General revenue assistance is a broad category of payments. This assistance is provided to the States without conditions, to spend according to their own budget priorities. The main form of general revenue assistance is the Goods and Services Tax (GST). Other general revenue assistance includes payments to the Australian Capital Territory for municipal services, royalties, and Snowy Hydro Limited tax compensation. These payments are discussed in this Part.
Overview of payments
In 2012‑13, the States will receive $49.4 billion from the Commonwealth in total general revenue assistance — $48.2 billion for GST and $1.2 billion for other general revenue assistance. This represents a 5.7 per cent increase in GST compared to the $45.6 billion the States are expected to receive in 2011‑12 and a 6.0 per cent increase in other general revenue assistance. In 2012‑13, total general revenue assistance to the States will represent 13.1 per cent of total Commonwealth expenditure. Total general revenue assistance the Commonwealth provides to the States is shown in Table 3.1 and in Table 3.2 by State.
Table 3.1: General revenue assistance
|ACT municipal services||36.1||36.8||37.5||38.2||38.9|
|Snowy Hydro Ltd tax compensation||74.4||74.4||74.4||74.4||74.4|
Table 3.2: General revenue assistance by State(a)
(a) State splits for royalties are not published due to commercial sensitivities; therefore total general revenue assistance will not equal the sum of the state splits above.
GST entitlement to the States
Under the Intergovernmental Agreement on Federal Financial Relations, the States are entitled to receive payments from the Commonwealth equivalent to the revenue received from the GST. GST revenue refers to the amount of GST collected by the Australian Taxation Office (ATO), less revenue not recognised as at 30 June of each financial year, because the revenues will not be remitted to the ATO until the following financial year. GST entitlement refers to the amount of GST which is entitled to be distributed to the States. GST payments reflect the GST entitlement which is distributed to the States adjusted for any balancing amount from the prior financial year.
Table 3.3 provides a reconciliation of the GST revenue estimates since the 2011‑12 Budget and 2011‑12 MYEFO. The reconciliation accounts for policy decisions and parameter and other variations. GST revenue in 2012‑13 has been revised down by $3.1 billion since the 2011‑12 MYEFO, reflecting weakness in current collections as well as the softer outlook for consumption subject to GST and subdued dwelling investment. The weaker outlook for consumption reflects an ongoing trend of households consolidating their balance sheets. Exacerbating this are signs that consumers are spending relatively more of their income on GST exempt goods and services.
Table 3.3: Reconciliation of GST revenue estimates since the 2011‑12 Budget and 2011‑12 MYEFO
|GST revenue at 2011-12 Budget||50,630.0||54,230.0||57,320.0||60,150.0|
|Changes between 2011-12 Budget and MYEFO|
|Effect of policy decisions||-||-2.0||-3.0||-3.0|
|Effect of parameter and other variations||-880.0||-668.0||-697.0||-737.0|
|GST revenue at 2011-12 MYEFO||49,750.0||53,560.0||56,620.0||59,410.0|
|Changes between 2011-12 MYEFO and Budget|
|Effect of policy decisions||-||-3.0||-13.0||305.7|
|Effect of parameter and other variations||-1,960.0||-3,071.5||-3,372.6||-3,659.5|
|GST revenue at 2012-13 Budget||47,790.0||50,485.5||53,234.4||56,056.2|
Specific policy decisions taken since MYEFO that affect GST revenue are shown in Table 3.4. These decisions increase the amount of GST revenue by $595.0 million over five years to 2015‑16. The total impact on GST revenue of policy decisions since MYEFO (to 2014‑15) is also included in Table 3.3.
Detailed information on policy decisions since the 2011‑12 MYEFO are included in Budget Paper No. 2: Budget Measures 2012‑13.
Table 3.4: Policy decisions since MYEFO that affect GST revenue
|GST – compliance program – two year extension||-||-||-||331.7||344.3|
|Company tax cut – do not proceed||-||-16.0||-31.0||-46.0||-61.0|
|Duty free allowances – cigarettes and tobacco||-||12.0||15.0||16.0||17.0|
|Fringe benefits tax – further reform of
living-away-from-home allowances and benefits
|Fringe benefits tax – reform of airline transport
|GST – limiting the Commissioner of Taxation's
ability to backdate GST registrations
|GST – Government response to Board of
Taxation report: GST cross-border
transactions: minor changes
|GST – reduced input tax credits for credit unions||..||..||..||..||..|
|Total GST revenue policy decisions||..||-3.0||-13.0||305.7||305.3|
GST revenue for a financial year varies from the amount of GST paid to the States for that year because of:
- GST revenues which are recognised on a Commonwealth whole of government basis, but not recognised as at 30 June of each financial year, as the revenues will not be remitted to the ATO until the following financial year;
- penalties, other than general interest charge (GIC) penalties, which are not included in the definition in the Federal Financial Relations Act 2009 of GST to be paid to the States;
- the GST component of sales by Commonwealth agencies which has been collected by those agencies but which, as at 30 June in each year, has not been remitted to the ATO, because it is not due to be paid until the next Business Activity Statement is lodged; and
- adjustments to account for any variation in the previous financial year between the Treasurer's determination, and GST payment advances made during that financial year.
States receive monthly advances of GST throughout the year based on the Commonwealth estimate of the GST entitlement. The Treasurer makes a determination of the amount of GST revenue collected in the financial year upon receipt of the final outcome after the close of the financial year. Any variation between GST advances and the final outcome as determined by the Treasurer is settled in the following financial year.
In 2011‑12, an amount of $437.2 million was added to the States' 2011‑12 GST entitlement as a balancing adjustment for the difference between the final amount determined by the Treasurer and advances made during the 2010‑11 financial year.
A reconciliation of GST revenue, GST entitlement and GST payments to the States is provided in Table 3.5.
Table 3.5: Reconciling GST revenue, GST entitlement and GST payments to the States
|less change in GST receivables(a)||2,061.0||2,144.0||2,185.1||2,396.2||2,483.4|
|less non-GIC penalties collected(b)||120.0||140.0||150.0||160.0||171.0|
|less GST collected by Commonwealth
agencies but not yet remitted to the ATO(c)
|plus prior year balancing adjustment(d)||437.2|
|GST payments to the States||46,037.2||48,200.0||50,900.0||53,500.0||56,075.0|
(a) GST revenue 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 ATO until the following financial year.
(b) While GST related non‑GIC penalties are recognised in the Commonwealth's GST revenue, non‑GIC penalties are not defined in the Federal Financial Relations Act 2009 as being a part of the GST revenue that is paid to the States.
(c) 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 ATO, 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).
(d) Advance GST payments made in 2010‑11 were $437.2 million lower than the final outcome determined by the Treasurer. This amount was added to payments in 2011‑12.
Distribution of GST entitlement among the States
The Commonwealth distributes GST among the States in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission (the Commission).
The Commission recommends GST revenue sharing relativities to be used in calculating each State's entitlement of the GST pool. The relativities determine how much GST 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 and the associated infrastructure at the same standard.
This does not necessarily result in the same standard of government services — just the equalisation of each State's capacity to provide the same standard of services. In calculating the GST relativities, the Commission takes into account differences in the State's capacity to raise revenues and differences in the costs the States would incur in providing the same standard of government services, including through acquiring the infrastructure used to deliver those services.
Horizontal fiscal equalisation provides the necessary budget support so that all States have the capacity to provide services at a comparable standard, while ensuring that the interstate transfers are not so large that they would significantly distort economic behaviour and reduce productivity growth.
The Commonwealth has commissioned a Review into the distribution of GST to the States. Further information on the Review can be found in Part 1 and online at: www.gstdistributionreview.gov.au.
Table 3.6 identifies the relativities recommended by the Commission for 2011‑12 and 2012‑13, and projected revenue sharing relativities for distributing GST over the forward estimates.
The Commonwealth's projections of GST relativities for 2013‑14 to 2015‑16 assume that the States' fiscal capacities will be broadly consistent with the assessment of their relative fiscal assessed differences in the Commission's 2012 Update.
The projections only include adjustments to account for estimated changes in the size of the GST pool, State population shares and the distribution of the National SPPs. Consistent with the Commission's approach, assessed relativities are averaged over the three most recent years. For years where the Commission has not produced an assessed relativity, the assessment for the latest available year, in this case 2010‑11, is carried forward.
The adjustment relating to the distribution of the National SPPs ensures the projections reflect the arrangements that will prevail at the time of payment. In accordance with the Intergovernmental Agreement on Federal Financial Relations, National SPPs are progressively shifting towards an equal per capita share from the historical shares specified in the Intergovernmental Agreement.
Table 3.6: GST relativities
(a) Treasury projection.
Box 3.1: The effect of horizontal fiscal equalisation
It is usual for individual States within a federation to have different capacities to raise revenue or deliver services. The practice of equalising revenue capacities and/or expenditure capacities between the States in a federation is common. Australia has had various forms of fiscal equalisation since 1901.
Chart A below shows that the proportion of the GST payments being redistributed in 2012‑13 is broadly consistent with the average redistribution since the commencement of the GST.
Chart A: GST redistributed as a proportion of the GST payments
A State's GST relativity is not a complete measure of its share of Commonwealth funding. In 2012‑13, payments for specific purposes (National Specific Purpose Payments and National Partnership payments) will also provide a substantial source of revenue for the States. There are also other general revenue assistance payments made to the States. Given this, a more accurate measure of relative Commonwealth support for a State would include this funding.
The relative share of total Commonwealth funding is shown in Table A below. That is, all Commonwealth payments have been calculated on a per capita basis for each State and then divided by the per capita figure for Australia. Using this measure, payments to the States are generally closer to an equal per capita share, as shown in Table A.
Table A: Relative share of expected total Commonwealth payments, 2012‑13
|Relative share of total payments||0.94||0.93||0.98||0.88||1.16||1.33||1.07||3.93|
|CGC determined GST relativity||0.95||0.92||0.98||0.55||1.28||1.58||1.20||5.53|
Note: Unallocated payments have been excluded. Figures for the forward estimates have not been provided as they would need to rely, in part, on future GST relativities which are projections only.
Distribution of the GST entitlement pool
To determine the allocation of GST amongst the States, the GST relativities are applied to estimated state populations in order to determine an adjusted population for each State. Each State will receive its adjusted population share of the GST entitlement. The detailed calculation for the distribution of the GST in 2011‑12 and 2012‑13 is shown in Table 3.7, Table 3.9 and Chart 3.1 below.
Table 3.7: Calculation of the GST entitlement pool(a)
(1) x (2)
(a) Amounts shown in 2011‑12 are based on estimates of each jurisdictions GST entitlement based on the estimated total GST pool. These amounts do not take into account the prior year balancing adjustment in 2010‑11, totalling $437.2 million.
Table 3.8 below shows the distribution of the prior year balancing adjustment made to the 2011‑12 GST entitlement. The balancing adjustment is distributed in accordance with the relativities used in 2010‑11 as this is the basis on which the States were underpaid.
Table 3.8: Distribution of the prior year balancing adjustment
Table 3.9: Distribution of the GST entitlement pool over budget year and forward estimates(a)
(a) Amounts shown in 2011‑12 are estimates of each jurisdiction's GST entitlement based on the estimated total GST pool. These amounts do not take into account the prior year balancing adjustment for underpayments made in 2010‑11, totalling $437.2 million.
Chart 3.1: State shares of GST entitlement, 2012‑13
States compensate the Commonwealth for the agreed costs incurred by the ATO in administering the GST, including costs incurred by the Australian Customs Service. On 4 April 2012, the Standing Council for Federal Financial Relations endorsed a preliminary GST administration budget for the ATO of $699.3 million for 2012‑13, as shown in Table 3.10.
Table 3.10: Reconciliation of the GST administration budget
|Administration budget at 2011-12 Budget||695.4||699.3||699.7||607.1||na|
|Changes from 2011-12 Budget to MYEFO|
|Change in methodology(a)||-12.2||-||-||-||-|
|Administration budget at 2011-12 MYEFO||683.2||699.3||699.7||607.1||na|
|Changes from MYEFO to 2012-13 Budget|
|Additional GST compliance(b)||-||-||-||97.2||97.1|
|Administration budget at 2012-13 Budget||683.2||680.9||681.9||688.3||671.5|
(a) This variation reflects the ATO's updated methodology in estimating GST administration costs.
(b) Further information on the additional GST compliance measure can be found in Budget Paper No. 2.
The amount paid by the States and the prior year adjustment in 2010‑11 is $5.9 million higher than the final audited GST administration cost for 2010‑11. This over‑payment is offset against the States' administration costs of $683.2 million for 2011‑12.
Other general revenue assistance
The Commonwealth makes payments of other general revenue assistance to the States, including:
- payments to the Australian Capital Territory for municipal services;
- reduced royalties;
- royalties; and
- Snowy Hydro Ltd tax compensation.
Similar to GST, other general revenue assistance is provided to the States without conditions, to spend according to their own budget priorities.
Table 3.11: Other general revenue assistance
|ACT municipal services||36.1||36.8||37.5||38.2||38.9|
|Snowy Hydro Ltd tax compensation||74.4||74.4||74.4||74.4||74.4|
|Total other general revenue assistance||1,114.3||1,181.3||1,139.1||1,132.0||1,139.2|
Payments in respect of Australian Capital Territory municipal services
The Commonwealth provides general revenue assistance to the Australian Capital Territory to:
- assist in meeting the additional municipal costs which arise from Canberra's role as the national capital; and
- compensate the Australian Capital Territory for additional costs resulting from the national capital planning influences on the provision of water and sewerage services.
The level of funding is based upon the findings of the Commonwealth Grants Commission, in its second and third reports on financing for the Australian Capital Territory, prior to the move to self‑government in 1989.
The Commonwealth provides general revenue assistance to compensate Western Australia for the loss of royalty revenue resulting from the removal of the exemption of condensate from crude oil excise in the 2009‑10 Budget.
(a) State splits for royalties are not published due to commercial sensitivities.
Royalty payments to Western Australia
The Commonwealth provides general revenue assistance to Western Australia from royalties collected under the Offshore Petroleum (Royalty) Act 2006 in respect of the North West Shelf oil and gas project off the coast of Western Australia. The Commonwealth collects these royalties because it has jurisdiction over offshore areas.
These royalties are shared between the Commonwealth (approximately one third) and Western Australia (approximately two thirds). These payment arrangements are in accordance with the revenue sharing arrangements in section 75 of the Offshore Petroleum and Greenhouse Gas Storage Act 2006.
Royalty payments to the Northern Territory
The Commonwealth provides general revenue assistance to the Northern Territory in lieu of royalties on uranium mining in the Ranger Project Area due to the Commonwealth's ownership of uranium in the Northern Territory.
General revenue assistance is payable biannually at the royalty rate of 1.25 per cent of the net proceeds of sales. These royalties are paid under a continuing agreement, established under the 1978 Memorandum of Understanding between the Commonwealth and the Northern Territory.
Snowy Hydro Limited tax compensation
On 28 June 2002, the Snowy Mountains Hydro Electric Authority was corporatised. The assets and business of the Authority were transferred to Snowy Hydro Limited, a company jointly owned by the Commonwealth, New South Wales and Victoria (with 13 per cent, 58 per cent and 29 per cent shareholdings respectively).
The Commonwealth provides compensation payments to New South Wales and Victoria, in the form of general revenue assistance, for Commonwealth taxes paid by Snowy Hydro Limited in proportion to the States' shareholdings.
Payments are made in accordance with the Snowy Hydro Tax Compensation Deed between the Commonwealth, New South Wales and Victoria. These taxes would have previously been payable to the States through tax equivalence regime payments.
Mirror tax arrangements
The Commonwealth introduced mirror tax arrangements in 1998 to ensure that the States were not financially disadvantaged by the High Court decision in Allders International Pty Ltd v Commissioner of State Revenue (Victoria), which invalidated state taxes on Commonwealth places. These arrangements mirror certain state taxes, including payroll taxes, land taxes and stamp duties, with respect to Commonwealth places. The States collect these mirror taxes on behalf of the Commonwealth and bear the administrative costs of collection. All mirror tax revenues are credited to the Commonwealth and simultaneously appropriated to the States. Hence, mirror taxes are recorded as both a Commonwealth revenue and expense, with no net impact on the Commonwealth's budget position.
Table 3.12: Mirror taxes accrued on behalf of the States
|Payments to State governments||-461.0||-487.0||-517.5||-549.1||-574.0|
|Commonwealth Budget impact||-||-||-||-||-|
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