As the States that came to comprise the Commonwealth of Australia were established, their borders were primarily based upon lines of longitude and latitude. This was largely due to the extraordinary distances involved and relative lack of knowledge of interior geography by the UK authorities who were defining them. The basis for why particular lines of longitude and latitude were chosen was somewhat arbitrary. However the result was large discrepancies both in access to revenue sources, and areas of land to be serviced, across the States.
Some States found the move to federation more fiscally challenging than other States. By the beginning of the 1930s the concept of making payments to the less populous States was well established, and the depression had shown that the fiscal differences between States were larger than previously acknowledged and not temporary in nature.
The Commonwealth Grants Commission was established in 1933 with the task of providing advice to the Commonwealth on the payment of special grants to States in recognition of these fiscal differences. Early in its existence, the Commission developed its principle for determining a special grant as being that amount necessary to make it possible for a State to function at a standard not appreciably below that of other States.
The Commission’s role expanded greatly in the late 1970s, when under the ‘new federalism’ policies of the Fraser government, the Commission was given the task of assessing the relative financial capacity of all States and to recommend to the Commonwealth the allocation of Financial Assistance Grants so that each State could provide government services at standards not appreciably different from the standards of government services provided by the other States.
In practical terms, this meant that the Commonwealth, under advice from the Commission, would recognise the favours and constraints placed upon States by the arbitrary nature of their borders in providing them with financial assistance. The outcome of this policy, known as horizontal fiscal equalisation, is that all Australians can expect to receive a comparable level of schooling, access to hospitals, justice services, transport infrastructure and public housing availability, regardless of what State they reside in.
This full and comprehensive equalisation has continued in Australia to this day.
In celebration of its 50th anniversary, the activities of the Commission were documented in the publication Equality in Diversity. This publication was updated in a second edition, coinciding with the Commission’s 60th anniversary, first released in 1995. Most recently, the Commission’s activities have been documented in a third publication, released in January 2009.
A History of Selected Assessments of State activities by the Commission is also available on this site.