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Attachment D

Australia's Federal Relations

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

The current framework for federal financial relations under the Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement), introduced on 1 January 2009, provides a strong foundation for COAG to pursue economic and social reforms to underpin growth, prosperity and wellbeing into the future.

Significant progress has been made in implementing the framework, with the institutional arrangements well established, payment arrangements bedded down and performance reporting well underway.

More detailed information on the Intergovernmental Agreement and the payment arrangements is provided in Budget Paper No. 3, Australia's Federal Relations 2010‑11.

Overview of payments to the States

The States receive significant financial support from the Commonwealth. In 2010‑11, total payments to the States will be $95.3 billion, or 26.9 per cent of total Commonwealth expenditure. The Commonwealth will provide the States with payments for specific purposes of $47.3 billion and general revenue assistance of $48.0 billion.

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

Table 3.21 Commonwealth payments to the States, 2010-11 to 2013-14

1. Payments for specific purposes include the full amount of reform and investment funding allocated to Western Australia under the National Health and Hospitals Network, but not GST dedicated to health and hospital services. This funding is dependent on the WA government becoming a signatory to the National Health and Hospitals Network Agreement. The Commonwealth is continuing discussions with WA to bring it into the National Health and Hospitals Network.
2. State allocations are not yet finalised for a number of payments; unallocated payments are not included in State totals.
3. Payments for specific purposes include GST dedicated to health and hospital services from 2011‑12, other than for WA. General revenue assistance from 2011‑12 does not include GST dedicated to health and hospital services.
4. Estimates of GST dedicated to health and hospital services are calculated on the basis of Treasury projections using data from the Australian Institute of Health and Welfare. These estimates are indicative only, with final amounts of GST dedicated to health and hospital services to be determined annually, in consultation with the States, on the basis of actual expenditure.

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 13.3 per cent of total Commonwealth expenditure in 2010‑11. The States will receive $47.3 billion in payments for specific purposes, a decrease of 9.9 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.

Since the 2010‑11 Budget, payments to the States for specific purposes are estimated to be higher by $1.9 billion in 2010‑11. The main changes include:

• funding to enable the construction of a Women's and Children's Hospital at the Royal Hobart Hospital;
• funding for the expansion of the Royal Hobart Hospital and the Port Macquarie Base Hospital, with funding contingent on approval by the Health and Hospitals Fund Advisory Board;
• a reclassification of appropriation funding for the Water for the Future package from Commonwealth own‑purpose expense to payments to the States. There is no net impact on Commonwealth expenditure;
• rephasing of payments for remote Indigenous housing to accelerate the program of building and refurbishing houses in the Northern Territory; and
• rephasing of National Health and Hospitals Network — Improving Public Hospital Services National Partnership payments from 2009‑10 to 2010‑11.

Table 3.22 shows total payments for specific purposes by function.

Table 3.22 Payments for specific purposes, 2010‑11 to 2013‑14

1. Includes the full amount of reform and investment funding allocated to Western Australia under the National Health and Hospitals Network, but not GST dedicated to health and hospital services. This funding is dependent on the WA government becoming a signatory to the National Health and Hospitals Network Agreement. The Commonwealth is continuing discussions with WA to bring it into the National Health and Hospitals Network.
2. Includes GST dedicated to health and hospital services from 2011‑12, other than for WA.
3. Estimates of GST dedicated to health and hospital services are calculated on the basis of Treasury projections using data from the Australian Institute of Health and Welfare. These estimates are indicative only, with final amounts of GST dedicated to health and hospital services to be determined annually, in consultation with the States, on the basis of actual expenditure.

Of the $47.3 billion to be provided to the States for specific purposes in 2010‑11:

• $35.7 billion will be provided 'to' the States to help fund state government functions;
• $10.8 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
• $0.8 billion will be paid direct 'to' local governments.

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.

GST and general revenue assistance

General revenue assistance is a broad category of payments that are provided to the States without conditions to spend according to their own budget priorities.

Until 2010‑11, all payments of GST to the States will be general revenue assistance. As agreed on 20 April 2010 by COAG, other than Western Australia, from 2011‑12 an agreed amount of GST revenue will be dedicated to health and hospital services in each State. The remaining portion of GST will continue to be untied general revenue assistance.

In 2010‑11, total general revenue assistance to the States will be 13.5 per cent of total Commonwealth expenditure. The States will receive $48.0 billion in general revenue assistance from the Commonwealth, comprising $47.0 billion in GST payments and $1.0 billion of other general revenue assistance. This is a 7.4 per cent increase in general revenue assistance, compared with the $44.7 billion the States received in 2009‑10.

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

Table 3.23 GST and general revenue assistance, 2010‑11 to 2013‑14

1. Estimates of GST dedicated to health and hospital services are calculated on the basis of Treasury projections using data from the Australian Institute of Health and Welfare. These estimates are indicative only, with final amounts to be determined annually, in consultation with the States, on the basis of actual expenditure. Western Australia will continue to receive GST revenue as general revenue assistance until it becomes a signatory to the National Health and Hospitals Network Agreement.

GST payments

GST revenue variations since the 2010‑11 Budget

Table 3.24 is a reconciliation of the GST revenue estimates since the 2010‑11 Budget. The reconciliation accounts for policy decisions, parameter and other variations. There has been one policy decision since Budget that has had a direct impact on GST revenue.

GST revenue in 2010-11 has been revised down by $870 million since Budget, reflecting lower forecast growth for taxable consumption.

Table 3.24: Reconciliation of GST revenue estimates since 2010‑11 Budget

1. Refer the measure GST — Stronger, fairer simpler — revised growth dividend measure.

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.

Since 2009‑10, GST advances are paid during the relevant financial year and the Treasurer determines the level of GST receipts based on the final budget outcome. A balancing adjustment is made following the conclusion of the financial year to ensure that the States receive their full entitlement of GST payments.

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

Table 3.26 provides greater detail on the 2010-11 prior year balancing adjustment shown in Table 3.25 above.

Table 3.26 Balancing adjustment for 2010‑11

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 calculations for the distribution of the GST pool in 2010‑11 are shown in Table 3.27.

Table 3.27: Distribution of the GST pool, 2010‑11

The calculations for the distribution of the 2009‑10 balancing adjustment are shown in Table 3.28. This adjustment will be made to each States' 2010‑11 GST entitlement following the overpayment of $487.3 million in 2009‑10.

Table 3.28: Distribution of the GST balancing adjustment, 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 3.29.

Table 3.29: GST administration budget, 2009‑10 to 2013‑14

The preliminary outcome for the 2009‑10 GST administration expenses of $598.3 million differs from the amount paid by the States and the prior year adjustment by -$8.2 million. Once the outcome for GST administration in 2009‑10 is audited, this difference will be incorporated into the States' administration costs for 2010‑11.

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