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Unformatted text preview: ed grants); and ♦ Specific purpose payments (tied grants). General revenue assistance was distributed to the States on fiscal equalisation principles. Some States experience
expenditure disabilities as a result of relatively high per capita costs for the provision of public services. They may also
experience revenue-raising disabilities as a result of their having relatively small per capita tax bases. The objective of
fiscal equalisation is to compensate the poorer States for these expenditure and revenue disabilities (but not for the
results of any inefficiencies arising from their own discretionary policies). The process attempts to achieve capacity
equalisation not performance equalisation. The relativities upon which the distribution of general revenue assistance is
based are recommended by the Commonwealth Grants Commission (CGC). In the determination of its relativities
recommendations, the Grants Commission takes some account of Commonwealth specific purpose payments to the
States, even though these are funds in the use of which the States have no discretion.
There remained scope for negotiation between the two levels of government on funds allocation and these were
conducted in Financial Premiers Conferences and in the Council of Australian Government. This latter body has a remit
much broader than simply financial matters, dealing with such issues as the reforms designed to achieve a single,
harmonised national market. 113 Commission on Fiscal Imbalance The process by which the arrangements existing at June 2000 were reached was a complex one. There could be said to
have been two major themes to Commonwealth-State financial relations over the life of the Australian federation:
1. 2. The battle between the two levels of government over the allocation of taxing powers. This battle has been decisively won
by the Commonwealth, as a result of the “temporary” coercive acquisition of sole income taxing powers (relating to both
personal income and company profits) by the Commonwealth in the wartime conditions of 1942, and the interpretations of
Section 90 of the Constitution by the High Court which have removed from the States the power to impose broad-based
The ebb and flow of the allocation of relative expenditure powers between Commonwealth and State Governments, with
some Commonwealth governments pursuing centralist agenda while others have been more willing to yield independent
power to the States. For detailed information on the history of federal financial relations in Australia see James (1992), Collins (1993), and
Warren (1997 and 1999).
To put the ensuing discussion in context, Table 1 presents a summary of Australian tax revenues classified by level of
Government in the last year before the operation of the IGA. 114 Commission on Fiscal Imbalance TABLE 1
AUSTRALIAN TAX REVENUES, 1999-2000
$M $M % of total Aust.
Taxes on income Individual income tax 83,710 42.6 Company income tax 29,516 15.0 Non-residents tax 1,276 0.6
114,502 Employers’ payroll taxes 58.3 3,434 Total taxes on income 1.7 TAXES ON PROVISION OF GOODS AND SERVICES Sales tax 15,644 8.0 Excises and levies 14,658 7.5...
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