1. Presentation to the Panel reviewing the GST Distribution 6 May 2011 1

2. 1. Some history and the definition of HFE 2. Main reasons why GST shares differ 3. Developments in the last decade 4. Methodology changes in 2010 Review 5. CGC and the Committee to review HFE 2

3. CGC established 1933  1933-70s: claimant States assessed against a 2 State average (NSW and Victoria) Full equalisation  Fraser legislates1978, CGC reports 1980 and phased-in 1980s,Territories also by 1993-94  Each State assessed against an 8 State average  Reaffirmed Howard 1999, Rudd 2008 3

4.  Reviews of methodology  Annual updates ◦ Latest data are fed into the methods from the last review 4

5. 5 (a) Impact of revisions and changes in assessment methods combined

6.  The GST is distributed so that: ◦ After allowing for the major 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 Each operates at the same level of efficiency. 6

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8. 8

9. 9 Note: 3 yr average Source: CGC assessment system.

10. 10 Note: 3 yr average Source: ABS estimated resident population and revenue data sourced from CGC assessment system.

11. 11 Note: 3 yr average Source: CGC assessment system.

12. 12 Source: ABS indigenous population estimates, 2008-09

13. 13 Source: ABS SEIFA index, 2009-10 (Census District data).

14. 14 Source: CGC interstate wage disability factor, Update 2011 Note: 3 year average using data for the years 2007-08 to 2009-10.

15. 15 2011 Update Amount redistributed $m Mining production ( 7% of OSR)* 3 802 Indigenous influences2 562 Where people live1 642 Wage Levels1 187 Socio-economic status1 131 Payrolls ( 18% of OSR)* 881 Property Sales ( 13% of OSR)* 767 Source: Table 7, 2011 Update Report, Commonwealth Grants Commission. * OSR = Own source revenue

16. 16

17. 17 NSWVicQldWASATasACTNTRedist $m Equal per capita16 104.212 429.710 193.95 192.33 640.41 121.3800.0518.2 Illustrative15 439.911 257.49 475.83 728.24 630.61 795.2894.12 778.9 Redistribution-664.4-1 172.3-718.1-1 464.1990.2673.994.12 260.74 018.9

18. 18 Source: CGC calculation.

19. 19

20. 20

21. 21 Percent

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23. 23

24.  Simplification and materiality - Required by terms of reference  Averaging of data: 5 years reduced to 3 years - Contemporaneity versus stability - Lags reduced by 2 years - Implications of lags for booms and busts  Investment and population growth - Needs assessed upfront 24

25. 25 Note: 3 year average Source: CGC calculation.

26. 26 Note: 3 year average. Based on data for 2007-08 to 2009-10. Source: ABS Estimated resident population.

27. 27

28.  Welcomes the Review  Will fully cooperate with the Review  Need for transparency ◦ We will adopt our usual practice for reviews and updates ◦ Any submissions we make will be placed on our website  Need to remain neutral ◦ CGC has continuing responsibility ‘to make recommendations on the distribution of the GST’  Some CGC staff will be seconded to Secretariat 28