Noon, Adrian Kenneth
Description
The operational key to intergovernmental relations in Australia's federal
system of governance is the nature of the financial relations between the
different levels of government. Integral to these relations are Specific
Purpose Payments (SPPs) transfers. This paper argues that, in most
cases, SPPs have similar effects on the pattern of expenditure by States
and Territories as have unconditional Financial Assistance Grants.
The theory of intergovernmental grants suggests that tied grants...[Show more] with
matching conditions attached, and non-matching tied grants that force
recipient governments to provide the assisted function at a level above
its preference, induce substitution effects upon the recipient government,
and so should impinge on their spending options. In Australia, however,
this constraint has been removed because of the role of the
Commonwealth Grants Commission. The Commission is required to
calculate the distributional relativities for the States and Territories
according to the principle of fiscal equalisation. In deriving these
relativities, the Commission treats SPPs by the so-called inclusion
method. This ensures that any intended matching effects of SPPs
(explicit or otherwise) are largely compensated for over the period being
reviewed. Theoretical and statistical evidence is provided to support
these arguments.
Hence, with the exception of two special cases, there is no real benefit,
and almost certainly real costs (because of the larger bureaucracies
associated with the administration of SPPs), to the community in the
Commonwealth generally retaining Specific Purpose Payments.
Australia's intergovernmental fiscal arrangements, including the
relatively high incidence of Specific Purpose Payments, prevent the
community from fully enjoying the perceived benefits of the federal
system of government. In particular, they fail to act as an effective
constraint on the expansionist tendencies of government. Sustainable
reform of fiscal imbalance, however, may be difficult to attain because of
the effects caused by the interrelationships between Sections 51, 90 and 96 of the Constitution.
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