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Commonwealth Grants Commission and Horizontal Fiscal Equalisation
Alan HendersonChairperson, Commonwealth Grants Commission
Third Annual Intergovernmental Relations Conference16-17 August 2011
National Convention Centre, Canberra
2
History: evolution in response to changing circumstances
Current system: variations from equal per capita shares of GST
- mining royalties, Indigeneity, socio-economic status
Changing GST shares: impact of the mining boom
Topics
3
1925-32: Seven official inquiries and three Royal Commissions
1933: Commonwealth Grants Commission established
– 1933-80: Claimant States and standard States (NSW and Vic)
– 1981: Full equalisation with each State assessed against the average of all other States
History
4
GST is distributed so that:
after allowing for factors affecting revenues and expenditures
each State has the fiscal capacity to provide services and the associated infrastructure at the same standard
if each makes the same effort to raise revenue from its own sources and operates at the same level of efficiency.
Current System: Full Equalisation
Figure 1: GST and population shares, 2010-11
5
Source: Commission calculation using data from the Report on GST Revenue Sharing Relativities,
2010 Review.
NSW Vic Qld WA SA Tas ACT NT0
5
10
15
20
25
30
35 GST share Population share
Per
cen
t
Table 1: Horizontal fiscal equalisation — variations from an equal per capita distribution, 2010-11
6
Source: Commission calculation using State populations and GST pool from Budget Paper No 3, May 2011.
More populous States Variation Less populous States Variation
$pc $pc
Western Australia -639 Northern Territory 8 248
Queensland -173 Tasmania 1 259
Victoria -119 South Australia 580
New South Wales -94 ACT 312
Relative
cost of providing services
capacity to raise revenue
rate of population growth
share of Commonwealth specific purpose payments
Reasons for differences
7
Table 2: Horizontal fiscal equalisation — main factors accounting for the outliers, 2010-11*
8
Source: Commission calculation.
$ per capita
Western Australia net -639
Revenue raising, mineral production -905
Northern Territory net 8 248
Indigeneity 5 444
Population dispersion 1 635
Non-state service provision 762
Tasmania net 1 259
Socio-economic status 332
Diseconomies of scale 352
GST impact of mining assessment 2009-10 ($m)
Figure 2: Shares of population and mining revenue, 2007-08 to 2009-10
9
Note: Three-year average.
Sources: ABS estimated resident population and revenue data from Commission calculations for the
Report on GST Revenue Sharing Relativities, 2011 Update.
NSW Vic Qld WA SA Tas ACT NT0
5
10
15
20
25
30
35
40
45
50Share of population
Share of mining revenue
Per
cen
t
Figure 3: Indigenous share of State populations, 2009-10
10
Source: ABS Indigenous population estimates, 2009-10.
0
5
10
15
20
25
30
35
NSW Vic Qld WA SA Tas ACT NT Average
Per
cen
t
Source: Commission calculation.
Figure 4: GST shares of populous States, 2000-01 to 2011-12
11
0.6
0.7
0.8
0.9
1.0
1.12
00
0-0
1
20
01-
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08-
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20
09-
10
20
10-
11
20
11-
12
Rel
ati
vit
y
NSW Vic
Qld WA
Source: Commission calculation.
Figure 5: Mining revenue, 2000-01 to 2009-10
12
0
1
2
3
4
5
6
7
8
9
0
1
2
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04-
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Per
cen
t o
f o
wn
so
urc
e re
ven
ue
Do
lla
rs b
illi
on
Mining revenue ($b) Share of own source revenue (%)
Table 3: Net impact of mining, 2009-10
13
Source: Commission calculation.
NSW Vic Qld WA SA Tas ACT NT
GST impact of Mining assessment 2009-10 ($m) 733 999 -591 -1 466 161 69 67 -51
Actual royalties 2009-10 ($m) 985 45 2 015 3 177 125 39 0 178
Net impact ($m) 1 718 1 044 1 424 1 711 286 108 67 127
Net impact ($pc) 239 190 318 752 175 214 190 558
Source: Commission calculation.
Table 4: Net impact of mining, 2007-08 to 2009-10
14
NSW Vic Qld WA SA Tas ACT NT
$pc $pc $pc $pc $pc $pc $pc $pc
2007-08 171 160 199 638 169 201 160 227
2008-09 274 168 648 886 183 187 167 824
2009-10 239 190 318 752 175 214 190 558
15
HFE addresses inequalities among the States, and the arrangements and methodologies for achieving HFE have changed significantly over time
The key differences driving the distribution of the GST include mining royalties, Indigeneity, population dispersion and socio-economic status
Largely as a result of the mining boom, Western Australia and Queensland, as well as Victoria and New South Wales, now receive less than an equal per capita share of GST. The change for Western Australia has been significant.
Summary