1

Presentation to the Panel reviewing the GST Distribution

6 May 2011

2

1. Some history and the definition of HFE

2. Main reasons why GST shares differ

3. Developments in the last decade

4. Methodology changes in 2010 Review

5. CGC and the Committee to review HFE

Topics

3

CGC established 1933 1933-70s: claimant States assessed against a

2 State average (NSW and Victoria) Full equalisation Fraser legislates1978, CGC reports 1980 and

phased-in 1980s,Territories also by 1993-94 Each State assessed against an 8 State average

Reaffirmed Howard 1999, Rudd 2008

Some history

4

Reviews of methodology Annual updates

◦Latest data are fed into the methods from the last review

CGC tasks

5

Revisions v Changes in State circumstances

(a) Impact of revisions and changes in assessment methods combined

2002 Update

2003 Update

2004 Review

2005 Update

2006 Update

2007 Update

2008 Update

2009 Update

2010 Review

2011 Update

0

100

200

300

400

500

600

700

800

Revisions (a) Changes in State circumstances

$m

6

The GST is distributed so that: ◦ After allowing for the major factors affecting

revenues and expenditures;

◦ Each State has the fiscal capacity to provide services and the associated infrastructure at the same standard;

◦ If each makes the same effort to raise revenue from its own sources; and

Each operates at the same level of efficiency.

Definition of HFE

7

GST and population shares 2010-11

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

NSW Vic Qld WA SA Tas ACT NT

per c

ent %

GST Share Population Share-$92 pc

$9 927 pc

$265 pc

$1 333 pc

$606 pc-$644 pc

-$160 pc

-$213 pc

8

Why shares differ

9

Relative revenue raising capacities 2007-08 to 2009-10

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

NSW Vic Qld WA SA Tas ACT NT

Note: 3 yr averageSource: CGC assessment system.

10

Share of mining revenue and population 2007-08 to 2009-10

0

5

10

15

20

25

30

35

40

45

50

NSW Vic Qld WA SA Tas ACT NT

per c

ent (

%)

Share of Population Share of Mining Revenue

Note: 3 yr averageSource: ABS estimated resident population and revenue data sourced from CGC assessment system.

11

Relative costs of services 2007-08 to 2009-10

Note: 3 yr averageSource: CGC assessment system.

0.0

50.0

100.0

150.0

200.0

250.0

NSW Vic Qld WA SA Tas ACT NT

Cost

of s

ervi

ce ra

tio

12

Indigenous population: share of total population

Source: ABS indigenous population estimates, 2008-09

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

NSW Vic Qld WA SA Tas ACT NT Average

Per c

ent

(%)

13

Socio-economic profile of States

Source: ABS SEIFA index, 2009-10 (Census District data).

NSW Vic Qld WA SA Tas ACT NT Australia0

10

20

30

40

50

60

70

80

Low Middle High

Per

cent

14

Difference from average wage levels

Source: CGC interstate wage disability factor, Update 2011Note: 3 year average using data for the years 2007-08 to 2009-10.

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

NSW Vic Qld WA SA Tas ACT NT

Per c

ent

15

The main causes2011 Update

Amount redistributed

$mMining production (7% of OSR)*

3 802

Indigenous influences 2 562

Where people live 1 642

Wage Levels 1 187

Socio-economic status 1 131Payrolls (18% of OSR)*

881

Property Sales (13% of OSR)*

767Source: Table 7, 2011 Update Report, Commonwealth Grants Commission.

* OSR = Own source revenue

16

Developmentsin the last decade

17

Difference from population share

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

6.0

7.0

8.0

9.0

10.0

Per

cen

t

  NSW Vic Qld WA SA Tas ACT NT Redist

$m $m $m $m $m $m $m $m $m

Equal per capita 16 104.2 12 429.7 10 193.9 5 192.3 3 640.4 1 121.3 800.0 518.2

Illustrative 15 439.9 11 257.4 9 475.8 3 728.2 4 630.6 1 795.2 894.1 2 778.9  

Redistribution -664.4 -1 172.3 -718.1 -1 464.1 990.2 673.9 94.1 2 260.7 4 018.9

18

Qld and WA become donors

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.1020

00-0

1

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

Rela

tivi

ty

NSW

Vic

Qld

WA

Source: CGC calculation.

19

Mining revenue growth

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Mining revenue ($b) Share of own source revenue (%)

Dol

lars

bil

lion

Per

cen

t

20

Source of volatility:Mining revenue redistribution

U2002

U2003

R2004

U2005

U2006

U2007

U2008

U2009

R2010

U2011

0.0

500.0

1 000.0

1 500.0

2 000.0

2 500.0

3 000.0

3 500.0

4 000.0

Dol

lars

mil

lion

21

Source of volatility:Conveyance duty

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Conveyencing revenue ($b) Share of own source revenue (%)

Dol

lars

bil

lion

Per

cent

22

Contribution of conveyance duties to total redistribution

U2002

U2003

R2004

U2005

U2006

U2007

U2008

U2009

R2010

U2011

0.0

200.0

400.0

600.0

800.0

1 000.0

1 200.0

1 400.0

Dol

lars

mil

lion

23

Methodology changes

24

Simplification and materiality - Required by terms of reference

Averaging of data: 5 years reduced to 3 years - Contemporaneity versus stability

- Lags reduced by 2 years

- Implications of lags for booms and busts

Investment and population growth - Needs assessed upfront

2010 Review

25

Relative investment 2007-08 to 2009-10

Note: 3 year averageSource: CGC calculation.

0.0

50.0

100.0

150.0

200.0

250.0

NSW Vic Qld WA SA Tas ACT NT

Cost

of

Capi

tal R

atio

26

Population growth pa 2007-08 to

2009-10

Note: 3 year average. Based on data for 2007-08 to 2009-10. Source: ABS Estimated resident population.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

NSW Vic Qld WA SA Tas ACT NT

Popu

lati

on g

row

th (%

)

27

The Review of theGST Distribution

28

Welcomes the Review

Will fully cooperate with the Review

Need for transparency◦ We will adopt our usual practice for reviews and updates◦ Any submissions we make will be placed on our website

Need to remain neutral◦ CGC has continuing responsibility ‘to make

recommendations on the distribution of the GST’

Some CGC staff will be seconded to Secretariat

CGC and the Review of GST Distribution