Commonwealth Grants
Commonwealth grants to the States take two forms:
- General purpose grants (mainly GST revenue grants) – which have no restrictions on how the money is spent; and
- Specific purpose payments (SPPs) – which must be applied to specific activities and have various other conditions attached.
Commonwealth grants to all the States and Territories in 2007‑08 will total approximately $72 billion (around half of the States’ total revenues), mainly comprising $42 billion in GST grants and $30 billion in specific purpose payments (SPPs).
Western Australia will receive around 9.7% of total Commonwealth grants in 2007‑08 (excluding North West Shelf petroleum royalties), which is less than its national population share. As shown in the chart below Commonwealth grants are estimated to make up 40% of Western Australia's total revenue in 2007-08 (or 44% if North West Shelf royalties are included).
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State Government Revenue Sources 2007-08
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Source: 2007-08 Western Australian Budget Paper No. 3
(a) Includes compensation for GST deferred as a result of the Commonwealth's decision to allow extended payment arrangements for some taxpayers (mainly small businesses).
(b) Includes payment 'to' and 'through' the State.
(c) North West Shelf petroleum royalties are classified as a Commonwealth grant for Government Finance Statistics purposes, reflecting the Commonwealth's constitutional responsibility for offshore areas.
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The Commonwealth’s national GST collections are distributed among the States according to the Commonwealth Grants Commission’s recommendations. Under the Grants Commission’s methodology, there is a significant inbuilt lag between changes in Western Australia’s fiscal circumstances (relative to other States) and changes in its per capita share of the national GST pool (GST relativity). For example, the 2007-08 GST relativities are based on assessments for the data years 2001-02 to 2005-06.
Based on Commonwealth Budget data, GST revenue grants to Western Australia are projected to shrink by 0.8% in 2007‑08. Forecast growth of 5.8% in the national pool of GST revenue is more than offset by a $291 million cut in Western Australia’s share of GST collections, as recommended by the Commonwealth Grants Commission.
SPPs ‘to’ Western Australia that support specific State services are expected to increase by 6.8% in 2007‑08. Growth in health and education payments due to indexation is partly offset by reductions in Commonwealth project‑based road funding and funding under the National Action Plan for Salinity and Water Quality.
Commonwealth SPPs that pass through the State’s accounts, mainly to local governments and private schools, are expected to grow by 7.0% in 2007‑08, primarily reflecting a large increase in recurrent Commonwealth payments to private schools. Strong growth is expected to continue in the outyears.
Over the three outyears, Commonwealth grants ‘to’ the State are expected to decrease by an average of 1.4% per annum. Solid growth in the national pool of GST revenues is expected to be more than offset by a declining share of GST revenues for Western Australia relative to other States and low growth in SPPs ‘to’ the State.
By 2010‑11 the Commonwealth Grants Commission process is expected to result in Western Australia’s GST revenue grant share being $1,366 million less than it would be if the 2006‑07 distribution still applied. This reflects the lagged Grants Commission impact of the recent high growth in the State’s property market related revenue, and petroleum and iron ore royalties.