Garnaut Fitzgerald Review of Commonwealth-State Funding

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EXECUTIVE SUMMARY Each State would receive a flat amount calculated to cover the irreducible minimum overhead costs of government. Beyond that, the GST pool would be allocated on an equal per capita basis. Each State would be guaranteed that its untied grants, plus Commonwealth payments to the States in the national programs, would not fall below the 2002–03 level in real per capita terms. The CGC would revert to the role for which it was established, and assess whether additional assistance was required by a State experiencing severe fiscal difficulty. The future The arrangements would be revenue neutral for both the Commonwealth and the States as a whole, compared with the case in which the Commonwealth maintains SPP funding in real per capita terms. The guarantee would mean that the main beneficiaries of the present system would retain their advantages for many years. However, the main gains from reform would be realised relatively quickly by all States and by Australia as a whole. The new model would remove the institutionalised conflict that the current arrangements create among the States and between the Commonwealth and the States. Present political circumstances – a Coalition Government in Canberra and Labor Governments in all States – provide a unique and favourable opportunity for reform of Commonwealth–State funding arrangements. The new model would leave Australia as the most egalitarian of the world’s Federations but with more certain delivery to all Australians of the services that are most important to equity and equality of opportunity, and at far lower cost to State and national economic development. Reading the Report The recommended model of Commonwealth–State financial relations for the future is explained in detail in Chapter 13. Chapter 1 outlines the main line of argument in the Report and Chapter 12 summarises the critique of the current system and the need for reform. The Background Paper (2001) and Interim Report (2002) should be read with this Report and are available on the Review’s website . FINAL REPORT [4]
CHAPTER 1: Overview and Summary of Recommendations CHAPTER 1: Overview and Summary of Recommendations • There are serious concerns about the effect of established Commonwealth–State financial arrangements on equity among Australians and on Australia’s economic performance both nationally and in each State. • Current arrangements impose an estimated cost of resource misallocation on the Australian economy in the vicinity of several hundred million dollars per year, plus large costs of administering the system. In addition, they reduce incentives for States to pursue policies that enhance economic growth and improve service delivery. • The ‘black box’ nature of current arrangements blurs responsibility and prevents the electorate from holding governments accountable. • A new model of financial arrangements is proposed to correct these weaknesses and to establish a new Cooperative Federalism. • The model’s cooperative approach is critically important for equity and equality of opportunity among Australians. 1.1 Context Australians have become accustomed to Commonwealth–State financial relations being a locus of continuing conflict between Governments. They understand little of the issues that have been the subjects of conflict, and consign these matters to the dustbin of ‘politics’. This is a pity. The Australian States have constitutional responsibility for the services of greatest importance to Australians’ daily lives, including health, education, community services, and law and order. The constitutional division of taxation powers, as its application has evolved through judicial interpretation and the process of politics, overwhelmingly gives the Commonwealth the main capacity to raise revenue. If States are to deliver services demanded by the community, the Commonwealth has to raise revenue and pass it on to the States. In the process, the Commonwealth can decide how the funds will be allocated among the States and impose conditions on their use. FINAL REPORT [5]
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CHAPTER 4: Allocation of General Pu
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Chapter 5: Specific Purpose Payment
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CHAPTER 6: Comparative Fiscal Posit
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CHAPTER 7: Other Federations 7.2 Ve
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CHAPTER 7: Other Federations The Un
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CHAPTER 7: Other Federations In 200
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CHAPTER 7: Other Federations In add
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CHAPTER 7: Other Federations Compar
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CHAPTER 7: Other Federations FINAL
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CHAPTER 8: Federal Policy Effects o
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CHAPTER 9: Equity Chapter 1 notes t
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CHAPTER 9: Equity Both SPPs and gen
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CHAPTER 9: Equity Table 9.3 shows t
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CHAPTER 9: Equity 9.3 Horizontal di
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CHAPTER 9: Equity Many ways to rais
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CHAPTER 10: Efficiency and Economic
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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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