Garnaut Fitzgerald Review of Commonwealth-State Funding

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CHAPTER 4: Allocation of General Purpose Grants Standard CGC policy The CGC’s assessments of disability factors are based on the concept of a standard policy – that States, on average, take certain factors into account when setting levels of spending and revenue raising. But standard policy is difficult to observe, and often has to be assumed. Tax policy is often (but not consistently) based on approximations of the legal assessment framework. However, the legislation does not show States’ underlying intent, the circumstances they considered (e.g. the capacity to pay), or how they would deal with the different circumstances faced by other States. Tax policy is also restricted to the tax bases to which States currently utilise. Potential alternative revenue sources are not considered. Expenditure policy is based on resource allocation by type of service, location and sociodemographic characteristics, insofar as they can be determined. Again, this does not reveal States’ underlying outcome objectives, the circumstances that they took into account in choosing the mix of services, or how they would behave in different circumstances. The CGC assumes that standard policy is a uniform standard mix of services and mechanical micro-resource allocation formulae. In practice, States vary the mix of services and resource allocations to achieve broad objectives. Unlike the CGC, States recognise that services are interconnected (e.g. improving Indigenous education outcomes is contingent on improving health, housing and economic circumstances). The CGC puts much more effort into understanding States’ treatment of symptoms (e.g. hospitalisation for acute illness) than States’ efforts to treat the underlying problems (e.g. health improvement initiatives). On a related issue, the CGC has difficulty identifying the needs that drive expenditure on pure public goods. Policy neutrality The achievement of policy neutrality is seen as fundamentally important to the equity and efficiency of equalisation. Equalisation cannot be considered equitable if States can manipulate the outcome, and any incentive to manipulate the outcome will distort States’ policy making. However, in reality this cannot be an overriding principle. Despite all the apparent precision, the accurate identification and quantification of policy neutral disabilities often remains elusive. The available data are usually inadequate to permit such quantification without large elements of judgement, the complexities are so great in some cases as to defeat even expert analysts, and the complex interplays between policy and disabilities cannot be disentangled. For example: • To what extent have States influenced their current revenue collections through the influence of good or bad past policies on economic performance The CGC does not attempt to resolve this, but takes the current situation as given. FINAL REPORT [56]
CHAPTER 4: Allocation of General Purpose Grants • To what extent have States influenced their current spending needs through past policies The CGC tends to be sensitive to this, and uses non policy-influenced indicators such as age or Aboriginality (although data on the latter is affected by policy, for example through community attitudes). As with revenue, the effects of policy on expenditure requirements through its influence on general economic performance are not considered. How are we to interpret wide variations in services provided which are not reflected in these objective measures As unrecognised disabilities (hence flaws in equalisation) Or as consequences of past policy Or of different present policy settings • To what extent has equalisation itself influenced State policies For example, States with high capacity in unused tax bases will have little incentive to exploit these bases if they are compensated for their disadvantages in the standard tax bases. Interaction between horizontal fiscal equalisation and specific purpose payments The CGC’s treatment of SPPs is complex. • Most recurrent SPPs are subject to equalisation with GST grants adjusted to offset differences in per capita receipts from SPPs. State expenditures (for which the CGC assesses needs) include expenditures financed by these SPPs. • In a few cases, this process extends to some Commonwealth own-purpose expenditures, which are considered notional SPPs and substitutes for States’ own expenditures. • In some cases, the CGC excludes recurrent SPPs from equalisation because they reflect needs that the CGC has not considered, or have strong conditions attached to their use that are seen as limiting State policy choice, or reflect fee-for-service arrangements. • Capital SPPs are not subject to direct equalisation, but a measure of HFE is achieved indirectly as the CGC recognises that the level of capital SPPs received over time has influenced the level of States’ debt. This is considered in the CGC’s assessments of spending on interest payments. However, not all capital SPPs have been included in this calculation. • The Commonwealth specifically excludes some SPPs from the CGC process through directions provided in its terms of reference to the CGC. The CGC excludes others itself. Including SPPs in the equalisation process has generated controversy over whether the CGC should effectively override the allocation of SPP funds agreed between Commonwealth and State ministers. Although the Commonwealth ultimately accepts the CGC’s recommendations, it is unclear that the people concerned understand the extent to which the allocation of untied grants is setting aside the intended allocation of SPPs and substituting the CGC’s allocation. FINAL REPORT [57]
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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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Page 54 and 55: CHAPTER 3: The Current System Natio
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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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