Part 3: Fiscal strategy and outlook (Continued)
Australia's Federal Relations
This attachment provides information on payments for specific purposes and general revenue assistance provided to the States and Territories (the States).
The current framework for federal financial relations under the Intergovernmental Agreement on Federal Financial Relations (the Intergovernmental Agreement) was introduced on 1 January 2009.
Under this framework, the Commonwealth is continuing to work in partnership with the States to implement broad‑ranging reforms driven by the overarching goal of enhancing the wellbeing of all Australians. This is seen in an agenda which currently embraces areas such as healthcare, disabilities, skills, education, Indigenous support in the Northern Territory and the adequacy of Australia's economic and social infrastructure.
Through this agenda, the Commonwealth will continue to provide substantial funding to the States through both general revenue assistance and specific purpose payments to assist in the major service delivery sectors, target areas in need of reform, and support delivery of the key social and economic outcomes envisaged under the federal financial relations framework.
More detailed information on the Intergovernmental Agreement and Australia's federal financial relations is provided in Budget Paper No. 3, Australia's Federal Relations 2012‑13 and on the federal financial relations website at www.federalfinancialrelations.gov.au.
Overview of payments to the States
The States receive significant financial support from the Commonwealth. Payments to the States in 2012‑13 are estimated to be $89.7 billion, or 23.9 per cent of total Commonwealth expenditure for the year. This amount comprises payments for specific purposes of $40.2 billion and general revenue assistance of $49.4 billion.
Table 3.22 shows payments for specific purposes and general revenue assistance to the States.
| $million | NSW | VIC | QLD | WA | SA | TAS | ACT | NT | Total(a) |
|---|---|---|---|---|---|---|---|---|---|
| 2012-13 | |||||||||
| Payments for specific purposes | 12,264 | 9,714 | 8,220 | 4,447 | 3,090 | 970 | 585 | 877 | 40,223 |
| General revenue assistance | 14,824 | 11,088 | 9,609 | 2,946 | 4,513 | 1,721 | 995 | 2,740 | 49,431 |
| Total payments to the States | 27,089 | 20,803 | 17,829 | 7,392 | 7,603 | 2,691 | 1,581 | 3,617 | 89,655 |
| 2013-14 | |||||||||
| Payments for specific purposes | 13,298 | 11,011 | 8,849 | 4,917 | 2,953 | 965 | 679 | 863 | 44,100 |
| General revenue assistance | 15,836 | 11,431 | 11,170 | 2,278 | 4,771 | 1,730 | 1,050 | 2,910 | 52,139 |
| Total payments to the States | 29,134 | 22,441 | 20,018 | 7,195 | 7,724 | 2,695 | 1,729 | 3,773 | 96,239 |
| 2014-15 | |||||||||
| Payments for specific purposes | 12,886 | 10,624 | 8,593 | 4,638 | 2,923 | 929 | 757 | 768 | 43,493 |
| General revenue assistance | 16,700 | 11,912 | 12,310 | 1,856 | 5,086 | 1,777 | 1,136 | 3,101 | 54,832 |
| Total payments to the States | 29,586 | 22,536 | 20,903 | 6,494 | 8,008 | 2,706 | 1,893 | 3,868 | 98,325 |
| 2015-16 | |||||||||
| Payments for specific purposes | 13,547 | 11,162 | 9,182 | 4,944 | 3,370 | 1,028 | 774 | 810 | 46,667 |
| General revenue assistance | 17,471 | 12,584 | 12,971 | 2,085 | 5,279 | 1,833 | 1,192 | 3,169 | 57,539 |
| Total payments to the States | 31,017 | 23,745 | 22,153 | 7,029 | 8,649 | 2,861 | 1,966 | 3,979 | 104,207 |
(a) Total column may not equal sum of State totals. There is no basis on which to estimate State allocations for a small number of payments, which are not reflected in State totals.
Payments for specific purposes
The Commonwealth provides payments to the States for specific purposes to pursue important national policy objectives in areas that may be administered by the States. Payments to the States for specific purposes will total $40.2 billion in 2012‑13. Payments to the States for specific purposes are estimated to represent 10.7 per cent of total Commonwealth expenditure in 2012‑13.
The Commonwealth provides the following types of Specific Purpose Payments (SPPs) to the States:
- National Specific Purpose Payments (National SPPs) in respect of key service delivery sectors;
- National Health Reform (NHR) funding which commenced from 1 July 2012; and
- National Partnership payments — project payments, facilitation payments and reward payments.
Table 3.23 shows total payments for specific purposes by category (National SPPs, NHR funding, and National Partnership payments).
| $million | NSW | VIC | QLD | WA | SA | TAS | ACT | NT | Total(a) |
|---|---|---|---|---|---|---|---|---|---|
| 2012-13 | |||||||||
| National Specific Purpose Payments | 5,021 | 3,905 | 3,215 | 1,622 | 1,192 | 358 | 275 | 199 | 15,788 |
| National Health Reform funding | 4,291 | 3,255 | 2,661 | 1,401 | 1,008 | 294 | 202 | 151 | 13,264 |
| National Partnership payments(b) | 2,952 | 2,554 | 2,345 | 1,423 | 889 | 318 | 108 | 527 | 11,171 |
| Total payments for specific purposes | 12,264 | 9,714 | 8,220 | 4,447 | 3,090 | 970 | 585 | 877 | 40,223 |
| 2013-14 | |||||||||
| National Specific Purpose Payments | 5,301 | 4,189 | 3,479 | 1,767 | 1,239 | 368 | 293 | 201 | 16,836 |
| National Health Reform funding | 4,464 | 3,484 | 2,840 | 1,530 | 1,010 | 312 | 233 | 142 | 14,014 |
| National Partnership payments(b) | 3,533 | 3,338 | 2,529 | 1,620 | 704 | 285 | 154 | 520 | 13,249 |
| Total payments for specific purposes | 13,298 | 11,011 | 8,849 | 4,917 | 2,953 | 965 | 679 | 863 | 44,100 |
| 2014-15 | |||||||||
| National Specific Purpose Payments | 5,582 | 4,470 | 3,762 | 1,915 | 1,302 | 384 | 310 | 201 | 17,926 |
| National Health Reform funding(c) | 4,913 | 3,840 | 3,174 | 1,720 | 1,122 | 338 | 269 | 162 | 15,537 |
| National Partnership payments(b) | 2,391 | 2,314 | 1,657 | 1,003 | 499 | 207 | 178 | 405 | 10,029 |
| Total payments for specific purposes | 12,886 | 10,624 | 8,593 | 4,638 | 2,923 | 929 | 757 | 768 | 43,493 |
| 2015-16 | |||||||||
| National Specific Purpose Payments | 5,899 | 4,753 | 4,010 | 2,092 | 1,376 | 402 | 331 | 212 | 19,076 |
| National Health Reform funding(c) | 5,399 | 4,226 | 3,539 | 1,928 | 1,242 | 367 | 309 | 183 | 17,192 |
| National Partnership payments(b) | 2,250 | 2,182 | 1,632 | 924 | 752 | 259 | 134 | 416 | 10,400 |
| Total payments for specific purposes | 13,547 | 11,162 | 9,182 | 4,944 | 3,370 | 1,028 | 774 | 810 | 46,667 |
(a) State allocations are not yet finalised for several National Partnership payments; unallocated payments are not included in State totals.
(b) Includes financial assistance grants for local government.
(c) The efficient growth funding component of National Health Reform funding in 2014‑15 and 2015‑16 is indicative only. The distribution of efficient growth funding will be determined by efficient growth in each State.
The majority of payments for specific purposes relate to National SPPs, including NHR funding, and total $29.1 billion in 2012‑13, an increase of $1.4 billion over the $27.7 billion States received in 2011‑12.
States will receive increased NHR funding in 2012‑13 of $716.3 million compared to 2011‑12, with NHR funding expected to grow at an average of 8.2 per cent across the forward estimates. This reflects the Commonwealth's commitment to provide at least $16.4 billion of additional funding under NHR over the period 2014‑15 to 2019‑20.
Compared to the estimates published in the 2012‑13 Budget, payments to the States for specific purposes are estimated to be lower by $765.4 million in 2012‑13. This is largely due to revisions to the NHR funding indexation factors which carried over from the National Healthcare SPP, and to the National Schools SPP as a result of movements in indexation parameters.
The indexation arrangements are part of the Intergovernmental Agreement signed by all States and the Commonwealth. These agreed arrangements are designed to provide the States with a secure and growing funding base for the delivery of activities across the major service delivery sectors. The NHR funding indexation rates are derived from three factors — the independent Australian Institute of Health and Welfare (AIHW) calculations of growth rates in the cost of health services, population shifts and a technology factor of 1.2 per cent. Changes to the growth rates for NHR funding at this Mid‑Year Economic and Fiscal Outlook have been influenced by changes to both the Australian Bureau of Statistics' revisions to the national population arising from the 2011 Census and the AIHW measure of growth in health costs.
Following the results of the most recent 2011 Census, population estimates have been revised down for 2011 and in previous years dating back to the last Census in 2006. Therefore, an adjustment is necessary to correctly assess the appropriate health funding for Australia's population under the terms agreed to by all States and the Commonwealth, given overstated population growth in previous years.
A change in the AIHW health price index has led to a further reduction in the estimates for NHR funding. Lower growth in this index for 2010‑11 (the most up‑to‑date year of data) reflects moderation in medical inflation rates across the sector. A significant contributor to the 2010‑11 result were significant falls (up to 20 per cent) in the price of medical and surgical equipment purchased by governments as well as consumers. This is likely to have arisen from a high Australian dollar exerting downward pressure on the prices of foreign‑manufactured medical goods. The use of the AIHW price index ensures that growth funding accurately reflects the cost at which health services are growing, rather than applying a factor such as CPI that does not take into account additional costs required in delivering health and medical services.
States will receive an increase in National Schools SPP funding in 2012‑13 of $535.6 million compared to 2011‑12, taking total funding to $11.9 billion, with funding expected to grow at an average of 6.9 per cent across the forward estimates. Compared to the estimates published in the 2012‑13 Budget, funding under the National Schools SPP has been revised down by $317.0 million in 2012‑13 ($82.1 million for government schools and $234.8 million for non‑government schools).
Similar to NHR, indexation rates for education funding are set in the Intergovernmental Agreement and have been agreed to by the States. These indexation rates are derived from two factors, being Australian Government School Recurrent Costs (AGSRC) and school enrolments. There have been no changes to enrolments but the growth in AGSRC has fallen from 6.0 per cent to 3.9 per cent in 2012‑13.
The AGSRC is determined from underlying costs faced by the government school sector and this downward revision reflects lower costs in schools, not a policy change on the part of the Commonwealth. It is currently growing at a lower rate than previous growth rates and is linked to lower spending by state governments. It is that level of investment that is driving the lower indexation rates.
Growth in subsequent years is estimated at a flat rate, which is projected across the forward estimates. The change in the projected rate (from 6.0 per cent to 5.6 per cent) over the period 2013‑14 to 2015‑16 reflects a move to update this parameter in accordance with the ten‑year rolling weighted average of AGSRC growth. This change does not affect the actual calculation of the AGSRC, or the funding schools will receive. It solely reflects an improved understanding of trends in the costs of delivering schooling.
The Government has announced ambitious goals under the National Plan for School Improvement and has committed to work with the States and the non‑government school sector to achieve the next wave of education reform.
Estimates variations are an inherent component of the Budget process and also increase funding provided to the States. For example, the GST entitlement in 2011‑12 was $440.1 million higher than forecast at Budget — this funding will be provided to the States in 2012‑13. In addition, the GST entitlement has been revised upwards by $50.0 million in 2012‑13 and by $675.0 million over four years.
Other major changes since the 2012‑13 Budget include:
- an additional $495.0 million in 2014‑15 and 2015‑16 for the National Partnership for adult public dental services;
- the announcement of $241.2 million for the National Partnership on improving literacy and numeracy that continues the Commonwealth's commitment to improving literacy and numeracy rates in Australian schools; and
- the re‑profiling of funding into 2013‑14 under the National Partnership on improving teacher quality, due to a delay in consideration of reward payment funding of up to $175.0 million for 2012‑13, as a result of performance milestones for 2012‑13 being renegotiated with the States. This negotiation process is likely to impact on the COAG Reform Council's ability to complete its assessment before May 2013 and subsequently delay the Commonwealth making payment until 2013‑14.
Payments for specific purposes cover most functional areas of state and local government activity — including health, education, skills and workforce development, community services, affordable housing, infrastructure and environment. Table 3.24 shows total payments for specific purposes by sector.
| $million | NSW | VIC | QLD | WA | SA | TAS | ACT | NT | Total(a) |
|---|---|---|---|---|---|---|---|---|---|
| 2012-13 | |||||||||
| Health | 4,772 | 3,612 | 3,113 | 1,548 | 1,250 | 341 | 236 | 240 | 15,112 |
| Education | 4,269 | 3,296 | 2,758 | 1,380 | 1,038 | 314 | 229 | 236 | 13,520 |
| Skills and workforce development | 550 | 435 | 337 | 176 | 124 | 39 | 29 | 17 | 1,706 |
| Community services | 582 | 736 | 331 | 304 | 141 | 43 | 24 | 68 | 2,228 |
| Affordable housing | 464 | 338 | 389 | 209 | 113 | 37 | 26 | 182 | 1,807 |
| Infrastructure | 962 | 828 | 832 | 594 | 176 | 79 | 4 | 89 | 3,570 |
| Environment | 159 | 95 | 62 | 46 | 119 | 68 | 3 | 20 | 572 |
| Contingent payments | 10 | 5 | 81 | 1 | .. | .. | .. | 1 | 99 |
| Other(b) | 497 | 371 | 317 | 189 | 129 | 49 | 34 | 25 | 1,610 |
| Total payments for specific purposes | 12,264 | 9,714 | 8,220 | 4,447 | 3,090 | 970 | 585 | 877 | 40,223 |
| 2013-14 | |||||||||
| Health | 4,989 | 3,956 | 3,260 | 1,762 | 1,157 | 362 | 261 | 219 | 15,966 |
| Education | 4,244 | 3,346 | 2,801 | 1,417 | 1,037 | 307 | 231 | 239 | 13,623 |
| Skills and workforce development | 564 | 448 | 354 | 187 | 128 | 40 | 29 | 19 | 1,770 |
| Community services | 598 | 793 | 353 | 337 | 128 | 39 | 26 | 112 | 2,387 |
| Affordable housing | 454 | 316 | 437 | 330 | 131 | 33 | 23 | 156 | 1,915 |
| Infrastructure | 1,609 | 1,395 | 984 | 576 | 152 | 81 | 52 | 78 | 5,459 |
| Environment | 43 | 160 | 74 | 6 | 30 | 23 | 2 | 2 | 340 |
| Contingent payments | 7 | 3 | 83 | .. | .. | - | .. | .. | 93 |
| Other(b) | 789 | 593 | 503 | 301 | 190 | 80 | 54 | 38 | 2,547 |
| Total payments for specific purposes | 13,298 | 11,011 | 8,849 | 4,917 | 2,953 | 965 | 679 | 863 | 44,100 |
| 2014-15 | |||||||||
| Health | 5,321 | 4,171 | 3,399 | 1,879 | 1,209 | 380 | 291 | 240 | 16,890 |
| Education | 4,408 | 3,537 | 3,004 | 1,501 | 1,068 | 314 | 246 | 226 | 14,306 |
| Skills and workforce development | 589 | 465 | 378 | 202 | 133 | 41 | 31 | 19 | 1,857 |
| Community services | 626 | 435 | 372 | 186 | 135 | 41 | 28 | 90 | 1,913 |
| Affordable housing | 476 | 329 | 423 | 311 | 122 | 31 | 22 | 140 | 1,854 |
| Infrastructure | 626 | 861 | 406 | 242 | 53 | 14 | 82 | 12 | 3,671 |
| Environment | 19 | 210 | 41 | 4 | 25 | 24 | 2 | 2 | 326 |
| Contingent payments | 3 | .. | 47 | .. | .. | - | .. | - | 51 |
| Other(b) | 817 | 616 | 523 | 312 | 178 | 83 | 56 | 39 | 2,625 |
| Total payments for specific purposes | 12,886 | 10,624 | 8,593 | 4,638 | 2,923 | 929 | 757 | 768 | 43,493 |
| 2015-16 | |||||||||
| Health | 5,885 | 4,540 | 3,762 | 2,043 | 1,336 | 451 | 332 | 271 | 18,620 |
| Education | 4,814 | 3,896 | 3,299 | 1,707 | 1,166 | 339 | 274 | 240 | 15,735 |
| Skills and workforce development | 584 | 461 | 378 | 204 | 132 | 40 | 31 | 19 | 1,848 |
| Community services | 653 | 457 | 392 | 198 | 142 | 42 | 29 | 95 | 2,007 |
| Affordable housing | 437 | 336 | 411 | 274 | 114 | 32 | 22 | 132 | 1,758 |
| Infrastructure | 316 | 642 | 336 | 190 | 284 | 14 | 28 | 12 | 3,672 |
| Environment | 12 | 190 | 60 | 4 | 12 | 24 | 1 | 2 | 304 |
| Contingent payments | 1 | - | - | .. | .. | - | .. | - | 1 |
| Other(b) | 846 | 640 | 544 | 325 | 185 | 85 | 58 | 41 | 2,723 |
| Total payments for specific purposes | 13,547 | 11,162 | 9,182 | 4,944 | 3,370 | 1,028 | 774 | 810 | 46,667 |
(a) State allocations are not yet finalised for several National Partnership payments; unallocated payments are not included in State totals.
(b) Includes financial assistance grants for local government.
Total payments for specific purposes by sector, and category (National SPPs, NHR funding, and National Partnership payments) are shown in Table 3.25.
| $million | 2012-13 | 2013-14 | 2014-15 | 2015-16 |
|---|---|---|---|---|
| Health | ||||
| National Health Reform funding | 13,264 | 14,014 | 15,537 | 17,192 |
| National Partnerships | 1,848 | 1,952 | 1,353 | 1,428 |
| Education | ||||
| National Schools SPP | 11,871 | 12,801 | 13,761 | 14,784 |
| National Partnerships | 1,649 | 822 | 545 | 951 |
| Skills and workforce development | ||||
| National Skills and Workforce Development SPP |
1,389 | 1,415 | 1,443 | 1,471 |
| National Partnerships | 317 | 355 | 415 | 377 |
| Community services | ||||
| National Disability SPP(a) | 1,264 | 1,332 | 1,410 | 1,484 |
| National Partnerships | 964 | 1,054 | 503 | 523 |
| Affordable housing | ||||
| National Affordable Housing SPP | 1,265 | 1,288 | 1,312 | 1,337 |
| National Partnerships | 542 | 627 | 541 | 420 |
| Infrastructure | ||||
| National Partnerships | 3,570 | 5,459 | 3,671 | 3,672 |
| Environment | ||||
| National Partnerships | 572 | 340 | 326 | 304 |
| Contingent payments | ||||
| National Partnerships | 99 | 93 | 51 | 1 |
| Other | ||||
| National Partnerships(b) | 1,610 | 2,547 | 2,625 | 2,723 |
| Total payments for specific purposes | 40,223 | 44,100 | 43,493 | 46,667 |
(a) Includes adjustment to the National Disability SPP to achieve budget neutrality under National Health Reform (see footnote to Table A.4 in Annex A for details).
(b) Includes financial assistance grants for local government.
Detailed tables of payments for specific purposes are provided in Annex A. This Annex provides accrual estimates of Commonwealth payments to the States.
The Commonwealth provides funding under the Natural Disaster Relief and Recovery Arrangements (NDRRA) to assist the States with relief and recovery assistance following eligible natural disasters.
For accounting purposes, the Commonwealth recognises a liability equal to the present value of future payments expected to be made to the States under the NDRRA. This is regardless of whether or not a State has completed eligible disaster reconstruction work or submitted an eligible claim under the NDRRA.
The estimated NDRRA cash payments are shown in Table 3.26 below (see Table A.8 in Annex A for accrual estimates).
| $'000 | NSW | VIC | QLD | WA | SA | TAS | ACT | NT | Total |
|---|---|---|---|---|---|---|---|---|---|
| 2012-13 | 125,035 | 92,666 | 32,004 | 52,964 | 3,071 | 6,637 | - | 16,419 | 328,796 |
| 2013-14 | 169,089 | 107,136 | 1,505,361 | - | - | - | - | 2,188 | 1,783,774 |
| 2014-15 | 113,224 | 5,641 | 1,943,472 | - | - | - | - | - | 2,062,337 |
| 2015-16 | - | - | - | - | - | - | - | - | - |
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