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Unformatted text preview: lo, 1998).
The potential implications of this change are indicated in Table 17. This Table shows:
♦ In Column 1 the distribution of the overall GST revenue, as indicated by the Treasurer in 2001-02 Budget Paper No. 3,
Table 2; ♦ In Column 2 the estimated distribution of funds which would have occurred had the States received FAGs, with the
balance of the $27.5 billion funding being raised through the abolished State taxes (assuming that the tax provisions of the
Intergovernmental Agreement had been fully implemented but that there was no transitional assistance); and ♦ In Columns 3 and 4, the difference between the two distributions.
COMPARISON OF THE EFFECTS OF DIFFERENT BASES FOR THE DISTRIBUTION OF GST REVENUE, 2001-02
(in million of dollars)
GST Revenue Distribution
(1) New South Wales
Source: author’s calculations. State Revenue Distribution
(3) Difference (%)
0.0 The Table indicates that the application of HFE principles to the distribution among the States of the total GST revenue
will (after the end of the transitional period) result in a significant redistribution of funds compared with the outcome
which would have resulted had the States raised the $8.7 billion excess from their abolished revenue sources. According
to these calculations, the major redistribution occurs from NSW to Queensland.
134 Commission on Fiscal Imbalance However, care should be taken with the interpretation of this Table since it relates to the funds available to State
governments. It may also be that NSW taxpayers paid less tax under the GST than they would have paid under the
abolished State taxes, and Queensland taxpayers paid more. Thus the redistribution between governments is likely to
be more than between taxpayers.
The principles and processes of Australian fiscal equalisation are complex and not widely understood in the Australian
community. Given that the increased importance of the HFE funds distribution process under the IGA appears to entail
some funds redistribution, a broad explanation of the HFE process follows.
Fiscal equalisation is designed to correct the problem of horizontal fiscal imbalance (HFI). HFI in the federal system
results from a combination of cost disabilities in public service provision and of revenue-raising disabilities in the funding
of those public services.
Expenditure cost disabilities in a particular State can arise from a number of sources, including:
♦ Geographic size, leading to high per capita costs for the provision of infrastructure such as roads and railways; ♦ Small population size and low population density, leading to inability to exploit scale economies in the provision of such
public services as education and health; and ♦ Population age structure which, with a relatively high proportion of school age children, could lead to above average per
capita expenditures on education, or, with a relatively high proportion of the population being above retirement age, would
be likely to lead to above average health and welfare expenditures. In summary, some States suffer cost disabilities in that their per capita costs of provision of a given...
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