Garnaut Fitzgerald Review of Commonwealth-State Funding

CHAPTER 7: Other Federations
7.2 Vertical fiscal imbalance and the
control of revenues
Australia has by far the highest degree of vertical fiscal imbalance across the four
Federations (Table 7.1).
TABLE 7.1: Grants to States as a percentage of State revenue, expenditure and total
Federal outlays, 1998–99
Percentage of
state revenue
Percentage of state
expenditure
Percentage of total
federal outlays
Australia 38.1 37.1 25.8
Canada 15.2 15.0 15.6
Germany 18.5 17.7 15.9
United States 22.5 25.7 13.0
Source: ABS cat. no. 5512.0; IMF 2001
During the 1990s Federal grants fell as a proportion of State expenditure in Australia,
Canada and Germany. In Australia this was reversed by the introduction of the Goods
and Services Tax (GST), when States gave up a number of their own taxes in exchange
for GST-based grants. Figure 7.1 shows the increase in grants as a percentage of
States’ expenditure in 2000–01. In the United States, the use of grants, specifically tied
grants, increased.
FIGURE 7.1: Grants as a percentage of total State expenditure
US
1991–92
1994–95
1998–99
2000–01
Germany
Canada
Australia
0 10 20 30 40 50
per cent
Source: ABS cat. no. 5512.0; IMF 2001
FINAL REPORT [90]