Garnaut Fitzgerald Review of Commonwealth-State Funding

CHAPTER 4: Allocation of General Purpose Grants
Complexity
The CGC process is exceedingly complex, with heavy use of formulas and
documentation running to nearly 2000 pages of annual reports and working papers. The
complexity reflects the CGC’s attempts to account for the numerous factors affecting
States’ expenditures and revenues in fine detail.
This complexity makes it difficult for the process to be reviewed effectively.
Judgements
Many elements of the CGC’s calculations reflect its judgements about how to quantify
factors, and the extent to which factors affect State expenditures and revenues.
Unfortunately, the data needed to establish or quantify disabilities is often not available
or is of such poor quality that judgement and indirect measures are used instead.
The basis for judgements is not always clearly documented, and judgements can
change significantly over time. Despite many years of close examination by the CGC
and the States, there continues to be intense debate and analysis about the correct
quantification of expenditure and revenue needs.
Some examples of judgements used by the CGC include:
• Indigenous people, as identified in the Census self-enumeration counts, and with the
same sociodemographic and locational characteristics, are homogeneous across
the country in their service requirements.
• State economic policies, including tax levels have no effect on States’ relative
economic performance (i.e. States have no influence on their tax bases).
• Various disability factors are adjusted for potential policy influences or data
uncertainties through discounting by 50 per cent (e.g. factors covering wage and
rent costs).
• Canberra is more isolated than Adelaide.
• Retention rates in the post-compulsory years of schooling are due to differences in
state policy.
To date, the CGC has not made much use of the annual assessment of the costs of
government service delivery coordinated by the Productivity Commission. The CGC has
noted, for example, that the health cost data seem unreliable. The Productivity
Commission work may eventually help to determine Australian best practice efficiency
benchmarks (after controlling for cost factors, quality of service and long-term effects of
different policy settings).
FINAL REPORT [55]