1                In February 2007, the Commonwealth Grants Commission (the Commission) completed its Report on State Revenue Sharing Relativities 2007 Update.  That report recommends the per capita relativities that the Commission regards as appropriate to apply in 2007-08 for the distribution of a pool of GST revenue and Health Care Grants to the States^[1] (hereafter called the GST relativities).  It also reports a set of relativities to apply in 2007‑08 for use in distributing a notional pool of financial assistance grants (FAGs) and Health Care Grants that assumed a continuation of the arrangements that applied in 1999-2000.[2]

2                The principles and methods developed in the 2004 Review[3] were used in these calculations, updated for changes in assessment data and any new developments affecting assessments, such as changes in Commonwealth-State financial relations.

3                The working papers for the 2007 Update focus on the assessments for the GST relativities for each category, but there is a section that presents the FAG assessments where they are different from the GST assessments.  Details of the Commission's decisions on the assessment methods and the adjusted budget have been set out in the working papers accompanying the 2004 Review Report.  This information is not repeated in these volumes.

4                There are four volumes of working papers to support the update report.

·                Volume 1 — Assessment Methods and the Adjusted Budget discusses the general approach to revenue and expense assessments, the compilation of the adjusted budget, including the treatment of Specific Purpose Payments (SPPs) for the 2007 Update. 

·                Volume 2 — Assessment Results Revenue provides the results for each category of own‑source revenues.  The scope of each category and how assessed revenue raising capacity is calculated is explained.  The resultant assessed revenues and their impact on State shares of GST revenue are reported.  Any changes to the assessment method since the 2006 Update was completed are also explained. 

·                Volume 3 — Assessment Results Expense provides the results for each category of expenses.  The scope of each category and how the assessed cost of providing services is calculated is explained.  The resultant assessed expenses and their impact on State shares of GST revenue are reported.  Why the assessment has changed since the 2006 Update is also explained.

·                Volume 4 — Assessment Results User Charges and Common Factors provides the results for all user charges categories and major factors.  The scope of each category and how assessed revenue raising capacity is calculated is explained.  The resultant assessed revenues and their impact on State shares of GST revenue are reported.  Finally, why the assessment may have changed since the 2006 Update is explained.  For each major factor, this volume summarises how it was measured and shows the resultant factors.  It also shows the importance of the factor to per capita relativities and explains why the results differ from those in the 2006 Update. 

Context of the 2007 Update

5                The terms of reference for this update required the Commission to report, by 24 February 2007, on per capita relativities for use in distributing funds among the States in 2007-08. 

They were:

·                to be calculated using the same principles and methods as in the 2006 Update; 

·                to be based on the review period 2001‑02 to 2005‑06 inclusive, on the latest available data, and accommodate later budget developments; and 

·                to take into account the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (1999)[4].

6                The Commission was asked to consult with the Australian Treasury and the States before deciding on any changes in method required to 'fulfil … obligations in respect of these terms of reference'.

7                These requirements were met.

Intergovernmental Agreement

8                The relevant aspects of the IGA for the Commission were:

·                the pool of untied funds to the States now comprises GST revenue and Health Care Grants — financial assistance grants (FAGs) of the traditional kind ceased;

·                during a transitional period, the Australian Government guaranteed that no State would be worse off than if it received a continued distribution of FAGs and Health Care Grants;

·                Australian Government payments associated with the safety net surcharge arrangements for alcohol, petroleum and tobacco ceased from 1 July 2000;

·                Australian Government wholesale sales taxes were abolished from 1 July 2000 and States no longer imposed wholesale sales tax equivalent payment on their government business enterprises;

·                accommodation taxes levied on the cost of temporary residential accommodation were abolished from 1 July 2000;

·                States reduced their gambling taxes to make room for the GST without adding to the overall rate of gambling taxes and abolished bed taxes from 1 July 2000;

·                States abolished Financial Institutions Duty and Stamp Duty on Quoted Shares and Marketable Securities from 1 July 2001;

·                States assumed responsibility for a First Home Owners' Scheme and GST administration costs from 1 July 2000; and

·                States abolished Bank Account Debits Tax from Financial Transaction Taxes from 1 July 2005.

9                Consistent with the 2003 Update terms of reference, the Commission has also taken into account, in its assessments, the Australian Government's decisions to:

·                implement a National Excise Scheme for Low Alcohol Beer; and

·                cease the bi-annual indexation of Petroleum Revenue Replacement Payments forgone.

10            The Commission took the IGA into account in assessing both the GST and FAG relativities.  For each set of relativities, there was a different adjusted budget and the assessments for some categories were different.  Where necessary to reflect any changes in State service provision or revenue raising responsibilities, the Commission backcast the changes into the assessment period.  Backcasting required excluding some revenues from the adjusted budget for earlier years of the assessment period and using estimates of the expenses of new responsibilities.

Treatment of SPPs

11            The terms of reference asked the Commission to quarantine these SPPs: 

·                National Competition Payments;

·                States' contributions to the Australian Government's deficit reduction strategy;

·                payments to the States to reimburse them for revenue lost as a result of the establishment of a national scheme of companies, securities and future regulation;

·                payments which were funded from the Natural Heritage Trust of Australia and the Regional Telecommunications Infrastructure Fund;

·                payments for the Fringe Benefit Tax Transitional Grants for the public and not-for-profit hospitals;

·                payments for Building IT Strengths — Tasmanian ' Intelligent Island';

·                payments for Connecting Tasmanian Schools;

·                payments for the Extension of the First Home Owners Scheme;

·                payments for the Roads to Recovery program;

·                Australian Government payments to the Sinking Fund on State Debt;

·                payments for the Victorian Cytology Service made under the Public Health Outcome Funding Agreements;

·                Residual Adjustment Amounts;

·                payments to Tasmania under the Supplementary Tasmanian Regional Forestry Agreement; and

·                payments to the Northern Territory for Royal Darwin Hospital:  Equipped, Prepared and Ready.

12            The terms of reference also asked the Commission to prepare its assessments so that the following components of the Australian Health Care Agreements not directly influence the per capita relativities:

·                payments in relation to mental health;

·                payments in relation to the National Health Development Fund;

·                payments in relation to the Pathways Home Initiative;

·                all payments under an adjustment module, including those related to the Critical and Urgent Treatment (CUT) Waiting List Initiative;

·                compliance payment arrangements (in this case including the maximum available compliance payments in the assessments);

·                payments to South Australia for the administration and management of the hospital at Woomera; and

·                payments to Queensland in recognition of the cost associated with the movement of Papua New Guinea's citizens across the Torres Strait.

13            The Commission applied the exclusion method to the above SPPs except for the compliance payments where it included the full amounts received by the States.

14            Although the terms of reference foreshadowed that the Commission might be instructed to apply a particular treatment to other amounts of SPPs forgone because of non‑compliance with SPP conditions, no guidance was received in this update.

ACT special revenue assistance

15            Clause 10 of the terms of reference asked the Commission to take into account all relevant fiscal needs of the ACT, as for the other States and Territory. 

16            The Commission decided to include allowances in the relativities to reflect the additional expenses incurred by the ACT in providing police services and road maintenance.  It did not assess an allowance comparable to that previously assessed for corporate affairs. 

Electronic formats

17            The Commission's Report on State Revenue Sharing Relativities 2007 Update, the Relative Fiscal Capacities of the States 2007 accompanying that report and the working papers are available on the Commission's web site at <www.cgc.gov.au>.  In addition, States have electronic access to the spreadsheets that support the calculation of revenue bases, factors, and assessed revenues and expenses.

Financial data supporting the Commission's calculations

18            Only the States can receive the financial data supporting the Commission's calculations.  Other parties seeking access to the Australian Bureau of Statistics (ABS) financial data should direct their inquiries to:

                                                                                                

The Australian Statistician

Australian Bureau of Statistics

Locked Bag 10

Belconnen  ACT  2616.

Population data supporting the Commission's calculations

19            Mean resident population is the basis of all per capita standards used by the Commission.  It is also used to rebase the State's relativities and factors so that the Australian factor is one. 

20            In calculating factors, most assessments used special ABS cross-tabulations of 2001 Census data or assessed resident population by age and sex as at 30 June each year.  Tables summarising the population characteristics used in these cross-tabs are included in Attachment B of the Relative Fiscal Capacities of the States 2007. 

Mean Resident Population

21            Details of the mean resident population for each State for the years 2000‑01 to 2005‑06 are shown in Table 1.  Population growth in 2005‑06 was faster that average in Queensland and Western Australia, average in Victoria and below average in the other States.  South Australia had the lowest rate of growth. 

22            Only the figures for 2004‑05 differ from those used in the 2006 Update, due to revisions by the ABS.  Table 2 shows the State mean resident populations for 2004‑05 as at the 2006 Update and the 2007 Update and the extent of the change in absolute and percentage terms.

Table 1            Mean resident population, 2000‑01 to 2005‑06

(a)             Excludes Jervis Bay.

(b)            Excludes other territories.

Source: Australian Bureau of Statistics, Special Data Request for Mean Resident Population, December 2006.

Table 2            Revisions in mean resident population for 2004‑05

ABS cross tabulations

23            In general, the population data used to calculate factors were from cross‑tabulations of the 2001 Census data obtained by special requests from the ABS.  The Commission modified the data it received from the ABS:

·                to allocate 'not stated' values; and

·                to adjust Indigenous population to make it consistent with the Experimental Estimates of the Aboriginal and Torres Strait Islander Population.[5]

24            Allocation of 'not stated' values.  Most ABS census data contain a 'not stated' value, to record cases where the Census question was not answered.  The Commission allocated any 'not stated' values across the rest of the fields within a variable.  The allocation was always done on the basis of relationships in the original data.  The changes were aggregated and added to the original data.  The steps used to allocate the not stated values were:

·                to divide the number of persons in each row for each group, including any not stated persons in other variables in the cross-tabulation, by the total number of people in that group, excluding the not stated persons; and

·                to multiply this ratio by the number of not stateds within that group, including any not stateds that have been pro rated previously.

25            An example of how the data were allocated is shown in Table 3.

26            Indigenous adjustment.  Experimental estimates are based on 2001 Census data with adjustments for factors like the assessed undercount of the Indigenous population.  This adjustment includes Indigenous people who were not counted in the Census, but were counted in the post enumeration survey.  It also includes adjustments based on demographic analysis of registered births data.  The ABS provided these data by State and by sex, and the numbers were allocated to the Indigenous population.

Table 3            Method for allocating non-stated fields

Fluency	Income	Count	Pro rata Income	Pro rata Fluency	New Total
Low Fluency	Low Income	6	3.33a	8.40b	17.73c
Low Fluency	High Income	3	1.67d	9.60e	14.27f
Low Fluency	Not Stated	5
High Fluency	Low Income	2	2.67g	2.80h	7.47i
High Fluency	High Income	1	1.33j	3.20k	5.53l
High Fluency	Not Stated	4
Not Stated	Low Income	7	4.20m
Not Stated	High Income	8	4.80n
Not Stated	Not Stated	9
Total		45	18	24	45

^a(6/(6+3)*5)            ^b(6/(6+2))*(7+4.2)  ^c6+3.33+8.4     ^d(3/(6+3)*5)     ^e(3/(3+1))*(8+4.8)        ^f3+1.67+9.6      ^g(2/(2+1)*4)

^h(2/(6+2))*(7+4.2)  ⁱ2+2.67+2.8             ^j(1/(2+1)*4)     ^k(1/(3+1))*(8+4.8)        ^l1+1.33+3.2      ^m(7/(7+8)*9)    ⁿ(8/(7+8)*9)

27            The data.  There were five main Census cross-tabs purchased from the ABS.  The datasets, and the categories for which they were used, are shown in Table 4.

Table 4            Census 2001 cross-tabs purchased from the ABS and categories using them

Table	Categories
Usual Residents by State by SARIA(a) by Sex by Age by Income by English Fluency by Indigeneity by Country of Birth	Inpatient Services, Family and Child Services, Homeless and General Welfare
Usual Residents by State by SARIA(a) by Major Cities by Education Institution by Income by English Fluency by Indigeneity (persons aged 5-18 only)	Government Schools Education - Primary Government Schools Education - Secondary Non-government Schools Education - Primary Non-government Schools Education - Secondary
Usual Residents by State by SARIA(a) by Age by Language by Labour Force Status by Indigeneity (persons aged 15-59 only)	Vocational Education and Training
Usual Residents by State by SARIA(a) by Landlord Type by Age by Indigeneity by Income by English Fluency	Housing, Housing User charges
Usual Residents by State by SARIA(a) by Age by Indigeneity by Income by Household Type (persons aged 60 and over only)	Aged and Disabled Services

(a)        The Stated-based version of the Accessibility/Remoteness Index of Australia developed for Commission purposes.

 

This chapter was prepared by the Transport section of the Commonwealth Grants Commission.  If you have any questions about its content please contact Stephen Tregea-Collett on (02) 6229 8885 or stephen.tregea-collett@cgc.gov.au.

 

 

          Date: 23/2/07