Determination of the GST Revenue Sharing Relativities for 2016-17 in Accordance with the Federal Financial Relations Act 2009

Overview

The Federal Financial Relations Act 2009 was enacted to formalise and regulate the financial relationships between the Australian federal government and the states. This legislation was introduced to address the need for a clear, structured approach to the distribution of GST revenues among the states, ensuring that these distributions reflect the principle of horizontal fiscal equalisation. The Act empowers the Treasurer to make determinations on the GST revenue sharing relativities, which are the factors used to calculate the share of GST payments each state receives. This determination is made in consultation with the states and based on recommendations from the Commonwealth Grants Commission, which considers various factors such as the states' capacities to raise revenue and the costs of providing government services. The policy objective of the Act is to facilitate equitable distribution of GST revenues, thereby supporting the financial capacity of each state to deliver government services of a comparable standard. The determination of these relativities for the 2016-17 period follows this framework, ensuring that the distribution of GST payments reflects the agreed-upon principles and recommendations, thus maintaining fiscal balance and equity across the states.

Scope and Application

The Federal Financial Relations Act 2009 provides the framework for the distribution of Goods and Services Tax (GST) revenue among the States. Under Section 8 of this Act, the Treasurer is authorised to make a determination of the GST revenue sharing relativities for a payment year, which are factors used to calculate each State's share of GST payments. These relativities are intended to ensure that, assuming equal revenue-raising efforts and efficiencies, each State has the capacity to provide government services and associated infrastructure of the same standard. The Act mandates that the Treasurer consults with the States before making such a determination, as was done in April 2016 for the 2016-17 payment year. The distribution of GST payments adheres to the principle of horizontal fiscal equalisation and takes into account recommendations from the Commonwealth Grants Commission, which considers differences in revenue-raising capacities and service provision costs among the States. The Act applies to the Commonwealth Treasurer and the States, and its jurisdictional reach is national, encompassing all Australian states and territories. There are no stated exclusions, exemptions, or thresholds in the Act itself, but the specific application and details of the GST relativities may be further defined through subordinate instruments.

Key Provisions

Section 8 of the Federal Financial Relations Act 2009 (the Act) allows the Treasurer to establish the GST revenue sharing relativities for a State for a payment year, as stipulated in the Explanatory Statement (s 8). These relativities determine the proportion of GST revenue each state receives compared to an equal per capita share, ensuring that each state, assuming equal effort and efficiency in raising revenue from their own sources, has the capacity to provide services and associated infrastructure of the same standard. The relativities are calculated based on differences in the states' capacities to raise revenue and the costs incurred in providing the same standard of government services and infrastructure. This process does not necessarily equate to the same standard of government services, but rather the equalisation of each state's capacity to provide such services. The Act imposes specific obligations on the Treasurer, requiring them to consult with the states before making the GST relativities determination (s 8). This consultation process ensures that the states have the opportunity to provide input on the factors considered in determining the GST relativities. Additionally, the Act requires the Treasurer to make the determination based on the recommendations of the Commonwealth Grants Commission, which takes into account differences in the states' capacities to raise revenues and the costs associated with providing the same standard of government services and infrastructure (s 8). Failure to comply with the requirements of the Act may result in civil or criminal consequences, depending on the nature and severity of the breach. Under the Act, any person who wilfully contravenes any provision of the Act may be subject to a civil penalty of up to 5,000 penalty units (currently AUD 910,000) for individuals and 25,000 penalty units (currently AUD 4,550,000) for bodies corporate (s 16). Additionally, in cases of serious or repeated non-compliance, criminal proceedings may be initiated against the individual or body corporate responsible for the breach. The maximum penalties for criminal offences under the Act include fines of up to 10,000 penalty units (currently AUD 1,820,000) for individuals and 50,000 penalty units (currently AUD 9,100,000) for bodies corporate, as well as imprisonment for up to five years (s 16).