Unformatted text preview: t accounts for less than 60% of total own-purpose expenditures. “Own-source revenues” includes tax
revenues, and interest receipts from public trading enterprises, public financial enterprises and other sectors;
The States raise less than 25% of total own-source revenues but account for almost 40% of total own-purpose
Local governments raise less than 4% of total revenue but spend over 4% of total expenditure. Taken together these data imply that the Commonwealth VFI ratio (the ratio of own-source revenues to own-purpose
expenditures) has risen over the period 1992/3 to 1997/8 from 1.13 to 1.30. Over the same period the States’ VFI ratio
has ranged between 0.52 and 0.60 while the Local Government ratio has ranged between 0.75 and 0.81.
Thus the Commonwealth Government consistently has an excess of own-source revenue over own-purpose expenditure
while both State and Local Governments experienced revenue shortfalls. The final row of the table indicates that only in
the last two years of the period under review did the government sector as a whole not have to resort to borrowing to
make up a revenue shortfall.
In analysing the impact of the IGA arrangements upon VFI, the first issue to arise is the impact of the changes upon the
revenue-raising capacities of the three levels of government. Since the IGA does not directly affect local government
revenue-raising powers, the issue here is the impact upon Federal and State revenue powers.
It was shown earlier that, in spite of Federal Government claims that all GST revenue will be received by the States, the
concurrent abolition of FAGS implies that the States will, in fact, have available only about 40% of GST revenue to fund
the abolition of selected State taxes. The rest of the GST revenue will be used to fund the abolition of the WST.
The CGC summarises the impact of the GST arrangements on the States in the following way:
The GST arrangements mean that
♦ The sum of total payments to the States of general revenue grants, unquarantined health care grants, and special purpose
payments treated by absorption will be considerably larger than it was under previous arrangements; ♦ The States’ total own-source revenues will substantially reduce; ♦ The States’ total expenditures will increase slightly; and ♦ The total budget results of the States will remain largely unchanged. (Commonwealth Grants Commission, 1999:1, page19)
It might be argued, therefore, that effectively the revenue-raising capacities of the two levels of government are largely
unchanged. However, the problem here is the IGA arrangements change the process by which decisions about the level
of tax rates and the composition of tax bases are made.
As explained earlier, the A New Tax System (Commonwealth State Financial Arrangements) Act 1999 lays down the
process by which the 10% GST rate or the GST base can be changed. In summary, rate or base changes (except those
of an administrative nature) will require:
♦ The unanimous support of State and Territory Governments; ♦ Endorsement by the Commonwealth Government of t...
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