Garnaut Fitzgerald Review of Commonwealth-State Funding

CHAPTER 2: How the System Grew:
A History of Commonwealth Grants to the States
In 1981 the CGC started conducting reviews and producing general revenue grant
relativities reports. More noticeable changes to the HFE definition are evident from this
time. The terms of reference for the first review, Report on State Tax Sharing
Entitlements 1981, stated that the review should be:
a) on the basis of the principle that the respective payments to which the
States are entitled under the Act should enable each State to provide, without
imposing taxes and charges at levels appreciably different from the levels of
the taxes and charges imposed by the other States, government services at
standards not appreciably different from the standards of the government
services provided by the other States.
b) taking account of differences in the capacities of the States to raise
revenues, and differences in the amounts required to be expected by the
States in providing comparable government services (CGC 1981, p. 5; italics
added).
Chapter 2 of the same report discussed the development of equalisation principles:
The Commonwealth Grants Commission referred to its equalisation criterion
as the principle of financial need. In fact, as applied by the Commission before
1975, a claimant State’s financial need as interpreted by the Commission fell
somewhat short of full fiscal equalisation… special grants received by a
claimant State would not necessarily enable it to provide government services
at standards comparable to those of the standard States even if it imposed
taxes and charges comparable to those of the standard States (CGC 1981,
p. 20; italics added).
Chapter 2 also reported on current arrangements for assessing a claimant State’s
financial needs:
The foregoing description of the application of the fiscal equalisation principle
to the assessment of a claimant State’s needs has been oversimplified… such
a brief description cannot adequately convey the extent of the detailed
examination by the Commission of the numerous problems and issues
involved in the equalisation process (CGC 1981, p. 23)
The terms of reference for the 1985 Report on Tax Sharing Relativities and 1988
General Revenue Grant Relativities Report were almost identical to the 1981 wording:
the Commission’s assessment should:
a) be based on the application of the principle that the respective tax sharing
grants to which the States are entitled should enable each State to provide,
without having to impose taxes and charges at levels appreciably different
from the levels imposed by the other States, government services at standards
not appreciably different from the standards provided by the other States; and
b) take account of differences in the capacities of the States to raise revenues;
and differences in the amounts required to be expended by the States in
providing government services of a comparable standard (CGC 1985, p. 116,
1988, p. xviii-xix; italics added).
FINAL REPORT [34]