The Commonwealth makes payments to the States to support specific state services through National Specific Purpose Payments (National SPPs), National Partnership payments and, from 1 July 2012, National Health Reform payments. This Part outlines these payments.
Overview of payments
The Commonwealth provides payments to the States for specific purposes to pursue important national policy objectives in areas that may be administered by the States. 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.
The Commonwealth provides the following types of specific purpose payments to the States:
- National SPPs in respect of key service delivery sectors;
- National Health Reform funding from 1 July 2012; and
- National Partnership payments — facilitation payments, project payments and reward payments.
The Intergovernmental Agreement on Federal Financial Relation (Intergovernmental Agreement) provides that all payments for National SPPs and National Partnerships will be paid by the Commonwealth Treasury to each State Treasury on the 7th day of each month.
From 1 July 2012, a new national funding pool will be established into which the Commonwealth will provide National Health Reform funding as its contribution to public hospital services under the National Health Reform arrangements. Funding within the national funding pool will be administered by an independent and jointly‑governed national funding body distinct from Commonwealth and State departments. Further detail on the new National Health Reform arrangements is set out in Part 1 of this Budget Paper.
The Commonwealth supports the States' efforts in delivering services in the major service delivery sectors though National SPPs. The Commonwealth currently makes payments under 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 States are required to spend each National SPP in the relevant sector.
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 made in advance based on Commonwealth estimates of the growth factors. A balancing adjustment is made after the end of the financial year once outcome data becomes available.
The National SPPs are 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 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.
Further detail of the new National Health Reform arrangements is set out in Part 1 of this Budget Paper.
National Partnership payments
The Commonwealth recognises the need to support the States 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.
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. To the fullest extent possible, project payments are aligned with the achievement of project milestones and are made after the States have achieved the outcomes or outputs specified in the National Partnership.
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. National Partnership agreements with reward payments set out clear, mutually agreed and ambitious performance benchmarks that encourage the achievement of reforms 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.
National Partnership agreements are publicly available at:
Total payments for specific purposes
In 2011‑12, payments for specific purposes are estimated to total $45.5 billion, down from $47.4 billion in 2010‑11 (a decrease of 3.9 per cent). Total payments to the States for specific purposes constitute a significant proportion of Commonwealth expenditure and are estimated to represent 12.4 per cent of total Commonwealth expenditure in 2011‑12.
Total payments for specific purposes, including National SPPs and National Partnership payments are shown in Table 2.1.
Table 2.1: Total payments for specific purposes by category, 2010‑11 to
- Includes financial assistance grants for local government and payments direct to local government.
Total payments for specific purposes by sector, including National SPPs and National Partnership payments, are shown in Table 2.2.
Table 2.2: Total payments for specific purposes by sector, 2010‑11 to
Further information on these payments is in this Part. Total payments for specific purposes categorised by government finance statistics function are set out in Appendix D.
Categories of payments for specific purposes
Chart 2.1 shows the breakdown of payments for specific purposes by category. It illustrates that over time, National SPPs (and National Health Reform funding) will become the primary source of specific purpose funding to the States.
National Partnership payments were the key vehicle by which the Commonwealth delivered economic stimulus programs through the States. As those programs end, National Partnership payments will make up a smaller share of total specific purpose payments to the States.
Chart 2.1: Composition of payments for specific purposes(a)(b)
- Infrastructure, Environment, Contingent, Other and Local government payments are provided solely through National Partnership payments and are not included in Chart 2.1.
- Information for 2009‑10 is taken from the Final Budget Outcome 2009‑10.
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