EXPLANATORY STATEMENT
Federal Financial Relations Act 2009
Determination of the GST Revenue Sharing Relativities for 2013-14
Section 8 of the Federal Financial Relations Act 2009 (the Act) empowers the Treasurer to make a determination that a factor specified in the determination is the GST revenue sharing relativity for a State for a payment year.
As agreed by the Council of Australian Governments in the Intergovernmental Agreement on Federal Financial Relations, the Commonwealth makes GST payments to the States equivalent to the revenue received from the GST. The GST payments are distributed among the States in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission.
The Commission recommends GST relativities to be used in calculating each State's share of GST payments. The relativities determine how much GST revenue each State receives compared with an equal per capita share and are determined such that, if each State made the same effort to raise revenue from its own sources and operated at the same level of efficiency, each State would have the capacity to provide services and associated infrastructure of the same standard.
This does not necessarily result in the same standard of government services — just the equalisation of each State's capacity to provide the same standard of services. In calculating the GST relativities, the Commission takes into account differences in the States' capacities to raise revenues and differences in the costs the States would incur in providing the same standard of government services and associated infrastructure.
The Act also requires the Treasurer to consult the States before making the GST relativities determination. The Treasurer consulted the States at a meeting of the Standing Council on Federal Financial Relations on 3 April 2013.
Overview
The Federal Financial Relations Act 2009 was enacted to provide a framework for the distribution of Commonwealth financial assistance to the States, ensuring fiscal stability and promoting equitable access to government services across Australia. The Act empowers the Treasurer to determine the GST revenue sharing relativities for each State, a task that is crucial for the equitable distribution of GST revenue among the States. This determination is made in accordance with the principle of horizontal fiscal equalisation, which aims to balance disparities in the fiscal capacities of the States, and is based on the recommendations of the Commonwealth Grants Commission. The policy objective behind the Act is to ensure that each State has the capacity to provide government services and associated infrastructure of the same standard, thereby promoting equalisation in the capacity to deliver services rather than the actual level of services provided.
The explanatory statement for the Federal Financial Relations Act 2009 determination of the GST revenue sharing relativities for 2013-14 outlines the process by which the Treasurer, having consulted with the States through the Standing Council on Federal Financial Relations, makes the determination. This process aligns with the intergovernmental agreement on federal financial relations, which ensures that GST payments to the States are equivalent to the revenue received from the GST. The determination considers the differences in the States' capacities to raise revenue and the costs associated with providing government services, aiming to achieve an equitable distribution of GST revenue that reflects each State's fiscal capacity and needs.
Scope and Application
The Federal Financial Relations Act 2009 applies to the Commonwealth Treasurer and the States of Australia, focusing on the distribution of GST revenue among the states. The Act authorises the Treasurer to determine the GST revenue sharing relativities for each state for a payment year, ensuring that the revenue distribution aligns with the principle of horizontal fiscal equalisation, as recommended by the Commonwealth Grants Commission. The Act’s scope is confined to the Commonwealth and the states, with no application to territories, and it does not explicitly exclude any particular conduct, entity, or transaction. The Act mandates that the Treasurer consults with the states before making a determination, as was done during a meeting of the Standing Council on Federal Financial Relations on 3 April 2013. The application of the Act is further refined through subordinate instruments that may establish additional criteria or processes for determining the GST revenue sharing relativities.
Key Provisions
The Federal Financial Relations Act 2009, particularly Section 8, allows the Treasurer to determine the GST revenue sharing relativities for each state for a payment year. This determination is made in accordance with the principle of horizontal fiscal equalisation and considers recommendations from the Commonwealth Grants Commission. These relativities indicate how much GST revenue each state should receive relative to an equal per capita share, ensuring that all states have the capacity to provide the same standard of services despite variations in their ability to raise revenue and costs associated with providing services. The Treasurer is mandated to consult with the states before making this determination, which was done during a meeting of the Standing Council on Federal Financial Relations on 3 April 2013.
The Act imposes specific obligations on the Treasurer, primarily the requirement to consult with the states before making the GST relativities determination. This consultation is essential to ensure that the determination is informed by the states' perspectives and needs. The Act also requires the Treasurer to consider the recommendations from the Commonwealth Grants Commission, which provides a basis for the relativities that takes into account differences in the states' revenue-raising capacities and the costs of providing services. This process aims to ensure that the distribution of GST payments is fair and equitable, reflecting the varying circumstances of each state.
Breaches of the obligations outlined in the Act, such as failure to consult with the states or disregard the recommendations from the Commonwealth Grants Commission, could result in legal consequences. Although the Explanatory Statement does not detail specific penalties or offences, non-compliance could lead to legal challenges or administrative actions. The impact of such breaches could potentially affect the equitable distribution of GST payments, thereby impacting the states' capacity to provide services and associated infrastructure. It is therefore crucial for the Treasurer to adhere to the requirements set out in the Act to avoid any adverse legal or financial consequences.