EXPLANATORY STATEMENT
Federal Financial Relations Act 2009
Determination of the GST revenue Sharing Relativity for 2011-12
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 Ministerial Council for Federal Financial Relations meeting on 7 April 2011.
Overview
The Federal Financial Relations Act 2009 was enacted to formalise the intergovernmental financial arrangements in Australia, ensuring that the Commonwealth provides equitable financial support to the States. The Act specifically addresses the distribution of GST revenue among the States, as agreed by the Council of Australian Governments in the Intergovernmental Agreement on Federal Financial Relations. The determination of the GST revenue sharing relativity for 2011-12, as required by Section 8 of the Act, aims to distribute GST payments according to the principle of horizontal fiscal equalisation, taking into account the recommendations of the Commonwealth Grants Commission. This distribution seeks to equalise each State's capacity to provide services at the same standard, reflecting differences in revenue-raising capacities and costs associated with providing government services and infrastructure. The Treasurer is mandated to consult with the States before making such determinations, as evidenced by the consultation that occurred at the Ministerial Council for Federal Financial Relations meeting on 7 April 2011.
Scope and Application
The Federal Financial Relations Act 2009 applies to the Commonwealth, which is responsible for determining the GST revenue sharing relativity for a State for a payment year. This Act ensures that the Commonwealth makes GST payments to the States equivalent to the revenue received from the GST, and these payments are distributed according to the principle of horizontal fiscal equalisation and the recommendations of the Commonwealth Grants Commission. The GST relativities are calculated to account for the differences in the States' capacities to raise revenues and the costs they incur in providing the same standard of government services and infrastructure. The Act requires the Treasurer to consult the States before making the determination, as evidenced by the consultation at the Ministerial Council for Federal Financial Relations meeting on 7 April 2011. It is important to note that the Act extends its application through subordinate instruments, such as the determination of GST revenue sharing relativities, which are specified to ensure equitable distribution among the States.
Key Provisions
The Federal Financial Relations Act 2009 (the Act) includes a provision that mandates the Treasurer to determine a factor that represents the GST revenue sharing relativity for a State for a specific payment year (Section 8). This determination is based on the agreement reached by the Council of Australian Governments under the Intergovernmental Agreement on Federal Financial Relations. The Commonwealth uses these relativities to distribute GST payments to the States, aiming to reflect the principle of horizontal fiscal equalisation and taking into account the recommendations of the Commonwealth Grants Commission. These relativities are crucial as they determine the relative share of GST revenue each State receives, considering the differences in their revenue-raising capacities and the costs associated with providing government services.
The Act outlines specific obligations for the Treasurer in determining the GST revenue sharing relativity. Foremost, the Treasurer must consult with the States before making the determination, as required by Section 8. This consultation ensures that the process is transparent and that the States have an opportunity to provide input on the factors influencing their respective relativities. The Treasurer must also consider the recommendations from the Commonwealth Grants Commission, which provides a framework for calculating the relativities based on the differences in revenue capacities and service costs among the States. These obligations ensure that the determination process is thorough and considers all relevant factors to achieve equitable distribution of GST payments.
The Act does not explicitly outline specific offences or penalties for breaches related to the determination of GST revenue sharing relativities. However, the importance of adhering to the prescribed process and recommendations from the Commonwealth Grants Commission implies a certain level of accountability. Failure to consult appropriately or consider relevant recommendations could potentially lead to disputes or challenges regarding the fairness and accuracy of the GST payments. While there are no stated maximum penalties in the Act, any perceived inequities or procedural failures could be subject to review or legal challenge, potentially leading to adjustments in the distribution of GST payments to ensure compliance with the principles of horizontal fiscal equalisation.