Determination of the GST Revenue Sharing Relativities for 2017-18 in Accordance with the Federal Financial Relations Act 2009

Overview

The Federal Financial Relations Act 2009 was enacted to establish the framework for financial relations between the Commonwealth and the states, including the sharing of revenue from the Goods and Services Tax (GST). The Act aims to ensure that GST payments to states are made in accordance with the principle of horizontal fiscal equalisation, reflecting differences in states' capacities to raise revenue and the costs they incur in providing services. This legislation was introduced to address the need for a structured and equitable method of distributing GST revenue among the states, aligning with the recommendations of the Commonwealth Grants Commission. The Commonwealth, through the Treasurer, is empowered to determine the GST revenue sharing relativities for each state, taking into account factors such as revenue-raising capacities and service provision costs. The policy objective is to enable each state to have the capacity to provide government services of the same standard, thereby promoting fiscal equity across the nation.

Scope and Application

The Federal Financial Relations Act 2009, through its determination of GST revenue sharing relativities for 2017-18, applies to the distribution of Goods and Services Tax (GST) revenues among the Australian states. Pursuant to section 8 of the Act, the Treasurer is empowered to make a determination that a specified factor is the GST revenue sharing relativity for a state for a particular payment year, with these relativities calculated to ensure an equalised capacity for each state to provide a standard level of government services and infrastructure. The determination process is informed by the principle of horizontal fiscal equalisation and the recommendations of the Commonwealth Grants Commission, which considers differences in states' revenue-raising capacities and service provision costs. The Act mandates that the Treasurer consult with the states prior to making any such determination, as was done on the 24th of March 2017 at the Council on Federal Financial Relations meeting. The application of this Act extends across the Commonwealth, impacting all states and territories within Australia. There are no exclusions or exemptions specified within the Act itself, though the scope may be further defined through subordinate instruments.

Key Provisions

The Federal Financial Relations Act 2009 (the Act) allows the Treasurer to make a determination regarding the GST revenue sharing relativity for a State for a payment year, as outlined in section 8. This determination specifies a factor that will be used in calculating the GST payments to the States. The basis for these payments stems from the Intergovernmental Agreement on Federal Financial Relations, which mandates that the Commonwealth provides GST payments to the States that are equivalent to the revenue collected from the GST. These payments are distributed among the States according to the principle of horizontal fiscal equalisation and are influenced by the recommendations of the Commonwealth Grants Commission (the Commission). The GST revenue sharing relativities are essential as they determine each State's share of GST payments based on their respective capacities to raise revenue from their own sources and the efficiency of their operations. The relativities aim to ensure that each State, if operating with the same effort and efficiency, would have the capacity to provide government services and associated infrastructure of the same standard, thus achieving a form of equalisation of capacity rather than an equal standard of services across all States. The Act imposes several obligations and requirements on the parties it governs. The most significant obligation is on the Treasurer, who must consult with the States before making any determination of the GST revenue sharing relativities. This consultation is mandated to ensure that all relevant parties are involved in the decision-making process. The Treasurer is also required to consider the recommendations of the Commonwealth Grants Commission when making these determinations. These recommendations are based on an analysis of each State's capacity to raise revenues and the costs associated with providing government services and infrastructure. The Treasurer must ensure that the determinations align with the principles of horizontal fiscal equalisation and the broader objectives of the Intergovernmental Agreement on Federal Financial Relations. In terms of consequences for breach, the Act does not explicitly outline offences or penalties for non-compliance with the determination of GST revenue sharing relativities. However, the importance of the process and the potential impact on the equitable distribution of GST payments suggest that failure to adhere to the required consultation and consideration processes could lead to legal or political ramifications. While specific penalties are not detailed in the Act, the significance of the Treasurer's role in ensuring compliance with the agreement and the recommendations of the Commonwealth Grants Commission underscores the potential seriousness of any breaches. Non-compliance could potentially lead to disputes among the States or between the States and the Commonwealth, impacting the stability and fairness of the financial relations framework established by the Act.