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Part 3: Australia's Federal Relations (continued)

GST payments

Reconciling GST revenue and GST payments to the States

Under the Intergovernmental Agreement, the States are entitled to receive payments from the Commonwealth equivalent to the revenue received from the GST.

However, GST revenue for a financial year varies from the amount of GST paid to the States for that year because of:

• GST revenues which are recognised on a Commonwealth whole‑of‑government basis, but not remitted to the Australian Taxation Office (ATO) by 30 June of each financial year, as the revenues will not be remitted until the following financial year;
• penalties, other than general interest charge (GIC) penalties, which are not included in the definition in the Federal Financial Relations Act 2009 of GST to be paid to the States;
• the GST component of sales by Commonwealth agencies which has been collected by those agencies but which, as at 30 June in each year, has not been remitted to the ATO, because it is not due to be paid until the next Business Activity Statement is lodged; and
• adjustments to account for any variation in the previous financial year between the Treasurer's final outcome Determination, and GST payment advances made during that financial year.

In 2013‑14, GST revenue was $55.5 billion. A reconciliation of GST revenue and GST entitlement to the States is provided in Table 31.

Table 31: GST revenue and GST entitlement to the States, 2013‑14

$million	Total
GST revenue	55,517
less change in GST receivables	4,123
GST receipts	51,394
less non-GIC penalties collected	276
less net GST collected by Commonwealth agencies but not yet remitted to the ATO	28
GST entitlement to the States(a)	51,090

(a) The 2013‑14 GST outcome will be finalised following a Determination by the Treasurer.

Advances of GST entitlements were provided to the States throughout the 2013‑14 financial year based on the Commonwealth's estimate of GST entitlements as updated at the 2014‑15 Budget. The GST entitlement to the States is expected to be $370 million higher than the advances paid during 2013‑14. A balancing adjustment will be made following a Determination by the Treasurer. Table 32 provides a reconciliation of the GST entitlement and GST advances to the States.

Table 32: GST entitlement and GST advances to the States, 2013‑14

$million	Total
GST entitlement to the States(a)	51,090
less advances of GST made throughout 2013‑14	50,720
equals following year balancing adjustment	370

(a) The 2013‑14 GST outcome will be finalised following a Determination by the Treasurer.

Distribution of GST entitlements among the States

The Commonwealth distributes GST among the States in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission (the Commission).

GST relativities

The Commission recommends GST revenue sharing relativities to be used in calculating each State's entitlement of the GST pool. The relativities determine how much GST each State receives compared with an equal per capita share and are determined such that, if each State made the same effort to raise revenue from its own sources and operated at the same level of efficiency, each State would have the capacity to provide services and the associated infrastructure at the same standard.

This does not necessarily result in the same standard of government services — rather, it equalises each State's capacity to provide the same standard of services. In calculating GST relativities, the Commission takes into account differences in the States' capacities to raise revenues and differences in the costs the States would incur in providing the same standard of government services, including through acquiring the infrastructure used to deliver those services.

A Determination on the GST Revenue sharing relativities for 2013‑14 was made in May 2013. The relativities for 2013‑14 are shown in Table 33.

Table 33: GST relativities, 2013‑14

	NSW	VIC	QLD	WA	SA	TAS	ACT	NT
2013‑14	0.96576	0.90398	1.05624	0.44581	1.26167	1.61454	1.22083	5.31414

Applying the GST relativities to the GST pool

The GST relativities were applied to estimated State populations to determine an adjusted population for each State. The entitlements are allocated using the population as at 31 December 2013 as determined by the Australian Statistician. Each State received its adjusted population share of the GST entitlement as shown in Table 34.

Table 34: Calculation of the 2013‑14 GST entitlements

	Population as at 31 December 2013 (1)	GST revenue sharing relativities (2)	Adjusted population (1) x (2) (3)	Share of adjusted population per cent (4)	Share of GST pool $million (5)
NSW	7,465,497	0.96576	7,209,878	31.0	15,849.5
VIC	5,790,990	0.90398	5,234,939	22.5	11,508.0
QLD	4,690,910	1.05624	4,954,727	21.3	10,892.0
WA	2,550,874	0.44581	1,137,205	4.9	2,499.9
SA	1,677,250	1.26167	2,116,136	9.1	4,651.9
TAS	513,955	1.61454	829,801	3.6	1,824.2
ACT	384,147	1.22083	468,978	2.0	1,031.0
NT	242,573	5.31414	1,289,067	5.5	2,833.8
Total	23,316,196	N/A	23,240,731	100.0	51,090.2

Table 35 provides a summary of advances made in 2013‑14 against their estimated final entitlement shown in Table 34 above. The variance between advances paid in 2013‑14 and the States' final entitlement will be paid in the 2014‑15 financial year.

Table 35: Summary of advances made in 2013‑14 and distribution of following year adjustment across States

$million	NSW	VIC	QLD	WA	SA	TAS	ACT	NT	Total
GST entitlement	15,849.5	11,508.0	10,892.0	2,499.9	4,651.9	1,824.2	1,031.0	2,833.8	51,090.2
13-14 advances	15,727.2	11,426.1	10,822.7	2,484.8	4,618.2	1,809.5	1,023.9	2,807.6	50,720.0
Following year adjustment(a)	122.3	81.9	69.3	15.1	33.7	14.7	7.1	26.1	370.2

(a) The 2013‑14 GST outcome will be finalised following a Determination by the Treasurer.

GST administration costs

The Commissioner of Taxation administers the GST law and the States compensate the Commonwealth for the costs incurred by the ATO in administering the GST, including costs incurred by the Australian Customs Service, as shown in Table 36.

Table 36: GST administration, 2013‑14

$million	Actual
	2012‑13	2013‑14
Australian Taxation Office budget	694.4	698.6
less prior year adjustment	-13.7	-11.0
equals State government administration payments	708.1	709.6
less Australian Taxation Office outcome(a)	705.3	690.4
equals Commonwealth budget impact	2.8	19.1
plus prior year adjustment	-13.7	-11.0
equals following year adjustment	-11.0	8.2

(a) Estimated outcome for 2013‑14 pending confirmation by the Australian National Audit Office.

The estimated outcome for the 2013‑14 GST administration expenses of $690.4 million differs from the amount paid by the States and the prior year adjustment by $8.2 million. Once the outcome for GST administration costs in 2013‑14 is audited and confirmed by the Australian National Audit Office, any adjustment required will be incorporated into the States' administration costs for 2014‑15.

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