EXPLANATORY STATEMENT
Federal Financial Relations Act 2009
Determination of the GST revenue Sharing Relativity for 2010-11
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 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 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 Ministerial Council for Federal Financial Relations meeting on 26 March 2010.
Overview
The Federal Financial Relations Act 2009 was enacted to establish the framework for the Commonwealth's financial relations with the States, including the distribution of GST revenues. This Act aims to ensure that States have the necessary financial resources to provide government services at a comparable standard, despite their differing capacities to raise revenue. The Commonwealth Grants Commission's recommendations on GST relativities are central to this process, taking into account the varying fiscal capacities and service costs across the States. This legislation reflects the Council of Australian Governments' commitment to horizontal fiscal equalisation, ensuring that smaller States receive adequate budget support without causing significant economic distortions. The Treasurer is mandated to consult with the States before determining the GST relativities, as demonstrated by the consultation held at the Ministerial Council for Federal Financial Relations meeting on 26 March 2010.
Scope and Application
The Federal Financial Relations Act 2009 applies to the Commonwealth Treasurer in their role of determining the GST revenue sharing relativity for the States, as mandated by section 8 of the Act. This determination is integral to the distribution of GST payments among the States, ensuring that these payments are made in accordance with the principle of horizontal fiscal equalisation and considering the recommendations of the Commonwealth Grants Commission. The Act applies to all Australian States, as the GST payments are designed to equalise each State's capacity to provide government services and associated infrastructure at the same standard, taking into account differences in revenue capacities and costs of service provision. The Act’s geographic reach is national, as it governs the Commonwealth’s distribution of GST revenue across all States. The Act does not specify any exclusions or exemptions and operates through the determination of GST relativities, which may be further detailed through subordinate instruments or administrative decisions made by the Treasurer in consultation with the States.
Key Provisions
The Federal Financial Relations Act 2009, specifically section 8, mandates that the Treasurer must determine a factor that will be used as the GST revenue sharing relativity for a State for a payment year. This determination is a pivotal aspect of the Act, as it ensures that the Commonwealth's GST payments to the States are equitable and aligned with the principles of horizontal fiscal equalisation (section 8(1)). The relativity factor essentially reflects the differences in each State's capacity to raise its own revenue and the costs involved in providing government services and infrastructure. These relativities are calculated based on recommendations from the Commonwealth Grants Commission, which considers various factors such as revenue-raising capacity and service provision costs.
Under the Act, the Treasurer is obligated to consult with the States before making the GST relativities determination. This consultation is an integral part of the legislative process and ensures that all relevant parties have an opportunity to provide input. The Treasurer, in this instance, consulted the States during the Ministerial Council for Federal Financial Relations meeting held on 26 March 2010. This consultation process is essential for maintaining transparency and cooperation in the federal financial relations framework.
Failure to comply with the requirements set forth in the Act can result in various legal consequences. While the Act does not explicitly detail specific offences or penalties within the provided text, breaches of such statutory requirements could potentially lead to legal actions or administrative consequences. In Australian law, non-compliance with legislative mandates can often result in penalties, which may include fines or other sanctions depending on the nature and severity of the breach. It is important to note that the precise penalties for non-compliance would be determined based on the specific circumstances and any relevant legislative provisions.