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Fiscal Federalism In Major Countries

Salient features in a few major

Federations i.e. Australia and
United States.
- There are currently 6 States and 2 territories and
approximately 774 local governments.
- Commonwealth taxes- are income taxes on
individuals and business, sales tax, and taxes on
international trade.
- The states most important taxes are on payrolls,
financial and capital transactions, gambling, insurance,
and motor vehicles.
- Local government tax immovable property.
In 1998, the commonwealth accounted

- 68 percent of all public-

sector current revenues
- The States raised .28
- Local Governments
collected around 4 percent
The Australian Inter governmental
fiscal transfer system deal with
vertical fiscal imbalance and
horizontal fiscal imbalance between
the states through specific grants
specific purpose payments and block
grants (general revenue grants) from
the federal government to the States
and local government.
As pant of Australian Tax
reform of 2000, the federal
government introduced a
goods and services tax (GST)
or VAT.
- In Australia, the federal
government has retained
the exclusive power to tax
income. To ensure that the
tax system has a highly
degree of uniformity in tax
rates and tax bases.
The high transfer dependence
ratio has not led to fiscal
profligacy because there is a
remarkable on the need to
maintain fiscal discipline at
all levels of government.
Australia combine legally
mandated transparency with
rules and objectives for
deficits and dept levels.
The States do not have any rule that
prohibit them from running deficits.
There is, however, a broad
consensus that States should
maintain fiscal balance.
As pant of reforms the States are also required
To improve frequency and openness of their
financial reporting not only to permit
monitoring of their financial activities but
also to provide move reliable information to the
financial markets.
Fiscal F eder alism in t he
United Sta tes

The United States federal is highly

decentralized, and generally
regarded as an example of well
managed federal fiscal system.
- US composed of 50 states, 1
federal district and 87, 525 local
The constitution of the United States
allows the States to perform all
functions that are not expressly
reserved for the federal income and
do not violate the constitution.
- Both the federal State of government
levy a tax on personal income.
The federal income tax leaves only
limited room for the States.
- Most State rely on the use of personal
income tax and generally sales taxes,
which produce more than two- thirds of
their tax revenue.
- US is characterized by very low fiscal
- State and local government are
heavily dependent on transfers from
the federal government to meet their
fiscal needs.
- 30 percent
- The transfers from the federal
government accounting for about
30 percent of States total
- Local government Governments
depend on inter- governmental
transfers for nearly 37 percent of
their total revenues (33 percent
from State and 4 percent from
federal level).
- There is no system in place to
equalize fiscal capacity across
- sub- national governments in the US
are, in principle, free to barrow without
federal involvement.
- The federal government subsides sub-
national barrowings by exempting the
interest on State and local bonds from
federal income taxation.

Current situation on fiscal decentralization

- There is an extreme shortage of
qualified and competent public
finance specialists and line
The government is heightening
efforts to monitor budget
implementation in the
priority areas of health,
education, agriculture and
rural development building
on earlier efforts to
improve the management.
Government has declared that line
ministries will be provided with
quarterly spending plans, more
timely transfers, and that
quarterly budget allocations and
disbursement will be published.
Audit Law was passed in March 2000
establishing the National Audit Authority
(NAA) as the Supreme Audit Institution in
- The Law empowers the NAA to conduct
financial, performance and compliance
audits of government ministries,
agencies, loan projects, State
enterprises, joint venture undertakings in
which the government has a financial
Other important features of this
law relates to its independence
of reporting directly to the
national assembly.