Australia’s current intergovernmental grant allocation framework fails to take a balanced approach when assessed against the criteria of efficiency, equity, transparency and accountability. Particularly compromised is the criteria of efficiency, resulting in states having little incentive to adopt policies in either their or the nation’s interest. Current intergovernmental fiscal arrangements in Australia do little to ensure governments face the financial consequences of their decisions; do little to strengthen accountability; and often contradict performance standards attached to specific purpose grants. This paper proposes a holistic approach to the allocation of general purpose grants to States in the Australian federation. Central to the proposal is acknowledging the importance of the interactions general grants have with other sources of State funding (specific purpose grants and taxation) and with how those funds are expended. The benefit of the grant allocation framework proposed is how it puts control (and interest) back in intergovernmental grant allocation for the national government through its direct approach to addressing the disincentive effects of applying fiscal equalisation principles to general grant allocation. For subnational governments, its benefit is how it restores the fiscal incentive for them to embrace policy reform in the difficult areas of healthcare and taxation.
Taxation-State and Local | Tax Law
Date of this Version
Neil Warren, "Designing Intergovernmental Grants to Facilitate Policy Reform" (August 2011). University of New South Wales Faculty of Law Research Series 2011. Working Paper 23.