Part 3: 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).
The current framework for federal financial relations under the Intergovernmental Agreement on Federal Financial Relations (the Intergovernmental Agreement) was introduced on 1 January 2009.
The Commonwealth is working in partnership with the States in a number of key reform areas benefitting all Australians. Significant progress has been made in implementing the reform agenda through the federal financial relations framework. The framework has proven to be flexible and dynamic, facilitating reform activity, including health reform, and responding to the global recession and, more recently, natural disasters.
More detailed information on Australia's Federal Relations is provided in Budget Paper No. 3, Australia's Federal Relations 2011‑12 and on the Federal Financial Relations website at www.federalfinancialrelations.gov.au.
Overview of payments to the States
The States receive substantial financial support from the Commonwealth. In 2010‑11, the Commonwealth provided the States with payments totalling $98.5 billion, comprising specific purpose payments of $51.6 billion and general revenue assistance, including GST payments, of $47.0 billion, as shown in Table 24. This represents a 1.3 per cent increase in total financial assistance compared to 2009‑10. Total payments to the States as a proportion total Commonwealth expenditure was 27.7 per cent in 2010‑11.
Table 24: Commonwealth payments to the States, 2010‑11
Payments for specific purposes
The Commonwealth provides payments to the States for specific purposes in order to pursue policy objectives in areas that may be administered by the States. Payments to the States for specific purposes constituted 14.5 per cent of total Commonwealth expenditure in 2010‑11.
The Commonwealth provides the following types of Specific Purpose Payments (SPPs) to the States:
- National Specific Purpose Payments (National SPPs) in respect of key service delivery sectors;
- National Health Reform funding (from 1 July 2012); and
- National Partnership payments — project payments, facilitation payments and reward payments.
These payments cover most functional areas of state and local government activity — including health, education, community services, housing, infrastructure and the environment.
National SPPs
The Commonwealth supports the States' efforts in delivering services in the major service delivery sectors though five National SPPs. These National SPPs are the primary way that the Commonwealth supports the States' efforts in delivering services in the major sectors of health, schools, skills and workforce development, disability services and affordable housing. The States are required to spend each National SPP in the relevant sector.
Payments made through the year for National SPPs are made in advance based on Commonwealth estimates of the growth factors. A balancing adjustment is made after the end of the financial year following a Determination by the Treasurer.
The National SPPs are distributed among the States on the basis of payment shares specified in the Intergovernmental Agreement and population shares based on the Australian Statistician's determination of States' population shares as at 31 December of that year (that is, an equal per capita basis). In recognition that an immediate shift to equal per capita shares may have implications for State allocations, an equal per capita distribution is being phased in over five years from 2009‑10.
An equal per capita distribution of National SPPs ensures that all Australians, regardless of the jurisdiction in which they live, 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.
From 1 July 2012, the National Healthcare SPP will be replaced by National Health Reform funding which will comprise base funding equivalent to the National Healthcare SPP and, from 1 July 2014, efficient growth funding. These arrangements are part of the National Health Reform Agreement signed by all jurisdictions in August 2011.
National Partnership payments
The Commonwealth recognises the need to support the States, over and above that provided through the National SPPs, to undertake priority national reforms or collaborative projects.
Under the Intergovernmental Agreement, National Partnership payments to the States are the key vehicle to support the delivery of specified projects, facilitate reforms, or reward those jurisdictions that deliver on nationally significant reforms.
National Partnership agreements set out clear, mutually agreed and ambitious performance benchmarks that encourage the achievement of reforms or continuous improvement in service delivery.
There are three types of National Partnership payments: project; facilitation; and reward.
National Partnership project payments are a financial contribution to the States to deliver specific projects, including to improve the quality or quantity of service delivery, or projects which support national objectives. These payments are generally made on the achievement of milestones.
When an area emerges as a national priority, National Partnership facilitation payments may be paid in advance of the States implementing reforms, in recognition of the administrative and other costs associated with undertaking reform.
National Partnership reward payments can be used to reward those States that deliver on nationally significant reform or continuous improvement in service delivery. For reward payments, the COAG Reform Council assesses and publicly reports on the achievement of agreed performance benchmarks. The Commonwealth considers the COAG Reform Council assessments when determining reward payments to the States.
Some payments for specific purposes under the previous federal financial arrangements have become National Partnership project payments.
Total payments for specific purposes
In 2010‑11, the States received $51.6 billion in payments for specific purposes, a decrease of 1.8 per cent compared with the $52.5 billion the States received in 2009‑10. This reflects the withdrawal of the stimulus measures put in place in response to the global financial crisis.
Total payments for specific purposes, including National SPPs and National Partnership payments are shown in Table 25.
Table 25: Total payments for specific purposes by category, 2010-11
Total payments for specific purposes by sector, including National SPPs and National Partnership payments are shown in Table 26.
Table 26: Total payments for specific purposes by sector, 2010‑11
Financial assistance grants to local governments
The Commonwealth provided $2.1 billion in financial assistance grants to local governments in 2010‑11. Table 27 provides details of these grants, which 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 adjusted annually, based on an escalation factor that the Treasurer determines with reference to population growth and the consumer price index. In June 2010, the Treasurer determined an adjusted final escalation factor for 2010‑11 of 1.0494.
Since 2008‑09, the Commonwealth has bought forward the first quarter payment from the next financial year to assist in cash management.
Table 27: Financial assistance grants to local government, 2010‑11
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 2010‑11, the States received $47.0 billion in general revenue assistance from the Commonwealth, as shown in Table 28, comprising $45.9 billion in GST payments and $1.1 billion of other general revenue assistance. This represents a 5.1 per cent increase in general revenue assistance, compared with the $44.7 billion the States received in 2009‑10. In 2010‑11, total general revenue assistance to the States represented 13.2 per cent of total Commonwealth expenditure.
Table 28: General revenue assistance, 2010‑11
GST payments
Reconciling GST revenue and GST payments to the States
The Commonwealth makes GST payments to the States based on the revenue received from the GST. In 2010‑11, GST revenue was $48.1 billion. However, GST revenue for a financial year varies from the amount of GST payments to the States for that year for several reasons including:
- GST revenues which are recognised on a Commonwealth whole of government basis, but are not recognised because the revenues will not be remitted to the Australian Taxation Office until the following financial year;
- penalties, other than general interest charge penalties, which are not included in the definition of GST to be paid to the States contained in the Intergovernmental Agreement; and
- 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.
A reconciliation of GST revenue and GST payable to the States is provided in Table 29.
Table 29: GST revenue and GST payable to the States, 2010‑11
- GST which is recognised on a Commonwealth whole‑of‑government basis, but not recognised as at 30 June of each financial year, because the revenue will not be remitted to the Australian Tax Office until the following year.
- 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).
Advances of GST payments were provided to the States throughout the 2010‑11 financial year based on the Commonwealth's estimate of GST receipts at the 2011‑12 Budget. GST payments to the States are expected to be $437 million higher than the advances paid during 2010‑11. A balancing adjustment to compensate the States for the underpayment will be made in the 2011‑12 financial year following a Determination by the Treasurer. Table 30 provides a reconciliation of GST entitlement and GST payments to the States.
Table 30: GST payable and GST payments to the States, 2010‑11
Distribution of GST payments among the States
As agreed by COAG in the Intergovernmental Agreement, the Commonwealth distributes GST payments amongst the States in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission.
GST relativities
The Commonwealth Grants Commission recommends GST relativities to be used in calculating each State's share of GST payments. The relativities determine how much GST revenue each State receives compared with an equal per capita share and are determined 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 Treasurer made a determination on the GST Revenue sharing relativities for 2010‑11 in June 2010. The relativities for 2010‑11 are shown in Table 31.
Table 31: GST relativities, 2010‑11
Applying the GST relativities to the GST pool
The GST relativities were applied to estimated State populations in order to determine an adjusted population for each State. The entitlements are allocated using the population as at 31 December 2010 as determined by the Australian Statistician. Each State received its adjusted population share of the GST pool as shown in Table 31.
Table 32: Distribution of the 2010‑11 GST entitlement
Table 33 provides a summary of advances made in 2010‑11 against their estimated final entitlement shown in Table 32 above. The variance between advances paid in 2010‑11 and the States' determined entitlement will be provided in the 2011‑12 financial year.
Table 33: Summary of advances made in 2010‑11 and distribution of following year adjustment across States
GST administration costs
The Commissioner of Taxation administers the GST law and the States compensate the Commonwealth for the agreed costs incurred by the Australian Taxation Office in administering the GST as shown in Table 34.
Table 34: GST administration, 2010‑11
- Estimated outcome for 2010‑11 pending confirmation by the Australian National Audit Office.
On 7 April 2011, the Ministerial Council for Federal Financial Relations agreed to a GST administration budget of $666.6 million.
The estimated outcome for the 2010‑11 GST administration expenses of $659.4 million differs from the amount paid by the States and the prior year adjustment by $7.2 million. Once the outcome for GST administration costs in 2010‑11 is audited, any adjustment required will be incorporated into the States' administration costs for 2011‑12.
Payments to the States
This attachment provides information on Commonwealth payments to the States and local governments on an accruals basis. This includes Commonwealth advances (loans) to the States, including repayments of advances and interest on advances. Most of these advances were funded from borrowings made on behalf of the States under previous Australian Loan Council arrangements.
The following tables detail payments to the States for 2010‑11:
Table 35 — health;
Table 36 — education;
Table 37 — skills;
Table 38 — community services;
Table 39 — affordable housing;
Table 40 — infrastructure;
Table 41 — environment;
Table 42 — contingent liabilities;
Table 43 — other purposes;
Table 44 — general revenue assistance;
Table 45 — advances, repayment of advances and interest payments; and
Table 46 — payments presented on the Australian Bureau of Statistics Government Finance Statistics (GFS) functional basis.
Table 35: Payments for specific purposes to support state health services, 2010‑11
Table 35: Payments for specific purposes to support state health services, 2010‑11 (continued)
Table 35: Payments for specific purposes to support state health services, 2010‑11 (continued)
Table 35: Payments for specific purposes to support state health services, 2010‑11 (continued)
Table 36: Payments for specific purposes to support state education services, 2010‑11
Table 36: Payments for specific purposes to support state education services, 2010‑11 (continued)
- Non‑government schools payments are inclusive of GST.
- This payment includes payments paid under the Schools Assistance Act 2008.
Table 37: Payments for specific purposes to support skills services, 2010‑11
Table 38: Payments for specific purposes to support community services, 2010‑11
Table 39: Payments for specific purposes to support affordable housing services, 2010‑11
Table 40: Payments for specific purposes to support state infrastructure services, 2010‑11
Table 40: Payments for specific purposes to support state infrastructure services, 2010‑11 (continued)
Table 41: Payments for specific purposes to support state environmental services, 2010‑11
Table 42: Contingent payments to the States, 2010‑11
- Actual cash paid in 2010‑11 under the Natural Disaster Relief and Recovery Arrangements (NDRRA) was $2,758.4 million. The figures in the table above include a provision for amounts expected to be paid under the NDRRA in future periods.
Table 43: Payments to support other state services, 2010‑11
Table 44: General revenue assistance payments to the States and Territories, 2010‑11
Table 45: Other financial flows — estimated advances, repayment of advances and interest payments, 2010‑11
Table 45: Other financial flows — estimated advances, repayment of advances and interest payments, 2010‑11 (continued)
Table 46: Total payments to the States by GFS function, 2010‑11
- Payments for 'Other purposes' includes general revenue assistance to the States.
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