EXPLANATORY STATEMENT
Federal Financial Relations Act 2009
Determination of the GST Revenue Sharing Relativities for 2014-15
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).
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 Council on Federal Financial Relations on 28 March 2014.
Overview
The Federal Financial Relations Act 2009 was enacted to establish a framework for the distribution of GST revenue among the states and territories of Australia. This Act addresses the need for equitable distribution of GST payments, ensuring that each state has the fiscal capacity to provide a similar standard of government services and infrastructure, without necessarily achieving the same level of service. The policy objective is to align the distribution of GST revenues with the principles of horizontal fiscal equalisation, as recommended by the Commonwealth Grants Commission. The Treasurer, empowered by section 8 of the Act, is required to determine the GST revenue sharing relativities for each state, taking into account recommendations from the Commission and after consulting with the states. This process was followed in the determination for the year 2014-15, where the Treasurer consulted with the states at a meeting of the Council on Federal Financial Relations held on 28 March 2014.
Scope and Application
The Federal Financial Relations Act 2009 applies to the Commonwealth Treasurer, who is empowered to make a determination regarding the GST revenue sharing relativities for a given payment year. This Act is instrumental in the distribution of GST payments among the Australian states, based on the principle of horizontal fiscal equalisation and the recommendations of the Commonwealth Grants Commission. The Commission, in turn, recommends GST relativities that reflect the capacity of each state to raise its own revenue and the efficiency with which it operates, ensuring that each state has the capacity to provide the same standard of government services and infrastructure. The Treasurer is required to consult with the states, as mandated by the Act, before making any determination on GST revenue sharing relativities. The geographic reach of the Act is national, as it involves the distribution of GST payments across all Australian states. The Act does not specify exclusions or exemptions, but it does allow for the extension or restriction of its application through subordinate instruments, such as regulations or administrative guidelines, which may be developed to provide further detail on the implementation of the GST relativities determination.
Key Provisions
The Federal Financial Relations Act 2009 (the Act) includes a key provision (section 8) that enables the Treasurer to determine the GST revenue sharing relativities for each state for a payment year. This determination is crucial as it establishes the factors used to calculate the GST payments made by the Commonwealth to the states. These payments are meant to be equivalent to the revenue collected from the GST, distributed in accordance with the principles of horizontal fiscal equalisation and the recommendations of the Commonwealth Grants Commission (the Commission).
The determination process ensures that the GST payments reflect each state's capacity to raise revenue and the costs associated with providing government services and infrastructure. The relativities are designed to equalise the capacity of each state to provide the same standard of services, though not necessarily the same standard of services themselves. This is achieved by considering the differences in revenue-raising capacities and service provision costs among the states. Additionally, the Act mandates that the Treasurer must consult with the states before making any determination, as was done during the Council on Federal Financial Relations meeting on 28 March 2014.
The Act imposes several obligations on the parties involved. The Treasurer must consult with the states prior to making any GST relativity determinations. This consultation ensures that the states are informed and can provide input that may influence the final determination. Furthermore, the determination of GST relativities must be based on the recommendations of the Commission, which takes into account the differences in revenue capacities and service costs among the states. These requirements ensure that the GST revenue sharing is equitable and based on comprehensive assessments.
The Act does not explicitly outline specific offences, penalties, or consequences for breaches. However, failure to comply with the Act’s provisions, such as not consulting with the states before making determinations, could lead to legal challenges and potential repercussions under administrative or constitutional law. Additionally, the lack of adherence to the recommendations of the Commission or the principles of horizontal fiscal equalisation might result in disputes over the fairness and legality of the GST payments distribution. The precise legal outcomes would depend on the specifics of the breach and the subsequent judicial interpretation.