Federal Financial Relations Act 2009 - Determination of the GST Revenue Sharing Relativity for 2009-10

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 Australian states. This Act was passed by the Australian Parliament to ensure that GST payments are made to states in a manner that upholds the principle of horizontal fiscal equalisation, as agreed upon by the Council of Australian Governments in the Intergovernmental Agreement on Federal Financial Relations. The primary policy objective of the Act is to distribute GST payments to states in a way that acknowledges and compensates for the differences in their capacities to raise revenues and the varying costs they incur to provide government services at a comparable standard. This approach ensures that smaller states receive the necessary budget support to maintain service standards similar to those of larger states, without causing significant distortions in economic behaviour or reductions in productivity growth. The Act mandates that the Treasurer consult with the states before determining the GST revenue sharing relativities, a requirement that was fulfilled through consultation at the Ministerial Council for Federal Financial Relations meeting on 25 March 2009.

Scope and Application

The Federal Financial Relations Act 2009 applies to the Commonwealth Treasurer in relation to the determination of GST revenue sharing relativities for the states. This Act implements the intergovernmental agreement on federal financial relations, which mandates the Commonwealth to make GST payments to the states that reflect the revenue received from the GST. These payments are distributed among the states in accordance with the principle of horizontal fiscal equalisation, taking into account recommendations from the Commonwealth Grants Commission. The Act requires the Treasurer to consult with the states before making the determination of GST relativities, ensuring a collaborative approach in the process. The application of the Act extends across all states in Australia, ensuring equitable distribution of GST revenue among them. There are no specific exclusions or thresholds stated in this determination, but the Act's broader purpose includes mechanisms for adjustments through subordinate instruments as necessary.

Key Provisions

The Federal Financial Relations Act 2009, specifically section 8, mandates that the Treasurer must determine a GST revenue sharing relativity for each state for a specified payment year. This determination involves setting a factor that will be used to distribute GST payments among the states, as outlined in the Intergovernmental Agreement on Federal Financial Relations. This agreement stipulates that the Commonwealth makes GST payments to the states equivalent to the revenue collected from the GST, and these payments are allocated based on the principle of horizontal fiscal equalisation, which aims to equalise the states' capacity to provide government services at the same standard. The Commonwealth Grants Commission is responsible for recommending the GST relativities used in calculating each state's share of the GST payments. Under the Act, the Treasurer is required to consult with the states before making the GST relativity determinations. This consultation process ensures that the states have the opportunity to provide input and feedback on the proposed relativities, which are determined by taking into account differences in the states' capacities to raise revenue and the costs they incur in providing the same standard of government services. By considering these factors, the relativities aim to equalise the states' ability to provide services at the same standard, without necessarily guaranteeing the same level of government services across all states. Furthermore, horizontal fiscal equalisation aims to provide the necessary budget support to smaller states, allowing them to offer services comparable to those of larger states, while ensuring that interstate transfers do not significantly distort economic behaviour and reduce productivity growth. The obligations imposed by the Act on the parties or entities it governs include the requirement for the Treasurer to consult with the states before making the GST relativity determinations. This consultation process is essential in ensuring that the states have a voice in the determination of the GST relativities, which are crucial in calculating each state's share of the GST payments. Additionally, the Treasurer must base the GST relativity determinations on the recommendations of the Commonwealth Grants Commission, which takes into account differences in the states' capacities to raise revenue and the costs they incur in providing the same standard of government services. This ensures that the GST relativities are calculated in a fair and equitable manner, promoting horizontal fiscal equalisation and allowing for the equalisation of the states' capacity to provide government services at the same standard. Breaches of the obligations and requirements imposed by the Federal Financial Relations Act 2009 may result in civil or criminal consequences, although the Explanatory Statement does not provide specific details on the penalties for non-compliance. However, it is worth noting that breaches of Commonwealth legislation can lead to various consequences, including fines, imprisonment, and other civil or administrative penalties. The specific penalties for breaching the Act would depend on the nature and severity of the breach, as well as any relevant case law or regulatory guidelines. It is essential for parties and entities governed by the Act to adhere to its requirements and obligations to avoid any potential civil or criminal consequences that may arise from non-compliance.