Payments to the States and Territories
Today’s meeting of the Ministerial Council for Commonwealth-State Financial Relations noted the Statement of Estimated Payments to the States and Territories (Attachment A).
The Statement indicates that total GST revenue and other payments to the States are estimated to be $67.6 billion in 2006-07 (an increase of 3.8 per cent over 2005-06) and $71.7 billion in 2007-08 (an increase of 6.0 per cent).
Of this total payment:
- $59.9 billion will be provided in 2006‑07 to fund the States’ own activities and $63.4 billion will be provided in 2007‑08;
- $2.2 billion will be provided for local governments in 2006‑07 and $2.3 billion will be provided in 2007‑08; and
- $5.5 billion will be passed on to other bodies (such as private schools) in 2006‑07 and $6.0 billion will be provided in 2007‑08.
GST revenue and the States’ gains from tax reform
The Ministerial Council noted that the States will receive an estimated total of $39.3 billion in 2006-07 (an increase of 5.8 per cent over 2005-06) and $41.9 billion in 2007‑08 (an increase of 6.4 per cent). These estimates are based on the 2006-07 Mid‑Year Economic and Fiscal Outlook estimates of total GST revenue.
The estimates show that all States and Territories will receive GST revenue in excess of their Guaranteed Minimum Amount, and consequently no State or Territory will require Budget Balancing Assistance in 2006-07 or over the forward estimates. The States are estimated to be better off by $2.0 billion in 2006-07 than they would have been under the previous system of federal financial arrangements, and this windfall revenue position is expected to grow to $3.3 billion in 2007-08.
Distribution of GST revenue
In signing the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, all States and Territories agreed that the GST would be distributed amongst them on the basis of Horizontal Fiscal Equalisation (HFE) according to the recommendations of the Commonwealth Grants Commission, which is the independent and expert arbiter on HFE.
The Commission’s recommended relativities were discussed by the Ministerial Council and were endorsed.
The Commission’s methodology is developed in consultation with all the States and is based on the long-standing principle that all State governments should have the same capacity to provide quality services to their citizens. That principle was supported by all treasurers at today’s meeting.
Any complaints from the States about their funding are a dispute between the States over the distribution of GST between themselves. Every dollar of GST revenue goes to the States and Territories.
Specific purpose payments (SPPs)
The Australian Government has continued to maintain the aggregate level of SPP funding to the States and Territories, consistent with its commitment under the Intergovernmental Agreement. In fact, the Australian Government’s funding of SPPs has increased by 26.7 per cent in real terms since 1999‑00. Furthermore, the States noted that even by their benchmarks, Commonwealth funding of SPPs exceeds their expectations.
Total SPPs will increase by around 5.3 per cent, or around $1.5 billion, in 2007-08. After subtracting SPPs which will be paid direct to local government, or which pass through the States and Territories to other bodies, SPPs are estimated to increase by around 4.6 per cent, or $0.9 billion. Detailed estimates of the proposed level of SPPs and their distribution among the States and Territories will be included in the Australian Government’s 2007-08 Budget.
GST administration issues
As the Australian Taxation Office (ATO) collects all GST revenue on behalf of the States and Territories, the Intergovernmental Agreement provides that accountability and performance arrangements will be established between the State and Territory governments and the ATO. The Ministerial Council endorsed several updates to the GST Administration Performance Agreement between the Australian Taxation Office and the States and Territories.
The Ministerial Council also discussed GST administration costs and agreed to the ATO’s GST administration budget of $636.0 million for 2007-08, consistent with the requirement in the Intergovernmental Agreement that the States compensate the Australian Government for the costs of administering the GST.
Australian Loan Council Allocations for 2007-08
The Australian Loan Council met after the Ministerial Council. The Loan Council endorsed the Loan Council Allocations nominated by the Australian Government and each State and Territory for 2007-08 (Attachment B).