernmental Agreement provides that all payments for National SPPs and National Partnership Agreements will be paid by the Commonwealth Treasury to each state treasury on the 7th day of each month.
National Health and Hospitals Network funding will be paid into a National Health and Hospitals Network fund for payment to Local Hospital Networks through joint Intergovernmental funding authorities for each State and to the States for a range of services best managed on a state‑wide basis.
Categories of payments for specific purposes
The Commonwealth provides payments to the States for specific purposes to enable important national policy objectives in areas that may be administered by the States to be pursued. These payments cover most functional areas of state and local government activity — including health, education, skills and workforce development, community services, housing, Indigenous reform, infrastructure and environment.
Chart 2.1: Composition of payments for specific purposes
National SPPs
In 2010‑11, the Commonwealth will make payments for five National SPPs:
- National Healthcare SPP;
- National Schools SPP;
- National Skills and Workforce Development SPP;
- National Disability Services SPP; and
- National Affordable Housing SPP.
The Commonwealth supports the States' efforts in delivering services in the major service delivery sectors though National SPPs.
The Intergovernmental Agreement specifies that each National SPP is ongoing and will be indexed on 1 July 2010 and each year thereafter by a growth factor that is specified in the Intergovernmental Agreement.
Payments made through the year for National SPPs are advances and based on Commonwealth estimates of the growth factors. A balancing adjustment in respect of the advances is made after the end of the financial year once outcome data are available.
The National SPPs are to be distributed among the States in accordance with population shares based on the Australian Statistician's determination of States' population shares as at 31 December of that year. In recognition that distributing National SPPs according to population shares would result in a shift in notional payment shares, this method of distribution is being phased in over five years from 2009‑10.
Other factors to note are:
- An equal per capita distribution of National SPPs ensures that all Australians, regardless of the jurisdiction they live in, are provided with the same share of Commonwealth funding support for state service delivery.
- In the case of the government schools component of the National Schools SPP, the relevant population is each State's share of full‑time equivalent student enrolments in government schools.
The States are required to spend each National SPP in the relevant sector. For example, the States are required to spend the National Affordable Housing SPP in the housing sector, but they have budget flexibility to allocate funds within that sector in a way that ensures that they achieve the mutually agreed objectives for that sector outlined in National Agreements.
From 1 July 2011, the Commonwealth will provide National Health and Hospitals Network funding sourced from the existing National Healthcare SPP, an amount of GST dedicated to health and hospital services, and — from 2014‑15 — a Commonwealth top‑up payment. This funding will be paid into a new National Health and Hospitals Network fund.
The current indexation arrangements will continue to apply to the funding sourced from the National Healthcare SPP and it will be distributed in accordance with population shares. There is an adjustment to the funding sourced from the National Healthcare SPP to ensure the agreed changes to the roles and responsibilities for the Home and Community Care program and related programs in the National Health and Hospitals Network Agreement is budget neutral for both the States and the Commonwealth. This includes all States with the exception of Victoria, which is not a party to this part of the agreement. The adjustment for Western Australia is dependent on it becoming a signatory to the National Health and Hospitals Network Agreement.
Box 2.1: National SPPs — expenditure benchmarking
National SPPs are provided under the Federal Financial Relations Act 2009. Under the Act, the States are required to spend National SPPs in the sector for which they are paid.
Each State Treasurer is required to report to the Ministerial Council for Federal Financial Relations within six months of the end of each financial year on:
- gross state expenditure in each sector;
- National SPPs received in respect of each sector;
- of the amount referred to in (b), how much was spent in the relevant sector; and
- any discrepancy between the amounts specified in (b) and (c), including a detailed explanation for the discrepancy.
To ensure this condition is met, the Heads of Treasuries monitor state expenditure in each sector relevant to the National SPPs. Provided States meet these benchmarks, they have full budget flexibility to allocate funds within the sector as they see fit to achieve the mutually agreed objectives for that sector.
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 payments
The Commonwealth provides National Partnership payments to the States to support the delivery of specified projects, facilitate reforms, or reward those jurisdictions that deliver on nationally significant reforms. Some payments for specific purposes under the previous federal financial arrangements have become National Partnership project payments.
The Commonwealth recognises the need to support the States to undertake priority national reforms. Consequently, when an area emerges as a national priority, National Partnership facilitation payments may be paid in advance of the States implementing reforms. This recognises the administrative and other costs associated with undertaking the reforms.
National Partnership reward payments can be used to reward those States that deliver reform progress or continuous improvement in service delivery. National Partnership agreements set out clear, mutually agreed and ambitious performance benchmarks that encourage the achievement of reforms and continuous improvement in service delivery.
For reward payments, the COAG Reform Council assesses achievement against the performance benchmarks and makes a recommendation as to whether they have been met. The relevant Commonwealth Minister makes a determination as to whether the reward payment will be made.
Total payments for specific purposes
Total payments to the States for specific purposes constitute a significant proportion of Commonwealth expenditure. In 2010‑11, they are estimated to total $45.5 billion, down from $53.3 billion in 2009‑10 (a decrease of 14.7 per cent), and represent 12.8 per cent of total Commonwealth expenditure. From 2011‑12, an agreed portion of GST will be dedicated to health and hospital services.
Total payments for specific purposes, including National SPPs, National Partnership payments and, from 2011‑12, National Health and Hospitals Network funding are shown in Table 2.1.
Table 2.1: Total payments for specific purposes, 2009‑10 to 2013‑14
- This includes payments for state education services and for skills and workforce development.
Box 2.2: Indigenous Reforms
COAG has committed to improving outcomes for Indigenous Australians, recognising that Indigenous Australians face significantly worse outcomes than non‑Indigenous Australians across a range of areas including life expectancy, child mortality rates, education, employment outcomes and opportunities.
The National Indigenous Reform Agreement sets out the objectives, outcomes and outputs needed to close the gap in Indigenous disadvantage. COAG has agreed to the following 'Closing the Gap' targets:
- closing the life expectancy gap within a generation;
- halving the gap in mortality rates for Indigenous children under five within a decade;
- ensuring all Indigenous four year olds in remote communities have access to early childhood education within five years;
- halving the gap for Indigenous students in reading, writing and numeracy within a decade;
- halving the gap for Indigenous students in Year 12 attainment or equivalent attainment rate by 2020; and
- halving the gap in employment outcomes between Indigenous and non‑Indigenous Australians within a decade.
In 2010‑11, the Commonwealth will maintain its commitment to addressing Indigenous housing conditions, promoting safe and supportive communities, economic participation and healthy lives. The Commonwealth will provide funding to the States of:
- $2.7 billion over five years from 2009‑10 as part of a ten‑year funding arrangement for the National Partnership on Remote Indigenous Housing, aiming to address overcrowding, homelessness, poor housing conditions and severe housing shortages in remote Indigenous communities (Table 2.6.7 refers);
- $382 million over five years from 2009‑10 as part of the National Partnership on Indigenous Early Childhood Development to reduce the gap in health and developmental outcomes between Indigenous and non‑Indigenous children. The National Partnership agreement provides for payments to support the integration of early childhood services through children and family centres (Table 2.3.17), and access and use of maternal and child health services for Indigenous families (Table 2.2.59 refers); and
- $314.5 million over three years from 2009‑10 as part of the National Partnership on Closing the Gap in the Northern Territory. This funding will support law and order measures and prevention of violence and substance abuse (Table 2.5.4); family support services (Table 2.5.5); field operations conducted by government officials (Table 2.5.6); improving management of food security operations (Table 2.5.7); reimbursement for property and tenancy management services (Table 2.5.8); learning initiatives for enhanced literacy and numeracy (Table 2.3.14); providing additional teachers (Table 2.3.15); additional teacher housing (Table 2.3.13) and health and related services (Table 2.2.16).
The Commonwealth has also committed to additional measures in support of improving Indigenous opportunity in the 2010‑11 Budget that are not paid to the States. These measures focus on the support of remote service delivery, hostel accommodation, the prevention of substance abuse and home ownership. These measures can be found in Budget Paper No. 2, Budget Measures 2010‑11.
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