Peter Costello

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Commonwealth Financial Assistance to the States for 1998-99

NO. 030

CANBERRA

20 March 1998

COMMONWEALTH FINANCIAL ASSISTANCE TO THE STATES FOR 1998-99

The Commonwealth Government will pay, in full, the funding commitments to the States and Territories in accordance with the offer which it made to them on 17 March 1998. This offer was consistent with the Commonwealth's commitment to sustaining the level of general revenue assistance to the States and Territories over the medium term, while also recognising the ongoing importance of the medium term fiscal strategy implemented in 1996-97.

The Commonwealth's fiscal consolidation effort remains a central priority, particularly in light of the recent instability in the Asian region. The improvement in Australia's fiscal position over the past two years has played a major role in shielding the economy from these disturbances and continued fiscal improvement is essential if Australia's vulnerability to these and future external shocks is to be minimised.

General revenue assistance to the States and Territories rises by $450 million (2.7 per cent) in 1998-99. After taking into account State fiscal contributions this means general revenue assistance rises 4.8 per cent in 1998-99 over 1997-98. (This compares with a 2.3 per cent rise in Commonwealth own purpose payments contained in the forward estimates.) Total payments to the States - which include general revenue assistance, specific purpose payments and State fiscal contributions - are estimated to rise by $910 million or 3 per cent. Although specific purpose payments will be subject to consideration in the Commonwealth's budget process there will be no overall cut to SPPs to the States against the forward estimates in 1998-99.

General Revenue Assistance

The Commonwealth will maintain financial assistance grants (FAGs) to the States and Territories in real per capita terms in 1998-99 and extend the real per capita guarantee of FAGs to 2000-01.

The payment of FAGs to the States and Territories will be conditional upon States making fiscal contribution payments of $313 million in 1998-99, the last year of the payments. This is pursuant to the agreement at the 1996 Premiers' Conference.

The Commonwealth will continue to provide each State and Territory with flexibility as to the method of paying its share of the fiscal contribution. Nominations for reductions in specific purpose payments will be considered on their merits having regard to the Commonwealth's policy objectives and decisions underlying the payments.

Other aspects of the Commonwealth's decision were:

  • The pool of FAGs and Health Care Grants (HCGS) in 1998-99 will be distributed on a preliminary basis using the 'equalisation' per capita relativities calculated by the Commonwealth Grants Commission (CGC) and estimates of HCGs based on the Commonwealth's latest funding offer to the States and Territories for the Australian Health Care Agreements (AHCAs). Once the AHCAs are finalised, the distribution of the pool will be revised in 1998-99 for the final size and distribution of HCGS.
  • The Commonwealth intends to provide Competition Payments to the States and Territories as specified in the Agreement to Implement the National Competition Policy and Related Reforms. These payments will be worth up to $217.6 million in 1998-99 and will be determined once the National Competition Council has released its assessment of progress under the Agreement in June 1998.
  • The ACT will receive from the Commonwealth special revenue assistance totalling $25.0 million, comprising transitional allowances of $11.1 million and $13.9 million for special fiscal needs. These amounts are in accordance with the CGC's recommendations and will be funded directly by the Commonwealth.

Details of the estimated general revenue assistance to the States and Territories in 1997-98 and 1998-99 are set out in Tables 1, 2 and 3. Table 4 shows estimated total payments in 1998-99.

The actual 1998-99 payments for FAGs and Competition Payments will reflect the outcome for the CPI and the determination of population by the Australian Statistician during the year. The estimates of specific purpose payments are on a no policy change basis and will be subject to consideration in the Commonwealth's 1998-99 Budget processes. Detailed estimates of their proposed level and distribution will be included in the 1998-99 Budget papers.

Australian Health Care Agreements

The Commonwealth will pay, in full, its generous offer to the States and Territories for health funding over the next five years. This will mean that in 1998-99 Commonwealth funding will amount to $5527 million compared to $5043 million in the current year. This means that funding will increase in 1998-99 by 9.6 per cent in nominal terms and 6.9 per cent in real terms over 1997-98 expenditure.

By 2002-03, the final year of the proposed Agreements, Commonwealth funding would increase to at least $6582 million which will represent an increase of 15.4 per cent in real terms. In making these commitments the Commonwealth agrees to increase funding for any further falls in private health insurance. On current estimates this could amount to additional Commonwealth funding of $83 million per annum for each percentage point fall in the private health insurance participation rate.

Funding to be paid pursuant to the Australian Health Care Agreements (AHCAs) includes $750 million over five years which represents additional revenue which the States will have available as a result of the Commonwealth's move to full cost purchasing of services for entitled veterans without a reduction in any other funding from the Commonwealth. There is also $500 million over five years for National Health Development Special Assistance which is intended to improve the delivery of acute care, link the age and acute care systems more effectively and develop improved information systems to support reform. In addition, up to $120 million is available to directly reduce waiting lists. This involves up to $4 million per week being available over 30 weeks commencing from 16 March 1998 to reduce waiting lists for those States and Territories who reach in-principle agreement on the AHCAs.

 

TABLE 1: GENERAL REVENUE ASSISTANCE TO THE STATES AND TERRITORIES, 1997-98 & 1998-99

General Revenue Assistance to the States and Territories

(a) The estimates of financial assistance grants (FAGs) are determined by distributing the pool of FAGs and unquarantined hospital grants on the basis of the per capita relativities recommended by the Commonwealth Grants Commission (CGC), and then deducting the estimate of hospital grants. 'Unquarantined hospital grants' refers to, in 1997-98, base hospital funding grants paid under the Medicare Agreements, and, in 1998-99 the admitted patient, non-admitted patient, palliative care and quality assurance and access components of health care grants under the proposed AHCAs (based on the Commonwealth's offer to the States of 10 March 1998). The FAGs estimates do not include offsets for State fiscal contributions.
(b) Payments to NSW and Victoria under the Medicare Guarantee (MCG) arrangements.
(c) For 1997-98 and 1998-99, these payments only consist of transitional allowances and special fiscal needs paid to the ACT in accordance with CGC recommendations.
(d) The Agreement to Implement the National Competition Policy and Related Reforms specifies that $200 million in 1994-95 prices is to be distributed between the States on an equal per capita basis in 1997-98 and 1998-99. The receipt of the payment is conditional on a State meeting the obligations of the Agreement.
Note: All numbers in this table have been rounded. Any discrepancies in the totals are due to rounding.

 

TABLE 2: DISTRIBUTION OF FINANCIAL ASSISTANCE GRANTS (FAGs) TO THE STATES AND TERRITORIES, 1998-99

Dist of Financial Assistance Grants

(a) Total weighted population differs from the total population in column 1 as the per capita relativities are calculated by the CGC using population numbers for the period 1992-93 to 1996-97 and are then rounded. It is the total population shown in column 1 that is used in determining an index factor for the FAGs pool. Note also that the population numbers are projections.
(b) The admitted patient, non-admitted patient, palliative care and quality assurance and access components of health care grants under the proposed AHCAs (based on the Commonwealth's offer to the States of 10 March 1998).

 

TABLE 3: CALCULATION OF 1998-99 FAGs POOL, $m (a)

Calculation of 1998-99 FAGs Pool

(a) The final outcomes for 1997-98 are yet to be determined and will depend on the Statistician’s determination of the population as at 31 December 1996 and 31 December 1997 (expected to be available on 10 June) and the actual increase in the CPI for the four quarters to March 1998. The actual payment of FAGs will be offset by all or part of some States’ fiscal contributions to the Commonwealth.
(b) Currently estimated at 3.16 per cent for 1998-99.

 

TABLE 4: ESTIMATED TOTAL PAYMENTS TO THE STATES AND TERRITORIES, 1998-99

Estd Total Payments to the States and Territories

(a) Comprises financial assistance grants ($16,890 million), competition payments ($218 million) and special revenue assistance for the ACT ($25 million). Distribution of financial assistance grants is according to recommended equalisation per capita relativities of the Commonwealth Grants Commission.
(b) Includes specific purpose payments through the States and payments directed to local government.
(c) The data abstract from SPPs in 1997-98 for the National Firearms Programme.
(d) Comprises general revenue assistance and specific purpose payments less State fiscal contributions.
Note: These figures do not include:
(i) The $150 million ($750 million over five years) additional revenue the States will have available from the move to full cost purchasing for entitled veterans without a reduction in any other funding from the Commonwealth;
(ii) an estimated $20 million ($500 million over five years) for National Health Development Special Assistance; or
(iii) payments under the $120 million Waiting Lists Incentive programme.

20 Mar 1998

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