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Part 3: General Revenue Assistance

Overview

General revenue assistance is provided to the States without conditions, to spend according to their own budget priorities. The main form of general revenue assistance is the GST entitlement. Other general revenue assistance includes payments in relation to municipal services in the Australian Capital Territory, royalties, and Snowy Hydro Limited tax compensation.

In 2016‑17, the States are expected to receive $61.3 billion from the Commonwealth in total general revenue assistance — $60.7 billion for the GST entitlement and $605 million for other general revenue assistance. This represents a 5.6 per cent increase in the GST entitlement compared to the $57.5 billion the States are expected to receive in 2015‑16. The Government has introduced measures impacting GST which include applying GST to low value goods imported by consumers and tobacco excise measures to improve health outcomes and combat illicit tobacco. Measures have increased the GST entitlements by $700 million over the forward estimates period.

In 2016‑17, total general revenue assistance to the States is expected to represent 13.6 per cent of total Commonwealth expenditure. Estimated total general revenue assistance provided to the States by the Commonwealth is shown in Table 3.1. Table 3.2 shows a breakdown by State.

Table 3.1: General revenue assistance
$million 2015‑16 2016‑17 2017‑18 2018-19 2019-20
GST entitlement 57,450.0 60,660.0 63,940.0 67,350.0 70,370.0
Other payments          
ACT municipal services 38.5 39.1 39.6 40.2 40.9
Compensation for reduced royalties 29.0 21.7 22.3 20.0 21.0
Royalties 643.6 468.7 451.9 408.5 415.1
Snowy Hydro Limited tax compensation 75.0 75.0 75.0 75.0 75.0
Total other payments 786.1 604.5 588.8 543.7 552.0
Total 58,236.1 61,264.5 64,528.8 67,893.7 70,922.0
Table 3.2: General revenue assistance by State(a)
$million NSW VIC QLD WA SA TAS ACT NT Total
2015‑16 17,546.7 12,897.0 13,044.0 1,911.7 5,573.2 2,265.7 1,080.3 3,274.0 58,236.1
2016‑17 17,684.4 13,910.5 14,297.4 2,040.9 6,100.5 2,306.9 1,193.5 3,261.8 61,264.5
2017‑18 18,649.0 14,709.9 15,075.7 2,162.5 6,399.0 2,402.3 1,255.4 3,423.2 64,528.8
2018-19 19,654.6 15,545.3 15,882.6 2,287.0 6,707.2 2,498.9 1,319.3 3,590.4 67,893.7
2019-20 20,549.6 16,296.3 16,595.6 2,403.0 6,973.4 2,577.7 1,375.4 3,735.9 70,922.0

(a) State splits for royalties are not published due to commercial sensitivities. Therefore, total general revenue assistance will not equal the sum of the State splits above.

GST payments

Under the Intergovernmental Agreement on Federal Financial Relations, the States are entitled to receive payments from the Commonwealth broadly equivalent to the revenue raised from the GST in any given financial year, after some minor adjustments, as discussed below.

The Commonwealth makes monthly payments (advances) to the States throughout the year based on GST estimates for that year. Estimates of the GST are used, as the actual amount of GST revenue for the financial year is unknown until after the end of the financial year. Once the amount of GST revenue is known, the Treasurer makes a determination of the GST entitlement for that year. A balancing adjustment payment is then made to each State to ensure the States receive the GST to which they are entitled. These balancing adjustments (referred to as the 'prior year balancing adjustment') are made in the following financial year.

States compensate the Commonwealth for the agreed costs incurred by the Australian Taxation Office (ATO) in administering the GST. In practice, this is achieved by the Commonwealth reducing the monthly GST payments to the States by the GST administration costs.

Calculating the GST payments

Some additional adjustments are made to GST revenue in order to calculate the amount of GST paid to the States in any given year, described below.

  • Some GST revenue accrued during a financial year is not remitted to the ATO by 30 June of that year, because it is not due to be paid until Business Activity Statements (BAS) are lodged the following financial year.
  • Penalties owed to the ATO, other than general interest charge (GIC) penalties, are not included in the GST to be paid to the States, as defined in the Federal Financial Relations Act 2009.
  • Some GST collected by Commonwealth agencies is not remitted to the ATO by 30 June in each financial year, because it is not due to be paid until the next BAS is lodged.

In 2015‑16, an amount of $342.0 million was added to the States' 2015‑16 GST entitlement as a balancing adjustment for the difference between the final amount as determined by the Treasurer and the advances made during the 2014‑15 financial year.

A reconciliation of GST revenue, GST entitlement and GST payments to the States is provided in Table 3.3.

Table 3.3: Reconciling GST revenue, GST entitlement and GST payments to the States
$million 2015‑16 2016‑17 2017‑18 2018-19 2019-20
GST revenue 60,040 63,340 66,910 70,740 73,470
less Change in GST receivables 2,232 2,412 2,690 3,100 2,787
GST receipts 57,808 60,928 64,220 67,640 70,683
less Non-GIC penalties collected 250 270 280 290 310
less GST collected by Commonwealth agencies but not yet remitted to the ATO 108 -2 .. .. 3
GST entitlement 57,450 60,660 63,940 67,350 70,370
plus Prior year balancing adjustment 342        
GST payments to the States(a) 57,792 60,660 63,940 67,350 70,370

(a) These GST payment estimates do not take into account the ATO's GST administration costs, which will be deducted from GST payments to the States throughout the year on a monthly basis.

Table 3.4 provides a reconciliation of the GST entitlement estimates since the 2015‑16 Budget and the Mid‑Year Economic and Fiscal Outlook 2015‑16 (2015‑16 MYEFO). The reconciliation accounts for policy decisions and parameter and other variations. The GST entitlement in 2016‑17 has been revised down by $60 million since the 2015‑16 MYEFO.

Table 3.4: Reconciliation of the GST entitlement estimates since the 2015‑16 Budget and 2015‑16 MYEFO
$million 2015‑16 2016‑17 2017‑18 2018-19
GST entitlement at 2015‑16 Budget 57,050 60,950 64,500 68,200
Changes between 2015‑16 Budget and MYEFO        
Effect of policy decisions 2 11 14 14
Effect of parameter and other variations 198 -241 -824 -1,544
Total variations 200 -230 -810 -1,530
GST entitlement at 2015‑16 MYEFO 57,250 60,720 63,690 66,670
Changes between 2015‑16 MYEFO and Budget        
Effect of policy decisions - -15 125 235
Effect of parameter and other variations 200 -45 125 445
Total variations 200 -60 250 680
GST entitlement at 2016‑17 Budget 57,450 60,660 63,940 67,350

Specific policy decisions taken since the 2015‑16 MYEFO that affect the GST entitlement are shown in Table 3.5. These decisions increase the amount of the GST entitlement by $700 million over the five years to 2019‑20.

Detailed information on policy decisions since the 2015‑16 MYEFO is included in Budget Paper No. 2, Budget Measures 2016‑17.

Table 3.5: Policy decisions since the 2015‑16 MYEFO that affect the GST entitlement
$million 2015‑16 2016‑17 2017‑18 2018-19 2019-20
Applying GST to low value goods imported by consumers - - 60.0 90.0 120.0
Indirect Tax Concession Scheme — diplomatic, consular and international organisation concessions .. .. .. .. ..
Ten Year Enterprise Tax Plan — increase the small business entity turnover threshold - -15.0 .. .. ..
Tobacco excise — measures to improve health outcomes and combat illicit tobacco - - 65.0 145.0 235.0
Total - -15.0 125.0 235.0 355.0

Distribution of the GST among the States

The Commonwealth distributes GST among the States in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission (the Commission).

The Commission uses the principle of horizontal fiscal equalisation to calculate its recommended GST revenue sharing relativities. In broad terms, the relativities are determined such that, if each State made the same effort to raise revenue from its own sources and operated at the same level of efficiency, each State would have the capacity to provide services and the associated infrastructure at the same standard.

In calculating GST relativities, the Commission takes into account differences in the States' capacities to raise revenues and differences in the costs the States would incur in providing the same standard of government services. A fiscally stronger State will require less GST revenue to have the capacity to provide services and infrastructure at an average standard. For example, a State that was assessed as requiring 90 per cent of the GST on a per capita basis to be able to provide services and infrastructure at an average standard would have a relativity of 0.9. A fiscally weaker State that was assessed as requiring 110 per cent of the GST on a per capita basis to be able to provide services and infrastructure at an average standard would have a relativity of 1.1. Importantly, a GST relativity does not reflect the amount of GST revenue returned to the State where the revenue was raised. This would only be true if the GST collected per person were the same in every State, which is unlikely given differences among the States.

Distributing the GST based on the principle of horizontal fiscal equalisation does not necessarily result in the same standard of government services being delivered by all States. It simply aims to equalise each State's capacity to provide the same standard of services.

The detailed calculation for the distribution of the GST entitlement in 2015‑16 and 2016‑17 is shown in Table 3.6.

Table 3.6: Calculation of GST entitlements(a)
  Estimated 31 December population GST relativities Adjusted population
(1) x (2)
Share of adjusted population Share of GST pool $million
  (1) (2) (3) (4) (5)
2015‑16          
NSW 7,673,875 0.94737 7,269,999 30.5% 17,496.7
VIC 5,992,339 0.89254 5,348,402 22.4% 12,872.0
QLD 4,806,849 1.12753 5,419,866 22.7% 13,044.0
WA 2,607,541 0.29999 782,236 3.3% 1,882.6
SA 1,704,186 1.35883 2,315,699 9.7% 5,573.2
TAS 517,536 1.81906 941,429 3.9% 2,265.7
ACT 393,480 1.10012 432,875 1.8% 1,041.8
NT 244,205 5.57053 1,360,351 5.7% 3,274.0
Total 23,940,011 na 23,870,858 100.0% 57,450.0
2016‑17          
NSW 7,785,528 0.90464 7,043,100 29.1% 17,634.4
VIC 6,096,490 0.90967 5,545,794 22.9% 13,885.5
QLD 4,876,082 1.17109 5,710,331 23.6% 14,297.4
WA 2,658,858 0.30330 806,432 3.3% 2,019.1
SA 1,719,548 1.41695 2,436,514 10.1% 6,100.5
TAS 518,510 1.77693 921,356 3.8% 2,306.9
ACT 398,676 1.15648 461,061 1.9% 1,154.4
NT 246,519 5.28450 1,302,730 5.4% 3,261.8
Total 24,300,211 na 24,227,317 100.0% 60,660.0

(a) Amounts shown are estimates of each State's GST entitlement based on the estimated total GST pool. For 2015‑16, these amounts do not take into account the 2014‑15 balancing adjustment of $342.0 million which was paid in 2015‑16.

The Commission does not produce relativities beyond the Budget year because its recommended relativities are based on actual outcomes in past years.

In Budget Paper No. 3, Federal Financial Relations 2015‑16, the Commonwealth committed to consult with the States on its methodology for calculating forward projections of GST entitlements. Following this consultation, the Commonwealth has decided to replace the technical projections of GST relativities with an assumption that the relativities in the Budget year will also apply to the forward estimate years. This assumption makes it clear that the Commonwealth is not attempting to project future changes in the States' share of GST, based on their future fiscal capacities.

This assumption — that the GST relativities in the Budget year also apply to the forward estimate years — is then applied to the Commonwealth's estimates of population and the GST entitlement to produce projections of the State breakdowns of the GST over the forward estimates. The Commonwealth publishes State breakdowns of the GST entitlement for the purpose of publishing an estimate of total payments to each State.

Table 3.7 shows the GST relativities recommended by the Commission and determined by the Treasurer for 2015‑16 and 2016‑17, and the Commonwealth's assumption of the relativities for 2017‑18 to 2019‑20. Table 3.8 shows the distribution of the GST entitlement based on the GST relativities in Table 3.7.

Table 3.7: GST relativities recommended by the Commission and the Commonwealth's assumption of GST relativities
  NSW VIC QLD WA SA TAS ACT NT
2015‑16 0.94737 0.89254 1.12753 0.29999 1.35883 1.81906 1.10012 5.57053
2016‑17 0.90464 0.90967 1.17109 0.30330 1.41695 1.77693 1.15648 5.28450
2017‑18(a) 0.90464 0.90967 1.17109 0.30330 1.41695 1.77693 1.15648 5.28450
2018-19(a) 0.90464 0.90967 1.17109 0.30330 1.41695 1.77693 1.15648 5.28450
2019-20(a) 0.90464 0.90967 1.17109 0.30330 1.41695 1.77693 1.15648 5.28450

(a) These figures do not represent a forecast of future relativities.

Table 3.8: Distribution of the GST entitlement(a)
$million NSW VIC QLD WA SA TAS ACT NT Total
2015‑16(b) 17,496.7 12,872.0 13,044.0 1,882.6 5,573.2 2,265.7 1,041.8 3,274.0 57,450.0
2016‑17 17,634.4 13,885.5 14,297.4 2,019.1 6,100.5 2,306.9 1,154.4 3,261.8 60,660.0
2017‑18 18,599.0 14,684.9 15,075.7 2,140.2 6,399.0 2,402.3 1,215.7 3,423.2 63,940.0
2018-19 19,604.6 15,520.3 15,882.6 2,267.0 6,707.2 2,498.9 1,279.1 3,590.4 67,350.0
2019-20 20,499.6 16,271.3 16,595.6 2,382.0 6,973.4 2,577.7 1,334.5 3,735.9 70,370.0

(a) Amounts shown are estimates of each State's GST entitlement based on the total GST pool estimates, population estimates and GST relativities as shown in Table 3.7.

(b) For 2015‑16, these amounts do not take into account the 2014‑15 balancing adjustment of $342.0 million which was paid in 2015‑16.

Box 3.1: The effect of horizontal fiscal equalisation

It is common for individual States within a federation to have different capacities to raise revenue or deliver services. The practice of equalising revenue capacities and/or expenditure capacities between the States in a federation is common. Australia has had various forms of fiscal equalisation since 1901.

One way to view the degree of horizontal fiscal equalisation is to compare each State's share of the GST entitlement using the GST relativities, with a notional distribution on an equal per capita basis. In 2016‑17, around $7.8 billion (or 12.8 per cent) of the GST entitlement is expected to be redistributed among the States, compared with an equal per capita distribution (Table A).

Table A: Difference from equal per capita distribution, 2016‑17
  GST distribution 2016‑17 Budget
$million
Equal per capita distribution of GST
$million
Redistribution(a)
$million
Projected population
'000
Per capita redistribution
$
NSW 17,634.4 19,434.8 -1,800.4 7,786 -231.3
VIC 13,885.5 15,218.5 -1,333.0 6,096 -218.7
QLD 14,297.4 12,172.0 2,125.4 4,876 435.9
WA 2,019.1 6,637.2 -4,618.1 2,659 -1,736.9
SA 6,100.5 4,292.5 1,808.0 1,720 1,051.5
TAS 2,306.9 1,294.3 1,012.5 519 1,952.8
ACT 1,154.4 995.2 159.2 399 399.3
NT 3,261.8 615.4 2,646.4 247 10,735.0
Total 60,660.0 60,660.0 7,751.5 24,300  

(a) The total redistribution of $7,752 million is the sum of positive items in that column.

Chart A below shows the proportion of the GST entitlement redistributed in 2016‑17 and since the GST commenced.

Chart A: GST redistributed as a proportion of the GST entitlement

This column chart shows the proportion of the total GST entitlement that is redistributed, compared to an equal per capita distribution, for each financial year from 2000-01 to 2016-17. The chart shows that the proportion of the total GST entitlement redistributed has remained at around 8 per cent of the total from 2000-01 to 2012-13. It has increased in 2013-14 and 2014-15, and is expected to continue increasing to 12.8 per cent in 2016-17.

X Value Outcomes Estimates
2000-01 7.99
2001-02 7.45
2002-03 8.09
2003-04 8.58
2004-05 9.37
2005-06 9.04
2006-07 8.28
2007-08 8.13
2008-09 8.16
2009-10 8.06
2010-11 7.94
2011-12 8.06
2012-13 8.43
2013-14 9.36
2014-15 10.36
2015-16 11.84
2016-17 12.78

GST administration

States compensate the Commonwealth for the agreed costs incurred by the ATO in administering the GST, including costs incurred by the Department of Immigration and Border Protection. The GST administration budget for the ATO is estimated to be $682.4 million for 2016‑17, as shown in Table 3.9.

Table 3.9: Reconciliation of the GST administration budget
$million 2015‑16 2016‑17 2017‑18 2018-19 2019-20
Administration budget at 2015‑16 Budget 679.6 617.1 597.8 587.6 na
Total parameter variations from 2015‑16 Budget to MYEFO - - - - na
Administration budget at 2015‑16 MYEFO 679.6 617.1 597.8 587.6 na
Changes from MYEFO to 2016‑17 Budget          
Applying GST to digital products and services imported by consumers(a) - 1.5 0.1 0.1 -
Applying GST to low value goods imported by consumers(b) - 4.4 3.6 3.3 2.6
Parameter variations - - - - -
Other variations - 59.4 35.2 28.1 1.7
Total variations - 65.3 38.9 31.4 4.3
Administration budget at 2016‑17 Budget 679.6 682.4 636.7 619.0 598.3
less Prior year adjustment 7.4        
equals State government payments 672.2 682.4 636.7 619.0 598.3

(a) Further information on the measure: applying GST to digital products and services imported by consumers can be found in Budget Paper No. 2, Budget Measures 2015‑16.

(a) Further information on the measure: applying GST to low value goods imported by consumers can be found in Budget Paper No. 2, Budget Measures 2016‑17.

The GST administration estimates published at the 2015‑16 Budget and the 2015‑16 MYEFO did not include a component for indirect costs (such as property, IT infrastructure, and corporate services overheads) relating to the extension of the GST compliance programme. Adjustments to include this component are reflected in 'other variations' in Table 3.9.

In 2014‑15, the GST administration payments made by the States were $7.4 million more than the combination of the total final audited GST administration cost for 2014‑15 and the States' 2013‑14 net overpayment. The 2014‑15 overpayment was subtracted from the estimated administration costs of $679.6 million for 2015‑16.

Other general revenue assistance

The Commonwealth makes payments of other general revenue assistance to the States, including:

  • payments to the Australian Capital Territory for municipal services;
  • compensation for reduced royalties;
  • royalties; and
  • Snowy Hydro Limited tax compensation.

Like GST, other general revenue assistance is provided to the States without conditions, to spend according to their own budget priorities. These payments are detailed below.

Table 3.10: Other general revenue assistance
$million 2015‑16 2016‑17 2017‑18 2018-19 2019-20
ACT municipal services 38.5 39.1 39.6 40.2 40.9
Compensation for reduced royalties 29.0 21.7 22.3 20.0 21.0
Royalties 643.6 468.7 451.9 408.5 415.1
Snowy Hydro Limited tax compensation 75.0 75.0 75.0 75.0 75.0
Total other general revenue assistance 786.1 604.5 588.8 543.7 552.0

Payments to the Australian Capital Territory for municipal services

The Commonwealth provides general revenue assistance to the Australian Capital Territory to assist in meeting the additional municipal costs which arise from Canberra's role as the national capital. This general revenue assistance also compensates the Australian Capital Territory for additional costs resulting from the national capital planning influences on the provision of water and sewerage services.

The level of funding is based on the findings of the Commonwealth Grants Commission in its second and third reports on financing for the Australian Capital Territory, prior to the move to self‑government in 1989.

Payments to the Australian Capital Territory for municipal services
$million NSW VIC QLD WA SA TAS ACT NT Total
2015‑16 - - - - - - 38.5 - 38.5
2016‑17 - - - - - - 39.1 - 39.1
2017‑18 - - - - - - 39.6 - 39.6
2018-19 - - - - - - 40.2 - 40.2
2019-20 - - - - - - 40.9 - 40.9

Compensation for reduced royalties

The Commonwealth provides general revenue assistance to compensate Western Australia for the loss of royalty revenue resulting from the removal of the exemption of condensate from crude oil excise in the 2009‑10 Budget.

Compensation for reduced royalties
$million NSW VIC QLD WA SA TAS ACT NT Total
2015‑16 - - - 29.0 - - - - 29.0
2016‑17 - - - 21.7 - - - - 21.7
2017‑18 - - - 22.3 - - - - 22.3
2018-19 - - - 20.0 - - - - 20.0
2019-20 - - - 21.0 - - - - 21.0

Royalties

Payments to Western Australia

The Commonwealth provides general revenue assistance to Western Australia from royalties collected under the Offshore Petroleum (Royalty) Act 2006 in respect of the North West Shelf oil and gas project off the coast of Western Australia. The Commonwealth collects these royalties because it has jurisdiction over offshore areas.

These royalties are shared between the Commonwealth (approximately one third) and Western Australia (approximately two thirds). These payment arrangements are in accordance with the revenue sharing arrangements in section 75 of the Offshore Petroleum and Greenhouse Gas Storage Act 2006.

Payments to the Northern Territory

The Commonwealth provides general revenue assistance to the Northern Territory in lieu of royalties on uranium mining in the Ranger Project Area, due to the Commonwealth's ownership of uranium in the Northern Territory.

General revenue assistance is payable biannually at the royalty rate of 1.25 per cent of the net proceeds of sales. These royalties are paid under a continuing agreement established under the 1978 Memorandum of Understanding between the Commonwealth and the Northern Territory.

Royalties(a)
$million NSW VIC QLD WA SA TAS ACT NT Total
2015‑16 - - - nfp - - - nfp 643.6
2016‑17 - - - nfp - - - nfp 468.7
2017‑18 - - - nfp - - - nfp 451.9
2018-19 - - - nfp - - - nfp 408.5
2019-20 - - - nfp - - - nfp 415.1

(a) State splits for royalties are not published due to commercial sensitivities.

Snowy Hydro Limited tax compensation

On 28 June 2002, the Snowy Mountains Hydro Electric Authority was corporatised. The assets and business of the Authority were transferred to Snowy Hydro Limited, a company jointly owned by the Commonwealth, New South Wales and Victoria (with 13 per cent, 58 per cent and 29 per cent shareholdings respectively).

The Commonwealth provides compensation payments to New South Wales and Victoria, in the form of general revenue assistance, for Commonwealth income taxes paid by Snowy Hydro Limited. The payments are made in proportion to the States' shareholdings.

Payments are made in accordance with the Snowy Hydro Tax Compensation Deed between the Commonwealth, New South Wales and Victoria. These taxes would have previously been payable to the States through tax equivalence regime payments.

Snowy Hydro Limited tax compensation
$million NSW VIC QLD WA SA TAS ACT NT Total
2015‑16 50.0 25.0 - - - - - - 75.0
2016‑17 50.0 25.0 - - - - - - 75.0
2017‑18 50.0 25.0 - - - - - - 75.0
2018-19 50.0 25.0 - - - - - - 75.0
2019-20 50.0 25.0 - - - - - - 75.0

Mirror tax arrangements

The Commonwealth introduced mirror tax arrangements in 1998 to ensure that the States were not financially disadvantaged by the High Court decision in Allders International Pty Ltd v Commissioner of State Revenue (Victoria), which invalidated State taxes on Commonwealth places. These arrangements mirror certain State taxes, including payroll taxes, land taxes and stamp duties, with respect to Commonwealth places. The States collect these mirror taxes on behalf of the Commonwealth and bear the administrative costs of collection.

All mirror tax revenues are credited to the Commonwealth and simultaneously appropriated to the States, with no net impact on the Commonwealth's budget position, as shown in Table 3.11.

Table 3.11: Mirror taxes accrued on behalf of the States
$million 2015‑16 2016‑17 2017‑18 2018-19 2019-20
Mirror taxes 526.7 552.9 581.5 610.7 629.8
less Transfers to State Governments 526.7 552.9 581.5 610.7 629.8
Commonwealth Budget impact - - - - -