Federal-state financial relations

The Intergovernmental Agreement on Federal Financial Relations provides the overarching framework for the Australian Government’s financial relations with the states. It sets the foundation for collaboration on policy development and service delivery, and for the implementation of economic and social reforms in areas of national importance.

There are a number of inter-government forums that oversee Australia’s system of federal-state financial relations. These include:

  • Council for Federal Financial Relations (CFFR), which comprises the treasurers of the Australian, state and territory governments and which oversees the operation of the Intergovernmental Agreement on Federal Financial Relations.
  • Heads of Treasuries (HoTs) meetings, which are convened every three to four months to discuss federal financial relations issues, and which are attended by Australian, state and territory Under Treasurers. HoTs also provide advice to the CFFR as required.
  • Council of Australian Governments (COAG),  the peak intergovernmental forum in Australia, attended by the Prime Minister, Premiers and Chief Ministers, and the President of the Australian Local Government Association.

Queensland Treasury provides support for the Premier, Treasurer and Under Treasurer to participate at these forums.

Treasury also works with other Queensland Government agencies to negotiate national partnership funding agreements with the Australian Government, ensuring that Queensland’s interests are considered and that negotiations comply with the Queensland Government principles for intergovernmental activities. We also advocate on Queensland’s behalf to ensure that Australian Government funding to Queensland is distributed fairly and with consideration to Queensland’s expenditure requirements, demographic growth, size and other characteristics.

Major inter-governmental reforms underway

COAG and CFFR are responsible for driving major reforms important to Australia’s future. Currently, they are conducting two major reviews through white paper processes:

  • White Paper on the Reform of the Federation, which is reviewing overlap between local, state and federal responsibility or involvement in the delivery and funding of public programs.
  • White Paper on the Reform of Australia’s Tax System, which is reviewing for fairness and simplicity, how much revenue is raised through tax at the state and federal levels and how it is raised.

These white papers present the best opportunities in recent inter-govfernmental history for all governments to influence change and address the challenges faced by our federation. Treasury is actively working to ensure the reforms align with the Queensland Government’s objectives, that there is clarity of roles and responsibilities between the Australian and state governments, that Queensland’s revenue-raising ability is sustainable and efficient and that vertical fiscal imbalance (Word 35 K) (VFI) is minimised.

2014 horizontal fiscal equalisation review

The GST payments each state and territory receive each year from the Australian Government (to address vertical fiscal imbalance) are calculated using a complex methodology that takes into account each state and territory’s revenue-raising ability and their expenditure requirements. This calculation is called the horizontal fiscal equalisation (HFE) calculation. You can find out more about the HFE calculation in the VFI and HFE fact sheet (Word 35 K).

Treasury is advocating on Queensland’s behalf to ensure that adjustments proposed in the HFE calculation review are fair and take into account Queensland’s true revenue-raising and spending circumstances. Some of the broad issues Queensland has consistently raised to improve the HFE outcome include:

  • a new way of assessing mining revenue that better balances any increased revenue states might receive for mining royalties against any decrease to GST distribution
  • better recognition of mining-related expenses incurred by states in the development of the mining industry and the provision of economic and social infrastructure
  • an alternative measure of wage pressures for state public sector labour markets, instead of the current proxy of private sector wages. The relationship between public and private sector wages has significantly weakened in recent years
  • a more robust way of assessing states’ needs in providing transport services and infrastructure.

Queensland’s full submissions to the CGC HFE process, past and current are available on the CGC website.