Commonwealth Grants Commission and Horizontal Fiscal Equalisation Alan Henderson Chairperson, Commonwealth Grants Commission Third Annual Intergovernmental Relations Conference August 2011 National Convention Centre, Canberra

 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 2

 : Seven official inquiries and three Royal Commissions  1933: Commonwealth Grants Commission established – : Claimant States and standard States (NSW and Vic) – 1981: Full equalisation with each State assessed against the average of all other States 3

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. 4

5 Source: Commission calculation using data from the Report on GST Revenue Sharing Relativities, 2010 Review.

6 Source: Commission calculation using State populations and GST pool from Budget Paper No 3, May 2011.

Relative  cost of providing services  capacity to raise revenue  rate of population growth  share of Commonwealth specific purpose payments 7

8 Source: Commission calculation.

9 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.

10 Source: ABS Indigenous population estimates,

Source: Commission calculation. 11

Source: Commission calculation. 12

13 Source: Commission calculation.

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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. 15