COMMONWEALTH GRANTS COMMISSION Annual Report 2007-08 ISSN 1322-7521 © Commonwealth of Australia 2008 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General’s Department, Robert Garran Offices, National Circuit, Barton, ACT, 2600 or posted at http://www.ag.gov.au/cca. This document does not conform to Australian Government style. A copy of this annual report can be obtained by visiting the Commission’s web site at http://www.cgc.gov.au/state_finances_inquiries/annual_report. Contact Officer Enquires about this report should be directed to: Director, Corporate Services Commonwealth Grants Commission Cypress Court 5 Torrens Street BRADDON ACT 2612 Telephone: (02) 6229 8825 Facsimile: (02) 6229 8821 Email: [email protected] CHAIRMAN Alan G Morris 5 Torrens Street BRADDON ACT 2612 Telephone: 02 6229 8811 Facsimile: 02 6229 8808 [email protected] www.cgc.gov.au File ref: 2008/0104 The Hon Wayne Swan MP Treasurer Parliament House CANBERRA ACT 2600 Dear Treasurer As Chairman of the Commonwealth Grants Commission appointed under the Commonwealth Grants Commission Act 1973, I present you with the Commission's Annual Report for 2007-08. The report covers inquiries and other activities undertaken by the Commission during the year ended 30 June 2008. Section 63 of the Public Service Act 1999 requires you to cause a copy of the report to be laid before each House of the Parliament. Yours sincerely Alan Morris 1 September 2008 CONTENTS OVERVIEW 1 1 THE COMMISSION AND ITS WORK 3 Outcome groups 3 2 PERFORMANCE OF THE COMMISSION IN 2007-08 5 Outcome — fiscal equalisation 5 2010 Review of methods used to derive State revenue sharing relativities 6 2008 Update of State Revenue Sharing Relativities 6 Inquiry into funding for the Indian Ocean Territories 6 Information dissemination 7 Resources 7 Financial results 8 The Commission’s performance and social justice 8 3 MANAGEMENT AND ACCOUNTABILITY 9 CORPORATE GOVERNANCE 9 The Commission and its employees 9 Relationship with the Department of The Treasury 11 Governance framework 11 Corporate plan 11 Committees 11 Internal and external scrutiny and compliance 13 Risk management and fraud control 13 Australian Government protective security 13 MANAGING AND DEVELOPING HUMAN RESOURCES 14 Certified/Collective Agreement 15 Australian workplace agreements and Section 24(1) Determinations 15 Salary ranges 15 Performance pay 16 Remuneration of senior executives 16 Training and development strategies 16 i Contents OTHER RESOURCE MANAGEMENT MATTERS 18 Purchasing 18 Asset management 18 Use of consultants 18 Competitive tendering and contracting 19 Discretionary grants 19 Advertising and market research 19 Ecologically sustainable development and environmental performance 20 Contact officer 20 ATTACHMENTS A Terms of reference for the 2010 Methodology Review 21 B Terms of reference for the 2008 Update of State Revenue Sharing Relativities 24 C Terms of reference for the inquiry into future funding levels for the Territories of Christmas Island and the Cocos (Keeling) Islands 27 D Information dissemination 29 E Corporate plan 34 F Freedom of Information Act 1982 section 8 statement 36 G Occupational health and safety 39 H Commonwealth disability strategy 41 I Consultancy contracts let during 2007-08 42 J Financial statements for the year ended 30 June 2008 44 Glossary 78 Acronyms 80 Index 81 ii OVERVIEW MAJOR OUTCOMES AND COMMISSION PERFORMANCE — 2007-08 1 Under the outcome reporting framework for the 2007-08 Budget, the Commission had only one outcome — fiscal equalisation. 2 Major achievements during the year were: the presentation to the Minister of the Report on State Revenue Sharing Relativities 2008 Update. Its recommendations were considered at the Ministerial Council for Commonwealth-State Financial Relations (Minco) in March 2008 and adopted (as amended for updated State data) for use in distributing the Goods and Services Tax (GST) revenue and health care grants between the States and Territories1 in 2008-09; and the presentation to the Minister of the Report on Indian Ocean Territories, 2007, in keeping with terms of reference dated 10 April 2007. THE FINANCIAL RESULTS FOR 2007-08 3 The Commission’s financial results for 2007-08 are summarised below. Outcome 2007-08 Allocation 2007-08 Expenses Variance $m $m $m Fiscal equalisation 8.4 7.1 1.3 Total 8.4 7.1 1.3 1 In this report, the word State(s) includes the Australian Capital Territory and the Northern Territory, unless the context indicates otherwise. 1 Overview THE OUTLOOK FOR 2008-09 2009 Update 4 The Commission expects to receive terms of reference for an update of the State shares of GST revenue and health care grants in the latter part of 2008. Precedent indicates the report on that update will be required in February 2009. Work on the update has begun, with employees focusing on data collection to facilitate the inclusion of data relating to the latest available year and identifying new issues in Commonwealth-State financial relations. 2010 Review of Commission methods 5 Terms of reference for this review (Attachment A) ask the Commission to report on appropriate per capita relativities to be applied in the distribution of the GST revenue and health care grants after 2009-10. The methods used should be simpler than in the past, but consistent with the principle of horizontal fiscal equalisation. 6 A report to the Minister is required in February 2010. Work is proceeding in accordance with a work plan developed in conjunction with the Australian Government Treasury and the States. 2 CHAPTER 1 THE COMMISSION AND ITS WORK 1 The Commission operates under the Commonwealth Grants Commission Act 1973. It is a statutory authority whose role is to provide advice to the Australian Government in response to terms of reference from the Minister. 2 The main subject on which advice is sought is the allocation among the States of the Goods and Services Tax (GST) and health care grants. Terms of reference for these inquiries are decided by the Australian Government in consultation with the States. The reports are considered at the annual meeting of Minco. 3 From time to time, the Commission is also asked to report on the finances of Australia’s external territories, local government matters and the financing of services for Indigenous people. Terms of reference for those inquiries are developed by relevant Australian Government agencies and the reports are considered by their Ministers. Outcome groups 4 In 2007-08, the Commission had a single outcome — fiscal equalisation. 5 Five-yearly reviews of the methods used to calculate the recommended State shares of GST revenue and health care grants are the major activity associated with this outcome. During 2007-08, the Commission made progress with the review of methods to be completed in 2010. It released a major paper on the principles to be used in the review, commenced a program of visits to the States and discussed with them proposed methods for calculating State shares. 6 Between reviews, the shares are updated annually using the most recent data. Such an update was completed in February 2008. That update (called the 2008 Update) proceeded on the basis of terms of reference (Attachment B) from the Minister for Finance and Deregulation. States were consulted about the treatment of new issues relevant to their fiscal capacities that arose during the year. 7 Under the Commonwealth Grants Commission Act 1973, the Minister may also seek advice on matters relating to the financing of local government and Australia’s territories. During 3 Chapter 1 The Commission and its work 2007-08, and following a request (terms of reference at Attachment C) from the Minister for Local Government, Territories and Roads, the Minister sought advice on the appropriate level of funding for the Indian Ocean Territories. 8 Figure 1-1 provides a diagrammatic representation of the work of the Commission in 2007-08. Figure 1-1 Outcomes and outputs structure 2007-08 COMMONWEALTH GRANTS COMMISSION Fiscal equalisation between the States, the ACT and the Northern Territory is achieved through the distribution, by Government, of GST revenue and health care grants Progress with the 2008 Update 2010 Review of Report on Indian Ocean Territories, 2007 of relativities methods used to calculate relativities 4 CHAPTER 2 PERFORMANCE OF THE COMMISSION IN 2007-08 1 The Commission’s outcome in 2007-08 was fiscal equalisation. The outputs relating to this outcome are reports, or progress towards the completion of reports, containing advice for the Australian Government. 2 This chapter provides information on the Commission’s effectiveness in meeting Government requirements. It also provides an evaluation against the effectiveness indicators set out in the Portfolio Budget Statements 2007-08. These are: the timeliness of reports; the extent to which parties and the public generally are given opportunities to place their views before the Commission; the technical quality of the analytical work underlying and supporting the reports; the degree of acceptance of the reports by the Australian and State Governments; and the extent to which the Commission operates within its budget. Outcome — fiscal equalisation 3 In 2007-08, the outputs relating to the fiscal equalisation outcome were: progress on the review of methods used to derive State shares of the GST revenue and health care grants, to be completed by February 2010; and completion of the Report on State Revenue Sharing Relativities, 2008 Update and an accompanying document on the relative fiscal capacities of the States. 4 The Commission also completed a Report on the Indian Ocean Territories, 2007. It provided advice on the appropriate level of funding for the Indian Ocean Territories for 2005-06 and how that level of funding might be updated.