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Unformatted text preview: istics purposes.
(Australian Bureau of Statistics, Information Paper. Accruals-based Government Finance Statistics.
2000, catalogue number 5517.0).
With the States having lost direct control over approximately $3.5 billion of revenue in financial year 2001-2, without
losing any expenditure responsibilities, the degree of VFI has been increased.
The absence of forecasts beyond 1999-2000 for both revenues and expenditures for the three levels of government
make the estimation of the impact of the ANTS Agreement changes upon VFI a somewhat hazardous process. Table
16, therefore, represents an attempt to estimate the impact on VFI of the ANTS changes had they been fully operational
in the fiscal year 1997/8. While it is not possible to claim complete accuracy for this calculation there appears no reason
to doubt the general conclusion to be drawn from this Table. 132 Commission on Fiscal Imbalance TABLE 16
ESTIMATED IMPACT OF THE INTERGOVERNMENTAL AGREEMENT
ON VERTICAL FISCAL IMBALANCE, 1997/98
(as a percentage)
After implementation of IGA 73
100.00 Proportion of Total Own-Source Revenues Commonwealth
Proportion of Total Own-Purpose Expenditures Commonwealth
VFI Ratio (Revenues/Expenditures) Commonwealth
Source: as for Table 15, and author’s calculations. It has been demonstrated that the Agreement will involve a substantial increase in the degree of vertical fiscal imbalance
in the Australian Federation. What are the implications of such a change in VFI?
The significance of VFI goes to the heart of the justification for the federal system. The basis for the belief in federalism
is the existence of different preferences, for types and levels of public services and taxes, in different areas of the nation.
The communities of predominantly rural States, such as Queensland, will have different preferences from those in more
urbanised States, such as Victoria or New South Wales. A unitary nation, with a single central government (which has
local government directly under its constitutional control) will be largely constrained to provide common levels of service
at common tax levels.
The implementation of uniform policies across areas of disparate preferences will, it is asserted, have substantial
efficiency implications. This arises from the fact that the provision of a common level of services funded by common
taxes will lead to underprovision of services in some areas compared with what those communities would prefer, and
overprovision in others.
Thus, in areas of underprovision, a certain level of services is not provided in spite of the community’s being willing to
pay (in terms of taxes) the costs of provision. In areas of overprovision, on the other hand, services are being provided
at a level above that for which the community would be willing to bear the full costs.
In a federal system, on the other hand, the individual States can prov...
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