Garnaut Fitzgerald Review of Commonwealth-State Funding

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CHAPTER 6: Comparative Fiscal Positions However, if this rationalisation did not eventuate, it would remain curious for the Australian Capital Territory – with its exceptional revenue raising capacity – to receive transfers from other States, as distinct from specific purpose payments (SPPs) in recognition of the Territory’s national role. The Australian Capital Territory chooses to tax payroll at lower effective rates than the donor States. It chooses to tax real estate sales at substantially lower rates than the large States. It also chooses not to ask the Commonwealth to facilitate the application of the small surcharge to income tax that would remove the anomalous transfers from other States – a constitutionally available option. A high-income State is entitled to forgo potential revenue from these and other tax bases. Few would question choice of lower tax combined with constraint on provision of services. However, the possibilities for generating additional tax revenue from the exceptionally high incomes in the Australian Capital Territory are strong reasons for modifying the system that results in revenue being transferred from all Australians to Australians in the richest jurisdictions. 6.5 The States’ overall fiscal situations There is no sign that the recipient States are generally subject to fiscal stress or under pressure to raise taxation and reduce expenditure relative to donor States. Queensland Government finances are the strongest of all the States, despite the fact that it has the lowest tax regime. The Australian Capital Territory and Queensland are the only debtfree States. In the Australian Capital Territory’s case, this is largely the result of receiving assets without debt from the Commonwealth at the time of self-government. Other recipient States are not in such strong fiscal positions. Donor States tend to have relatively high tax rates, low expenditure levels and budget outcomes that are similar to those of recipient States. FINAL REPORT [88]
CHAPTER 7: Other Federations CHAPTER 7: Other Federations • While Australia has very little fiscal or economic disparity between its States, it makes the largest and most explicit efforts to remove horizontal imbalances. • Australia is the only Federation that interprets horizontal fiscal equalisation as ‘full equalisation’ of revenue raising capacity and expenditure needs. • Canada and Germany only partially equalise revenue capacity, and do not equalise expenditure. The United States uses no formal equalisation at all. 7.1 Introduction This chapter compares Australia’s Federal fiscal arrangements with those of comparable Federations of Canada, Germany and the United States of America. It focuses particularly on vertical fiscal imbalance, on horizontal fiscal equalisation (HFE) arrangements and on use of specific purpose payments (SPPs). High vertical fiscal imbalance does not cause large horizontal fiscal imbalance between Governments at a State level. However, a larger degree of vertical fiscal imbalance facilitates employment of equalisation policies by national governments. Equalisation transfers in Federations usually aim to reduce fiscal disparities between State-level governments that arise from differences in economic scale, rates of growth, income, wealth, revenue bases or expenditure needs. The degree of revenue and expenditure decentralisation in each country affects the strength of tendencies towards high horizontal transfers: the more decentralisation, the greater the total disparities associated with a given level of variation in the revenue raising capacity or expenditure needs of State Governments (Peloquin and Chong, forthcoming). Australia is a highly centralised Federation with relatively little fiscal or economic disparity between States before equalisation. Australia makes the largest and most explicit efforts to remove horizontal imbalances. It is the only Federation that applies full HFE to both revenue raising capacity and expenditure needs. Canada and Germany equalise partially and the United States uses no formal equalisation at all, although there is an equalising tendency in its increasing use of SPPs. FINAL REPORT [89]
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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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Page 48 and 49: CHAPTER 2: How the System Grew: A H
Page 50 and 51: CHAPTER 3: The Current System TABLE
Page 52 and 53: CHAPTER 3: The Current System 3.3 G
Page 54 and 55: CHAPTER 3: The Current System Natio
Page 56 and 57: CHAPTER 3: The Current System FINAL
Page 58 and 59: CHAPTER 4: Allocation of General Pu
Page 70 and 71: Chapter 5: Specific Purpose Payment
Page 88 and 89: CHAPTER 6: Comparative Fiscal Posit
Page 100 and 101: CHAPTER 7: Other Federations 7.2 Ve
Page 102 and 103: CHAPTER 7: Other Federations Sales
Page 104 and 105: CHAPTER 7: Other Federations The Un
Page 106 and 107: CHAPTER 7: Other Federations Popula
Page 108 and 109: CHAPTER 7: Other Federations 7.4 Co
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Page 114 and 115: CHAPTER 7: Other Federations In add
Page 116 and 117: CHAPTER 7: Other Federations Compar
Page 118 and 119: CHAPTER 7: Other Federations FINAL
Page 120 and 121: CHAPTER 8: Federal Policy Effects o
Page 134 and 135: CHAPTER 9: Equity Chapter 1 notes t
Page 136 and 137: CHAPTER 9: Equity Both SPPs and gen
Page 138 and 139: CHAPTER 9: Equity Table 9.3 shows t
Page 140 and 141: CHAPTER 9: Equity 9.3 Horizontal di
Page 142 and 143: CHAPTER 9: Equity Many ways to rais
Page 144 and 145: CHAPTER 10: Efficiency and Economic
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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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