Garnaut Fitzgerald Review of Commonwealth-State Funding

TABLE OF CONTENTS
CHAPTER 9: Equity ......................................................................................................................................123
9.1 Are current arrangements for distribution among the States equitable........................................123
9.2 The primary test: vertical distribution of income.............................................................................124
9.3 Horizontal distribution – equal treatment of equals........................................................................130
9.4 Other conceptions of equity ...........................................................................................................131
CHAPTER 10: Efficiency and Economic Growth .......................................................................................133
10.1 Introduction....................................................................................................................................133
10.2 Externalities ...................................................................................................................................137
10.3 Previous analyses of the efficiency of the CGC process ...............................................................140
10.4 General equilibrium models: the CoPS analysis............................................................................141
10.5 Political economy of the flypaper effect .........................................................................................145
10.6 Other aspects of efficiency ............................................................................................................146
10.7 Conclusions ...................................................................................................................................153
CHAPTER 11: Simplicity, Transparency and Accountability – Anomalies and Unintended
Consequences..............................................................................................................................................155
11.1 Introduction....................................................................................................................................155
11.2 Simplicity, transparency and accountability ...................................................................................156
11.3 Horizontal fiscal equalisation and the creation of perverse incentives...........................................157
11.4 The impossible task of separating policy .......................................................................................157
11.5 Influencing the ‘standard’...............................................................................................................159
11.6 Consequences of focusing on capacity .........................................................................................159
11.7 Glaring anomalies in expenditure disabilities.................................................................................160
11.8 Anomalies in revenue disabilities...................................................................................................166
11.9 Growth and infrastructure demands...............................................................................................170
11.10 General subsidies to public corporations .......................................................................................171
11.11 Equalising States versus regions...................................................................................................171
11.12 Problems despite detailed CGC work............................................................................................172
CHAPTER 12: Overall Assessment and the Need for Reform ..................................................................173
12.1 Assessment criteria .......................................................................................................................173
12.2 General considerations..................................................................................................................174
12.3 Equity assessment.........................................................................................................................176
12.4 Efficiency assessment ...................................................................................................................177
12.5 Simplicity, transparency and accountability ...................................................................................179
12.6 All States have potential for economic growth ...............................................................................181
12.7 The need for reform.......................................................................................................................182
12.8 Lessons from past attempts at reform ...........................................................................................184
12.9 A new basis for Federal fiscal reform.............................................................................................185
12.10 Context for reform: intergenerational issues ..................................................................................187
CHAPTER 13: Commonwealth–State Financial Relations for the 21st Century .....................................191
13.1 Outline of the new model ...............................................................................................................191
13.2 Guarantee arrangements...............................................................................................................197
13.3 The new model and intergovernmental issues ..............................................................................199
13.4 Advantages....................................................................................................................................200
13.5 Timing and nature of gains ............................................................................................................201
13.6 The road to reform.........................................................................................................................202
APPENDIX A: National Health and Aged Care Program ...........................................................................205
APPENDIX B: National Education and Training Program.........................................................................209
APPENDIX C: National Indigenous Community Development Program..................................................215
APPENDIX D: Minimum Cost of Government ............................................................................................219
APPENDIX E: Consultation..........................................................................................................................225
GLOSSARY ...................................................................................................................................................229
BIBLIOGRAPHY ............................................................................................................................................235
INDEX ............................................................................................................................................................241
FINAL REPORT [ii]