EXPLANATORY STATEMENT
Federal Financial Relations Act 2009
Determination of the GST Revenue Sharing Relativities for 2018-19
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 on the 5th of April 2018 at the Council on Federal Financial Relations meeting.
Overview
The Federal Financial Relations Act 2009 was enacted to formalise the distribution of Goods and Services Tax (GST) revenue among the Australian states, ensuring a fair and equitable allocation in line with the principle of horizontal fiscal equalisation. This Act was introduced to address the need for a structured and transparent system for sharing GST revenue between the Commonwealth and the states, taking into account the varying capacities of each state to raise revenue and the differing costs associated with providing government services and infrastructure. The determination of GST revenue sharing relativities, as mandated by the Act, is made by the Treasurer of Australia, who is required to consult with the states prior to making such determinations. This legislative framework was designed to reflect the agreement reached by the Council of Australian Governments, and it aims to maintain fiscal balance and support the provision of services across all states.
Scope and Application
The Federal Financial Relations Act 2009 pertains to the determination of GST revenue sharing relativities for the states of Australia for a specific payment year, as mandated by Section 8 of the Act. This legislative power vested in the Treasurer enables the distribution of GST revenue collected by the Commonwealth to the states in line with the principle of horizontal fiscal equalisation, ensuring that states with a lower capacity to raise revenue receive a greater share of GST payments. This distribution mechanism is predicated on the recommendations of the Commonwealth Grants Commission, which considers various factors including the states' revenue-raising capacities and the costs involved in providing equivalent government services and infrastructure. The process requires consultation with the states, as evidenced by the Treasurer's consultation with the states on 5th April 2018 at the Council on Federal Financial Relations meeting. The Act applies to all states within Australia and does not specify any exclusions or exemptions; however, the determination of GST relativities is subject to the overarching principles and recommendations outlined in the Intergovernmental Agreement on Federal Financial Relations and the advice of the Commonwealth Grants Commission.
Key Provisions
Section 8 of the Federal Financial Relations Act 2009 provides the Treasurer with the authority to establish the GST revenue sharing relativities for a particular year. Specifically, the Treasurer can determine a specified factor that will be used to calculate the GST revenue sharing relativity for a State for a designated payment year (Section 8). These relativities are essential in distributing GST payments among the States based on the principle of horizontal fiscal equalisation, and they are influenced by the recommendations of the Commonwealth Grants Commission (the Commission). The Act mandates that the Treasurer consult with the States before making such determinations (Section 8). In line with these provisions, the Treasurer consulted the States on April 5, 2018, during the Council on Federal Financial Relations meeting.
The Act imposes several obligations on the parties it governs. Foremost, it requires the Treasurer to calculate and determine the GST revenue sharing relativities for each State in accordance with the principles of horizontal fiscal equalisation and the recommendations of the Commonwealth Grants Commission (Section 8). These relativities should ensure that each State has the capacity to provide services and associated infrastructure of the same standard, regardless of their revenue-raising capacities or the costs incurred. Additionally, the Act mandates the Treasurer to consult with the States prior to making the determination (Section 8). This consultation is a crucial step to ensure that all relevant parties are informed and have an opportunity to provide input on the proposed relativities.
Breaches of the obligations imposed by the Act may result in various civil or criminal consequences, depending on the nature and severity of the breach. The Act does not specify particular offences or penalties for non-compliance with the determination of GST revenue sharing relativities. However, the Act and associated regulations may outline other potential consequences for non-compliance with related financial and administrative provisions. In the case of the Federal Financial Relations Act 2009, failure to adhere to the requirements for GST revenue sharing relativities could potentially lead to disputes between the Commonwealth and the States, impacting the distribution of GST payments and the equitable provision of services across the nation. The potential consequences could include legal challenges, financial disputes, or other ramifications that may arise from the non-compliance with the Act's requirements.