Garnaut Fitzgerald Review of Commonwealth-State Funding

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CHAPTER 13: Commonwealth–State Financial Relations for the 21 st Century Recognising some economies of scale in State Government administration, an element of horizontal fiscal equalisation (HFE) has been embodied – favouring the smaller States – in the suggested formula for allocating GST revenue among the States. The proposed arrangements define HFE in a form much closer to that applied by the CGC in its earlier decades, than it has been since the 1990s. Guarantees on minimum untied payments would avoid disruption from reducing funding to any State. The new model is much simpler than established arrangements. Commonwealth–State financial arrangements would be comprehensible to Australians in a way that they have not been for at least several decades. Democratic accountability of Commonwealth and State Governments would be greatly enhanced, and gains from greater simplicity, transparency and accountability would be realised quickly. 13.6 The road to reform The new model is an extension of recent discussions and reform in Commonwealth– State funding. It builds upon ideas about cooperative sectoral programs that attracted wide support from all Governments in the early 1990s. It also builds on the introduction of the GST in 2000, and the historic decision to allocate the revenues to the States. It is formally consistent with the Intergovernmental Agreement of 1999 in all respects. The new model also restores a role for the CGC that is much closer to that of its formative decades. The Commonwealth and all State Governments have much to gain from the new model through improvements in national economic performance, simplicity and equity. While all stakeholders will benefit from the new model, every State will be able to imagine an alternative that, if implemented, would generate even larger gains for itself. The two larger of the three States that commissioned this Review would gain more from allocation of GST revenues according to State of origin rather than equal per capita, which embodies large transfers from high-income to lower-income jurisdictions. These three States would gain more from more rapid movement to applying the new model, without constraint from the guarantees on minimum real per capita payments to each State. Victoria and New South Wales contest the extent of economies of administrative scale as assessed by the CGC and mostly incorporated into the new model. On the other hand, some States may hope to secure a continuing increase in their shares of the GST revenues under the established approach. Within the new model, the Commonwealth would gain the States’ acceptance of a possible decline in payments as a share of gross domestic product, and of sharing responsibility for health and aged care costs, which will rise due largely to the ageing population. However, within the status quo, the Commonwealth might hope to reduce payments to the States by larger amounts by retaining the discretion allowed under current approaches to SPPs. Inevitably, in any reform process there will be some jockeying for advantage between the Commonwealth and the States, and among the States. Opening up the Review’s recommendations to discussion and debate may identify improvements to the model. We hope, through this process, that all parties will keep in mind the shared interests of all Australians in a better model of Commonwealth–State funding. FINAL REPORT [202]
CHAPTER 13: Commonwealth–State Financial Relations for the 21 st Century Upon implementation of the new model, Australia would still be one of the most egalitarian of the world’s Federations. The inequalities in incomes across States are smaller in Australia before payments to the States are considered. In addition, the new model would probably provide for proportionately larger net transfers across the States than in Canada, Germany or the United States. The smaller and poorer States are likely to continue to perform more strongly relative to the national average than in other Federations. There was no expectation at the time of Federation that Queensland and Western Australia would be the strongest economic performers of the 20th century. The new arrangements would strengthen the chances that the current recipient States would be among the strong performers of the 21st century. That would be a good outcome for all Australians. FINAL REPORT [203]
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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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CHAPTER 6: Comparative Fiscal Posit
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CHAPTER 7: Other Federations 7.2 Ve
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CHAPTER 7: Other Federations Sales
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CHAPTER 7: Other Federations The Un
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CHAPTER 7: Other Federations Popula
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CHAPTER 7: Other Federations 7.4 Co
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CHAPTER 7: Other Federations In 200
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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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Page 240 and 241: GLOSSARY Efficiency: allocative eff
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Page 244 and 245: FINAL REPORT [234] GLOSSARY
Page 246 and 247: BIBLIOGRAPHY Buchanan, JM 2001, Fis
Page 248 and 249: BIBLIOGRAPHY Government of Victoria
Page 250 and 251: BIBLIOGRAPHY Watts, RL 1999, Compar
Page 252 and 253: INDEX E economic activity / growth
Page 254 and 255: INDEX O other Federations Canada ·
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Garnaut Fitzgerald Review of Commonwealth-State Funding

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