Commonwealth Grants Commission and Horizontal Fiscal Equalisation

Alan HendersonChairperson, Commonwealth Grants Commission

Third Annual Intergovernmental Relations Conference16-17 August 2011

National Convention Centre, Canberra

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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

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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

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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

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Source: Commission calculation using data from the Report on GST Revenue Sharing Relativities,

2010 Review.

NSW Vic Qld WA SA Tas ACT NT0

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Table 1: Horizontal fiscal equalisation — variations from an equal per capita distribution, 2010-11

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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

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Table 2: Horizontal fiscal equalisation — main factors accounting for the outliers, 2010-11*

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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

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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

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50Share of population

Share of mining revenue

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Figure 3: Indigenous share of State populations, 2009-10

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Source: ABS Indigenous population estimates, 2009-10.

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NSW Vic Qld WA SA Tas ACT NT Average

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Source: Commission calculation.

Figure 4: GST shares of populous States, 2000-01 to 2011-12

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Source: Commission calculation.

Figure 5: Mining revenue, 2000-01 to 2009-10

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Mining revenue ($b) Share of own source revenue (%)

Table 3: Net impact of mining, 2009-10

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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

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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

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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