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Presentation to the Panel reviewing the GST Distribution 6 May 2011 1 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 2 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 3 Reviews of methodology Annual updates ◦ Latest data are fed into the methods from the last review 4 800 700 600 $m 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Update Update Review Update Update Update Update Update Review Update Revisions (a) Changes in State circumstances (a) Impact of revisions and changes in assessment methods combined 5 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. 6 35.0 -$92 pc GST Share 30.0 Population Share -$213 pc 25.0 -$160 pc per cent % 20.0 15.0 -$644 pc 10.0 $606 pc $9 927 pc $1 333 pc 5.0 $265 pc 0.0 NSW Vic Qld WA SA Tas ACT NT 7 8 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 NSW Vic Qld WA SA Tas ACT NT Note: 3 yr average Source: CGC assessment system. 9 50 Share of Population Share of Mining Revenue 45 40 per cent (%) 35 30 25 20 15 10 5 0 NSW Vic Qld WA SA Tas ACT NT Note: 3 yr average Source: ABS estimated resident population and revenue data sourced from CGC assessment system. 10 250.0 Cost of service ratio 200.0 150.0 100.0 50.0 0.0 NSW Vic Qld WA SA Tas ACT NT Note: 3 yr average Source: CGC assessment system. 11 35.0 30.0 Per cent (%) 25.0 20.0 15.0 10.0 5.0 0.0 NSW Vic Qld WA SA Tas ACT NT Average Source: ABS indigenous population estimates, 2008-09 12 80 Low Middle High 70 60 Per cent 50 40 30 20 10 0 NSW Vic Qld WA SA Tas ACT NT Australia Source: ABS SEIFA index, 2009-10 (Census District data). 13 8.0 6.0 Per cent 4.0 2.0 0.0 -2.0 -4.0 -6.0 NSW Vic Qld WA SA Tas ACT NT Source: CGC interstate wage disability factor, Update 2011 Note: 3 year average using data for the years 2007-08 to 2009-10. 14 2011 Update Mining production (7% of OSR)* Indigenous influences Where people live Wage Levels Socio-economic status Payrolls (18% of OSR)* Property Sales (13% of OSR)* Amount redistributed $m 3 802 2 562 1 642 1 187 1 131 881 767 Source: Table 7, 2011 Update Report, Commonwealth Grants Commission. * OSR = Own source revenue 15 16 NSW Vic Qld WA SA Tas ACT NT Redist $m $m $m $m $m $m $m $m $m Equal per capita 16 104.2 12 429.7 10 193.9 5 192.3 3 640.4 1 121.3 800.0 518.2 Illustrative 15 439.9 11 257.4 9 475.8 3 728.2 4 630.6 1 795.2 894.1 2 778.9 -664.4 -1 172.3 -718.1 -1 464.1 990.2 673.9 94.1 2 260.7 2008-09 2009-10 Redistribution 4 018.9 10.0 8.0 7.0 2011-12 2010-11 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 6.0 2000-01 Per cent 9.0 17 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 Relativity 1.10 1.05 1.00 0.95 0.90 0.85 NSW Vic 0.80 Qld 0.75 WA 0.70 0.65 0.60 Source: CGC calculation. 18 Share of own source revenue (%) 9.00 9.00 8.00 8.00 7.00 7.00 6.00 6.00 5.00 5.00 4.00 4.00 3.00 3.00 2.00 2.00 1.00 1.00 0.00 0.00 Per cent Dollars billion Mining revenue ($b) 19 4 000.0 3 500.0 Dollars million 3 000.0 2 500.0 2 000.0 1 500.0 1 000.0 500.0 0.0 20 Share of own source revenue (%) 18.00 18.00 16.00 16.00 14.00 14.00 12.00 12.00 10.00 10.00 8.00 8.00 6.00 6.00 4.00 4.00 2.00 2.00 0.00 0.00 Percent Dollars billion Conveyencing revenue ($b) 21 1 400.0 1 200.0 Dollars million 1 000.0 800.0 600.0 400.0 200.0 0.0 22 23 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 24 250.0 Cost of Capital Ratio 200.0 150.0 100.0 50.0 0.0 NSW Vic Qld WA SA Tas ACT NT Note: 3 year average Source: CGC calculation. 25 3.0% Population growth (%) 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% NSW Vic Qld WA SA Tas ACT NT Note: 3 year average. Based on data for 2007-08 to 2009-10. Source: ABS Estimated resident population. 26 27 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 28