EXPLANATORY STATEMENT
Federal Financial Relations Act 2009
Determination of the GST revenue Sharing Relativity for 2012-13
Section 8 of the Federal Financial Relations Act 2009 (the Act) requires 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 recommends GST relativities 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 at the same standard and associated infrastructure.
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
Horizontal fiscal equalisation generally provides the necessary budget support to the smaller States so they have the capacity to provide services at a comparable standard to the larger States, while ensuring that the interstate transfers are not so large that they would significantly distort economic behaviour and reduce productivity growth.
The Act also requires the Treasurer to consult the States before making the GST relativities determination. The Treasurer consulted the States at the Standing Council for Federal Financial Relations meeting on 4 April 2012.
Overview
The Federal Financial Relations Act 2009 was enacted to address the need for equitable distribution of Goods and Services Tax (GST) revenues among the states of Australia. This Act, passed by the Commonwealth Parliament, is instrumental in ensuring that the smaller states receive sufficient budget support to enable them to provide services at a standard comparable to larger states. The Act was designed with the policy objective of achieving horizontal fiscal equalisation, thereby preventing interstate transfers from being excessively large to the point of distorting economic behaviour and reducing productivity growth. Section 8 of the Act mandates the Treasurer to determine the GST revenue sharing relativity for each state for a payment year, a process which takes into account the recommendations of the Commonwealth Grants Commission. The Commission's role includes considering differences in states' revenue capacities and the costs incurred in providing uniform standards of government services and infrastructure. Prior to making such determinations, the Treasurer is required to consult with the states, as exemplified by the consultation at the Standing Council for Federal Financial Relations meeting on 4 April 2012.
Scope and Application
The Federal Financial Relations Act 2009 governs the distribution of GST revenue among the Australian states, ensuring equitable financial relations as agreed under the Intergovernmental Agreement on Federal Financial Relations. Specifically, the Act mandates the Treasurer to determine the GST revenue sharing relativity for each state for a given payment year, which is essential for calculating each state's share of GST payments. These relativities are designed to account for differences in each state's capacity to raise revenue and the costs associated with providing a standard level of services and infrastructure. By consulting the states through the Standing Council for Federal Financial Relations, the Treasurer ensures that the determination process is collaborative and considers the states' fiscal capacities and needs. The Act applies to all Australian states, with its jurisdictional reach extending across the Commonwealth. There are no stated exclusions or thresholds in the Act itself, but the determination of GST relativities may be influenced by subordinate instruments and recommendations from the Commonwealth Grants Commission.
Key Provisions
The Federal Financial Relations Act 2009 (the Act) contains several key provisions, particularly in Section 8, which mandates the Treasurer to determine the GST revenue sharing relativity for a State for a payment year. This determination is based on the principle of horizontal fiscal equalisation, ensuring that States have the capacity to provide government services at the same standard, regardless of their size or revenue-raising capabilities. The relativity factors are calculated to reflect differences in each State's capacity to raise revenue and the costs incurred in providing government services and infrastructure.
The Act imposes several obligations on the parties involved. Primarily, the Treasurer must consult with the States before making the GST relativity determination, which is reflected in the Act's requirement to ensure that the relativities account for differences in revenue capacities and service costs among the States. This consultation process was exemplified when the Treasurer engaged with the States at the Standing Council for Federal Financial Relations meeting on 4 April 2012.
Failure to comply with the provisions of the Act may lead to significant consequences. While the Act does not explicitly outline specific offences or penalties for non-compliance, the distribution of GST payments and the relativity determinations are critical for maintaining equitable financial relations among the States. Any misallocation of GST payments could potentially lead to legal challenges and disputes regarding the fairness and accuracy of the distribution, which could have broader implications for federal-state financial relations.
In summary, Section 8 of the Act mandates the Treasurer to determine the GST revenue sharing relativity for States, ensuring equitable distribution of GST payments. This determination must consider the principle of horizontal fiscal equalisation and differences in revenue capacities and service costs. The obligation to consult with the States before making these determinations underscores the collaborative nature of federal-state financial relations in Australia. Although specific penalties are not outlined, the accuracy and fairness of these determinations are crucial for maintaining the integrity of interstate financial transfers.