Determination of the GST Revenue Sharing Relativities for 2015-16 in accordance with the Federal Financial Relations Act 2009

Overview

The Federal Financial Relations Act 2009 was enacted to provide a framework for the distribution of Commonwealth payments to the States, particularly focusing on the equitable distribution of GST revenues. The Act was introduced to address the need for a systematic and equitable method of distributing GST revenues among the States, ensuring that each State has the capacity to provide the same standard of services despite differences in revenue-raising capacities and service provision costs. The Federal Financial Relations Act 2009 empowers the Treasurer to determine the GST revenue sharing relativities for each State based on recommendations from the Commonwealth Grants Commission, which takes into account the principle of horizontal fiscal equalisation and the differing capacities and costs of the States. The Act also mandates that the Treasurer consult with the States before making such determinations, as was done during the Council on Federal Financial Relations meeting on 9 April 2015.

Scope and Application

The Federal Financial Relations Act 2009, through the determination of the GST revenue sharing relativities for 2015-16, applies to the distribution of Goods and Services Tax (GST) revenues among the states of Australia. The Act empowers the Treasurer to determine a GST revenue sharing relativity for each state based on recommendations from the Commonwealth Grants Commission, which considers factors such as the states' capacities to raise revenue and the costs associated with providing government services and infrastructure. This determination ensures that the distribution of GST payments aligns with the principle of horizontal fiscal equalisation, aiming to equalise each state's capacity to provide services of the same standard. The Act mandates that the Treasurer consults with the states before making these determinations, as was done at the Council on Federal Financial Relations meeting on 9 April 2015. The determinations do not necessarily result in equal standards of government services but aim to equalise each state's capacity to deliver them. The Act's application extends nationally, covering all states and territories within the Commonwealth of Australia.

Key Provisions

The Federal Financial Relations Act 2009 (the Act) empowers the Treasurer to make a determination regarding the Goods and Services Tax (GST) revenue sharing relativities for a specified payment year (section 8). This determination establishes the factors that are to be used to calculate the GST payments each state receives from the Commonwealth. According to the Intergovernmental Agreement on Federal Financial Relations, these payments are intended to match the revenue received from the GST, and are distributed based on the principle of horizontal fiscal equalisation, taking into account the recommendations of the Commonwealth Grants Commission (section 8). The GST revenue sharing relativities are crucial in determining how much GST revenue each state receives, relative to an equal per capita share. These relativities are set in such a way that, assuming all states make the same effort to raise revenue from their own sources and operate at the same level of efficiency, they would all have the capacity to provide government services and associated infrastructure of the same standard (section 8). This does not imply that the actual standard of services will be the same across all states, but rather that the capacity to provide such services is equalised. The Act mandates that the Treasurer must consult with the states before making the GST relativities determination. This consultation process was fulfilled through a meeting of the Council on Federal Financial Relations held on 9 April 2015 (section 8). The Commonwealth Grants Commission plays a pivotal role in this process by recommending the GST relativities based on differences in the states' revenue-raising capacities and the costs they incur in providing the same standard of government services and associated infrastructure. In terms of obligations, the Act imposes a requirement on the Treasurer to consult with the states prior to making any determination regarding GST revenue sharing relativities (section 8). This ensures that the states have an opportunity to provide input and feedback on the proposed relativities, thereby promoting a collaborative approach to federal financial relations. Additionally, the Treasurer must make the determination in accordance with the recommendations of the Commonwealth Grants Commission, which are based on a thorough analysis of the relevant factors. Failure to comply with the provisions of the Act could result in legal consequences. However, the Act itself does not specify any offences, penalties, or civil/criminal consequences for breach. The primary focus of the Act is to establish a framework for the determination of GST revenue sharing relativities and to ensure that these relativities are calculated in a fair and equitable manner. Any potential breaches or non-compliance with the Act would likely be addressed through the courts or other relevant legal mechanisms, with penalties and consequences determined based on the specific circumstances of the case.