Grants Commission 2010 Review

1

26 February 2010

MEDIA RELEASE

Embargoed until 2.00 pm 26 February 2010

REPORT ON REVENUESHARING RELATIVITIES 2010

The Commonwealth Grants Commission has released its advice on how GST revenue should bedistributed among the States and Territories in 2010-11. (A copy of the Overview, including the mainreasons for the changes for each State and Territory is attached).

Under the Commission’s recommend

ations for 2010-11, Victoria and New South Wales, and to alesser extent Queensland and South Australia, receive larger shares of GST revenue compared to2009-10, while Western Australia, and to a lesser extent the Northern Territory and the ACT, receivesmaller shares. The share of Tasmania would stay unchanged.The Chairman of the Commission, Alan Morri

s, said, “This

review takes into account the significantchanges in the fiscal circumstances of the States since

the Commission’s

last review in 2004. At thetime of that review, New South Wales and Victoria were fiscally stronger than the other States. Whiletheir fiscal capacities are still above average, those of Western Australia and Queensland havestrengthened quite dramatically over recent years as a result of strong increases in their revenue raisingcapacities, principally from mining royalties. The fiscal capacities of these two States are now thestrongest. These four States now share the cost of raising the fiscal capacities of the four weakerStates to the average.

“

Fiscal equalisation is designed so that,

as a State’s own capacity to rai

se revenue, or its cost of delivering services, diverges from the national average, there are compensating adjustments to itsGST revenue

”

, Mr Morris said.

“

That is what has happened in recent updates, and in this review

.”

In this review, the Commission is recommending that the relativities should be more up-to-date byshortening the assessment period from an average of five past years to three years.

“This provides

relativities that are more appropriate, particularly when State fiscal circumstances diverge quite

markedly, as has been the case over recent years”

,

Mr Morris said. “The reduction in the averaging

period has a significant

—

though one-off

—

impact on States’ GST revenue.”

2We have also changed the way we deal with State infrastructure investment to have the GSTdistribution respond more quickly to changing State circumstances.

“

Our new approach to recognisingState needs for infrastructure and other assets better recognises the needs of States with fasterpopulation growth by giving the same prominence to their growing revenue capacities and theirinvestment needs

”

, Mr Morris said.

“

Consistent with our terms of reference, we have also sought to achieve equalisation using simpler,more robust methods, and using data consistent with their quality. That means that some of ourmethods have changed, that some of the small influences captured in the past have not been continued,and that some influences now carry less weight.

”

BACKGROUNDTable 1 Sources of change in the GST distribution between 2009-10 and 2010-11

NSW Vic Qld WA SA Tas ACT NT Total$m $m $m $m $m $m $m $m $mEstimated 2009-10 12 774.1 9 644.4 7 839.2 3 413.0 3 908.5 1 573.0 862.5 2 285.4 42 300.0Illustrative 2010-11 13 843.7 10 516.4 8 384.0 3 190.1 4 265.3 1 664.4 832.6 2 363.4 45 060.0Change 1 069.6 872.1 544.8 -222.9 356.9 91.4 -29.9 77.9 2 760.0Change caused by:Shortening reviewperiod579.0 186.1 -388.0 -490.2 65.2 -12.4 13.5 46.9 0.0Other method changes-701.1 -35.3 878.6 107.5 21.1 -1.4 -83.8 -185.6 0.0Total method changes -122.1 150.9 490.6 -382.7 86.2 -13.8 -70.3 -138.8 0.0State circumstances 399.5 72.1 -510.4 -60.2 32.2 14.4 -9.5 61.8 0.0Total relativities 277.3 223.0 -19.8 -442.9 118.4 0.6 -79.8 -76.9 0.0Population -55.6 5.0 51.0 24.6 -22.8 -11.1 -1.2 10.1 0.0Pool 848.0 644.1 513.5 195.4 261.3 101.9 51.0 144.8 2 760.0Change1 069.6 872.1 544.8 -222.9 356.9 91.4 -29.9 77.9 2 760.0Total change ($pc)150.00 159.71 122.33 -98.52 218.92 181.07 -84.76 344.26 125.33

Table 2 Shares of the 2009-10 GST and illustrative 2010-11 GST

NSW Vic Qld WA SA Tas ACT NT AveEstimated 2009-10 share30.2 22.8 18.5 8.1 9.2 3.7 2.0 5.4 100.0Illustrative 2010-11 share30.7 23.3 18.6 7.1 9.5 3.7 1.8 5.2 100.0Difference 0.5 0.5 0.1 -1.0 0.2 0.0 -0.2 -0.2 0.0

CONTACT OFFICER

Mr John Spasojevic, Secretary of the Commission 02 6229 8814

1

OVERVIEW

This review recognises that the equalisation landscape has been radically transformed.At the time of the 2004 Review, the two most populous States

—

New South Wales andVictoria

—

had above average fiscal capacities and together shared the cost ofequalisation,

while other States’ capacities were below average, and the N

orthernTerritory well below average. Now the two most populous States lie close to averageand the two faster growing States

—

Queensland and Western Australia

—

have seentheir fiscal capacities strengthen relative to the other States at unprecedented rates andto historically high levels. These four now share the cost of equalisation. The other fourStates

—

South Australia, Tasmania, the ACT and the Northern Territory

—

remainbelow average, with the Northern Territory still well below average.We have made our recommendations to recognise these shifts.Achieving equalisation in this environment, which sees the strong and growing revenuecapacities of Western Australia and Queensland effectively shared with other States,requires a clearer recognition that this level of, and growth in, revenue capacity alsoincreases the need for those States to spend to build the infrastructure required andacquire other assets in keeping with their population growth. Both have to beadequately recognised at the same time for equalisation to be achieved.We also recognise that to achieve equalisation when State fiscal circumstances arerapidly changing requires that the distribution of GST revenue should be as relevant aspossible to the circumstances of the year in which our recommendations are to beapplied. We consider this can most practically be achieved by shortening theassessment period so that the distribution reflects the most recent representative data.We have also set out to achieve equalisation using simpler, more robust methods, usingdata consistent with their quality. We believe that we have done so. That means thatsome of our methods have changed, that some of the small influences captured in thepast have not been continued, and that some influences now carry less weight. Weconsider this is consistent with our terms of reference.We believe the new methodologies we have used to recommend the distribution of GSTrevenue are responding to changing State circumstances and will be more responsiveto future change than those developed in 2004.