Garnaut Fitzgerald Review of Commonwealth-State Funding

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CHAPTER 8: Federal Policy Effects on Interstate Distribution of Incomes and Economic Activity 8.6 Conclusions The analysis in Tables 8.12 and 8.13: • does not support the hypothesis that interstate distribution effects of current Commonwealth policies have an equalisation rationale. GST redistribution simply reinforces the arbitrary effects of other policies. Commonwealth payments to the States are different from the social security and taxation systems, with their powerful compression of the vertical distribution of income (see Chapter 9) • suggests that Commonwealth policies result in strong relative production effects between States that neither reinforce national economic growth nor counteract tendencies towards differential rates of growth across States. The distribution is, in fact, largely arbitrary across States, with no tendency made to shift resources to or away from higher productivity areas. The present GST redistribution reinforces significantly the apparently arbitrary distribution of production and welfare impacts of other Federal policies across States. FINAL REPORT [122]
CHAPTER 9: Equity CHAPTER 9: Equity • Current Commonwealth–State financial arrangements have little effect on reducing extremes in the distribution of income among Australians (vertical equity). In fact, current arrangements tend to make the distribution of income among Australian individuals and households slightly more unequal. • Analysis of the effects of Commonwealth expenditure and Commonwealth payments to States consistently shows that the Commonwealth’s social security system and progressive income tax rates have the largest impact on the vertical equity of individuals and households. • The current system also fails to ensure equal treatment of people in similar fiscal positions (horizontal equity). This is because it focuses on States rather than households or individuals, and because untied funds are not required to be spent on areas for which they are allocated. • Replacing the complicated current system with a simple equal per capita redistribution of funding between the States may even reduce inequality, especially if it were accompanied by effective measures to provide merit services to all Australians. 9.1 Are current arrangements for distribution among the States equitable Equity is a subjective concept that depends on values which change over time. In the early decades of the 20th century when citizens often identified more strongly with their home State than with the nation, and where secession was considered a realistic alternative to continued membership of the Federation in some States at some times, intrinsic horizontal equity among States was probably seen as more important than it is today. Other conceptions of horizontal equity, in terms of similar treatment of individuals and households in similar circumstances wherever they live in Australia, have become relatively more important more recently. Through the 20th century, increasing emphasis has been placed on vertical equity among Australians relative to horizontal equity (Garnaut and FitzGerald 2002). Today, the vertical distribution of income is almost universally considered the primary gauge of equity. Policies to assist a State or region may be partly motivated by equity, for example to increase job opportunities for people in economically depressed regions. Whatever their motivation, effects on equity of policies changing income distribution among States or regions can only be judged in terms of outcomes for individuals or households in those areas, relative to individuals and households (in both the same area and other areas). FINAL REPORT [123]
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Review of Commonwealth-State Fundin
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Review of Commonwealth-State Fundin
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TABLE OF CONTENTS CHAPTER 9: Equity
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THE REVIEW COMMITTEE FINAL REPORT [
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EXECUTIVE SUMMARY Overall assessmen
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EXECUTIVE SUMMARY Each State would
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CHAPTER 1: Overview and Summary of
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CHAPTER 2: How the System Grew: A H
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CHAPTER 3: The Current System TABLE
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CHAPTER 3: The Current System 3.3 G
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CHAPTER 3: The Current System Natio
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CHAPTER 3: The Current System FINAL
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CHAPTER 4: Allocation of General Pu
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Chapter 5: Specific Purpose Payment
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Page 118 and 119: CHAPTER 7: Other Federations FINAL
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CHAPTER 11: Simplicity, Transparenc
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CHAPTER 12: Overall Assessment and
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CHAPTER 13: Commonwealth-State Fina
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APPENDIX A: National Health and Age
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APPENDIX A: National Health and Age
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APPENDIX B: National Education and
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APPENDIX C: National Indigenous Com
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APPENDIX C: National Indigenous Com
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APPENDIX D: Minimum Cost of Governm
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APPENDIX E: Consultation • Local
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APPENDIX E: Consultation • VICRoa
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GLOSSARY Efficiency: allocative eff
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GLOSSARY merit goods (health, educa
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FINAL REPORT [234] GLOSSARY
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BIBLIOGRAPHY Buchanan, JM 2001, Fis
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BIBLIOGRAPHY Government of Victoria
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BIBLIOGRAPHY Watts, RL 1999, Compar
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INDEX E economic activity / growth
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INDEX O other Federations Canada ·
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Garnaut Fitzgerald Review of Commonwealth-State Funding

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