Part IV:  Federal Financial Relations
This Part provides information concerning goods and services tax (GST) revenue, general revenue assistance, general purpose assistance to local government and Specific Purpose Payments to the States and Territories (the States) in 2001‑02. This information supplements material provided in Federal Financial Relations 2002‑03, Budget Paper No. 3.
A principal component of The New Tax System, introduced on 1 July 2000, is the provision of all GST revenue to the States. This provides the States with access to a secure, broad‑based revenue source with which to fund essential community services, such as schools, hospitals and the police.
The implementation of The New Tax System has also enabled the States to abolish a range of narrow and inefficient State taxes. This includes Financial Institutions Duty and stamp duty on quoted marketable securities which were abolished from 1 July 2001.
The new system of Commonwealth‑State financial relations also provided for the introduction of a new First Home Owners Scheme.
In addition, the Commonwealth has made a commitment to provide assistance to the States in the transitional years to ensure that each individual State will be no worse off than it would have been had the reforms not been implemented. To meet this guarantee, the Commonwealth pays the States Budget Balancing Assistance (BBA) to cover any shortfall of GST revenue below the Guaranteed Minimum Amount (GMA), which is a calculation of the amount of funding each State would have had available to it under the previous system of financial relations. 
GST revenue provision
The A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999 (the Act) provides that the States receive all GST revenue. The distribution of GST revenue among the States is based on horizontal fiscal equalisation principles which are discussed in detail in Federal Financial Relations 2002‑03, Budget Paper No. 3.
Under the Act, the Commissioner of Taxation is required to make a determination by 15 June each year of the estimated GST revenue collections for the year. In accordance with the Commissioner of Taxation’s determination of GST revenue on 11 June 2002, a total of $26,632 million in GST revenue was provided to the States in 2001‑02. This is broadly consistent with the estimate at Budget, and the final GST revenue outcome as reported in Appendix A and in Note 15 in Part III.
The final provision of GST revenue to the States in 2001‑02 is illustrated in Chart 1.
Chart 1:  GST revenue provision to the States and Territories

The calculation of the distribution of GST revenue to the States is shown in Table 26. The distribution differs marginally from estimates shown in Federal Financial Relations, 2002‑03, Budget Paper No. 3, reflecting final determinations made under the Act.
The 2001‑02 GST revenue was distributed, in accordance with the Act, using GST relativities recommended in the Commonwealth Grants Commission Report on State Revenue Sharing Relativities 2001 Update. 
Table 26 shows the per capita relativities applied to the States’ populations (as at 31 December each year) in order to arrive at a weighted population share for each State. A State’s share of GST revenue is equal to its weighted population share of the combined GST revenue and unquarantined Health Care Grants (HCGs), less the unquarantined HCGs it receives. 

Table 26:  GST revenue provision to the States and Territories

(a)	Per capita relativity factors are based on recommendations of the Commonwealth Grants Commission (CGC) and take account of a technical issue raised by Western Australia in respect of the data supplied for stamp duties paid on corporate reconstructions.
(b)	Total weighted population differs from the total population in column 1 as the per capita relativities are calculated by the CGC using population numbers for the period 1995‑96 to 1999‑2000 and are then rounded.

General revenue assistance 
In 2001‑02, general revenue assistance to the States comprised Budget Balancing Assistance (BBA), National Competition Policy Payments (NCPPs) and Special Revenue Assistance (SRA).
Budget Balancing Assistance
As previously noted, the Commonwealth has guaranteed that in each of the transitional years following the introduction of tax reform, each State’s budgetary position will be no worse off than had reforms not been implemented. This is given effect by the payment of transitional assistance in the form of BBA.
In 2001‑02, a total of $4,093.8 million of BBA was paid to the States. The calculation and distribution of BBA is shown in Table 27, and is broadly consistent with estimates at Budget.

Table 27:  Guaranteed Minimum Amount components, GST revenue provision and Budget Balancing Assistance to the States and Territories

National Competition Policy Payments
National Competition Policy Payments are distributed between the States on an equal per capita basis. Payment is subject to States achieving satisfactory progress in implementing specified reforms under the Agreement to Implement the National Competition Policy and Related Reforms. Details of NCPPs are shown in Table 28.  
Table 28:  National Competition Policy Payments

Special Revenue Assistance
In 2001‑02, in accordance with the recommendations of the Commonwealth Grants Commission, SRA of $14.2 million was paid to the Australian Capital Territory.
Local government general purpose assistance
Table 29 provides details of the Commonwealth payments to local government authorities in 2001‑02 for each of the six States and the Northern Territory, and an analogous payment made to the Australian Capital Territory.
In 2001‑02, local government general purpose assistance was increased on the basis of an annual escalation factor determined by the Treasurer. The payments made to the States and shown in Federal Financial Relations 2002‑03, Budget Paper No. 3 were based on an estimated escalation factor of 1.0353, estimated in June 2001, and take into account an underpayment of $7.2 million in 2000‑01.
On 27 June 2002 the Treasurer determined the final 2001‑02 escalation factor to be 1.0500 on the basis of the Australian Statistician’s determination of population and Treasury’s estimate of the ongoing CPI (which excludes the estimated impact of the tax reform measures in The New Tax System). The difference between the estimate and the final escalation factor for 2001‑02 has resulted in an underpayment of $19.5 million in 2001‑02 for which there will be an adjustment in 2002‑03, as provided for under the Local Government (Financial Assistance) Act 1995.

Table 29:  Financial Assistance Grants to local government, 2001‑02

(a)	Total Financial Assistance Grants are the cash payments that the State receives on behalf of local government.  It is equal to the estimated entitlement for a given year adjusted for an over or under payment from the previous year.

Specific Purpose Payments
Tables 30 and 31 provide information on Commonwealth Specific Purpose Payments (SPPs) to the States and local government together with details of repayments and interest on advances (loans) to the States. The majority of these advances were funded from borrowings made on behalf of the States.
The payments are classified as follows:
•	SPPs
•	current;
•	capital;
•	repayments of advances;
•	details of new advances made; and
•	interest on Commonwealth advances.
SPP information is presented on a functional basis and divided into those paid ‘to’ the States (by far the larger group by number) and those judged to be paid ‘through’ the States to other groups. Payments in the latter group are indicated within the table by (*) and separate totals for ‘to’ and ‘through’ are provided in the summary at the end of the table.

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 31:  Specific Purpose Payments direct to Local Government Authorities ($’000)