Specific Purpose Payments
Specific Purpose Payments (SPPs) constitute a significant amount of Australian Government funding to the States. In 2004-05, the Australian Government will provide the States with $24.3 billion in SPPs. These payments represent almost 13 per cent of total Australian Government expenditure in 2004-05.
The Australian Government makes SPPs to the States as a contribution to important areas of state responsibility. In 2004-05, there will be over 90 different payments covering a broad range of policy areas such as education, health, social security, housing and transport (Chart 3).
Chart 3: Composition of Specific Purpose Payments ‘to’ and ‘through’ the States in 2004-05 (estimated)
More detailed information, including payments on a state-by-state basis, for 2003-04 and 2004-05 is in Appendix B.
SPPs can be classified into three groups:
- those paid ‘to’ the States — payments direct to State governments, totalling an estimated $17.9 billion in 2004-05;
- those paid ‘through’ the States — payments to State governments to be passed on to local governments (for example, Financial Assistance Grants to local government) and to others (for example, to non-government schools). This category is estimated to total $6.4 billion in 2004-05; and
- those paid direct to local government to help fund roads, child-care programmes and disability services administered by local governments. These payments are estimated to total $304.7 million in 2004-05.
SPP agreements often include agreed national objectives. However, in making these payments, the Australian Government does not seek to take over responsibility for state functions.
SPP agreements generally contain conditions to help ensure those objectives are achieved. These conditions may include:
- general policy requirements (for example, the provision of free public hospital access for Medicare patients);
- matching funding arrangements; and
- reporting of performance information (see box below).
Accountability for SPPs The Australian Government is seeking greater accountability in SPP agreements to improve policy outcomes and deliver better value for money. All new and renegotiated SPP agreements will include statements of key objectives and the respective responsibilities of the Australian Government and the States, combined with agreed reporting of financial information and detailed performance indicators. To encourage increased accountability, an amount appropriate to each SPP will be contingent on States’ timely reporting of the agreed financial and performance information to the satisfaction of the responsible Australian Government Minister. |
Financial Assistance Grants to local government
The Australian Government provides financial assistance to local government for roads and other local government services. Assistance is paid in the form of general purpose assistance and untied local road funding. Local governments can spend both forms of funding according to their own priorities.
The Australian Government is providing a total of $1.5 billion in Financial Assistance Grants to local government in 2003-04 and an estimated $1.5 billion in 2004-05 (Table 17). The annual increase in funding is based on an escalation factor, which the Treasurer determines with reference to population growth and CPI.
This financial assistance is paid to the States as a SPP, on condition that all the funds are passed on to local government. In 2004-05, as in previous years, the general purpose component of local government assistance will be distributed between the States on an equal per capita basis and untied local road funding will be distributed on the basis of historical shares (Table 17). State grants commissions determine the intra-state distribution of the grants to local governments.
Table 17: Financial Assistance Grants to local government in 2003-04 and 2004-05 (estimated)(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 overpayment or underpayment from the previous year.
- The 2003-04 figure takes into account an underpayment of $6 million in 2002-03. The Treasurer will determine the final 2003-04 escalation factor in June 2004; currently the 2003-04 escalation factor is estimated to be 1.0288.
- The 2004-05 figure includes an estimate of the amount necessary to adjust for the difference between the 2003-04 escalation factor estimated in June 2003 and used to calculate payments in 2003-04 and the final factor for 2003-04 to be determined in June 2004. On the basis of the current estimate of the 2003-04 escalation factor, this adjustment is estimated to be a decrease of $11.5 million. The 2004-05 escalation factor is currently estimated to be 1.0318. Financial Assistance Grants in 2004-05 will be paid on the basis of the escalation factor that the Treasurer will estimate in June 2004. The Treasurer will determine the final escalation factor for 2004-05 in June 2005.