Commonwealth Grants Commission
GST revenues are distributed among the States according to recommendations from the Commonwealth Grants Commission using the principle of horizontal fiscal equalisation (HFE).
The aim of HFE is to enable each State to provide the same standard of services, providing it makes the same effort to raise revenues from its own sources.
HFE takes account of the different costs faced by State governments in providing services and States’ differing capacities to raise their own revenues. To the extent that these differences can be identified and are due to unavoidable factors (such as high cost remote communities) rather than differences in State policies (or efficiency of service delivery), grants are allocated to offset the discrepancies.
The Grants Commission updates its calculation of State grant shares annually, using the latest available data (e.g. on State revenue bases and demographics). In addition to annual updates, the Commission undertakes a major review of the methodology used to implement fiscal equalisation every five or six years.
The Grants Commission released its '2013 Update' report on 15 March 2013 (report available at www.cgc.gov.au).
The 2013 Update recommendations will determine States’ GST grant shares in 2013-14.
The 2013 Update recommended a decrease in Western Australia’s funding 'relativity' from 0.551 to 0.446 (a State's relativity represents its share of GST grants as a proportion of its population share). The table below shows the recommendation for each State.
Impact of Grants Commission's 2013 Update Recommendations
|
Relativity(a)
|
Impact on GST of change
in relativity(b)
|
|
2012 Update
|
2013 Update
|
$m
|
$ per person
|
New South Wales
|
0.953
|
0.966
|
+193
|
+26
|
Victoria
|
0.921
|
0.904
|
-207
|
-37
|
Queensland
|
0.985
|
1.056
|
+696
|
+151
|
Western Australia
|
0.551
|
0.446
|
-549
|
-223
|
South Australia
|
1.285
|
1.262
|
-82
|
-49
|
Tasmania
|
1.581
|
1.615
|
+36
|
+71
|
ACT
|
1.198
|
1.221
|
+18
|
+49
|
Northern Territory
|
5.528
|
5.314
|
-107
|
-455
|
(a) A State’s relativity represents its share of GST grants as a proportion of its population share.
|
(b) These estimates are calculated by the Grants Commission using latest estimates of the 2012-13 GST grant pool and State populations.
|
Western Australia’s loss in the 2013 Update was primarily due to strong growth in Western Australia’s capacity to raise its own revenues, particularly mining royalties.
The 2013 Update relativities, to be used in 2013-14, reflect the Commission’s assessments of States’ relative revenue capacities and expenditure requirements on average over the three year data period 2009-10 to 2011-12. Although Western Australia’s average relativity for this period is 0.446, its relativity for the 2011-12 data year is only 0.355, so further declines in the average relativity can be expected as earlier years drop out of the three year average.