AN INFORMATION REPORT Studies In Comparative Federalism: AUSTRALIA ADVISORY COMMISSION ON a INTERGOVERNMENTAL RElATlONS Washington, D.C. 20575 AUGUST 1 98 1 M-129 Preface 1 n the State and Local Fiscal Assistance eral Financial Relations. The selection of read- Amendments of 1976 (P.L. 488), Congress ings covers the institutions and practices asked the Advisory Commission on Intergov- which are unique to Australia, as well as those ernmental Relations to study and evaluate "the which it shares with other federal systems. allocation and coordination of taxing and These readings pay particular attention to the spending authority between levels of govern- ways in which Australia has coped with the ment, including a comparison of other federal fiscal imbalance between and, to a lesser ex- government systems." The objective of this re- tent, among governmental levels. While the search is to determine how federal systems in powers assigned to the national government other industrialized nations have dealt with are quite limited, its fiscal resources considera- some of the issues of fiscal federalism that are bly exceed those at the state-local level. As a of current concern in the United States. result, the Australian federal system makes ex- To carry out this assignment, four reports tensive use of equalizing grants from the feder- have been prepared: individual studies of Can- al to state governments. In addition, Australia ada and West Germany, this selection of read- relies upon an institution that is unique among ings on the federal system of Australia, and a the federal systems studied-the Australian comparative analysis of the United States and Loan Council-which controls the borrowing the other three countries. The Commission of the entire public sector except for national chose to describe the Australian system of fis- defense and temporary needs. cal federalism by a series of readings because of the availability of a rich array of studies pre- pared in Australia under the aegis of Russell Mathews, the Director of the Australian Na- Abraham D. Beame tional University's Centre for Research on Fed- Chairman iii Acknowledgments The Advisory commission on Intergovern- mental Relations (ACIR) wishes to thank the Centre for Research on Federal Financial Rela- tions of the Australian National University, Publius, The Journal of Federalism of Temple . University, and the Honorable Mr. Justice Else- Mitchell, C. M. G., for permission to reprint the articles which appear in this series of readings. Russell Mathews, Director of the Centre for Research on Federal Financial Relations, as- sisted in the selection of the articles and also adapted the articles which he had written for presentation in this volume. At ACIR, the stud- ies were edited by Susannah E. Calkins and L. Richard Gabler. Secretarial tasks were shared by Ruth Phillips and Shari Quick. Wayne F. Anderson Executive Director John Shannon Assistant Director for Taxation and Finance CONTENTS Chapter 1 Regional Disparities in Australia ....................... by Russell Mathews. Centre for Research on Federal Fi- nancial Relations. The Australian National University Regional Disparities in Australia ............................... Chapter 2 The Development of Australian Fiscal Federalism ....... by Russell Mathews. Centre for Research on Federal Fi- nancial Relations. The Australian National University Constitutional Background ..................................... Developments in Fiscal Federalism After Federation ............ Horizontal Fiscal Imbalance and Fiscal Equalisation Grants ...... Uniform Taxation and General Revenue Grants .................. Government Borrowing ........................................ Specific Purpose Payments ..................................... Statutory Commissions and Specific Purpose Payments .......... The New Federalism Policy .................................... Chapter 3 Fiscal Equalisation in Australia ........................ The Assessment of Relative Financial Needs: The Methodology of the Grants Commission ...................................... The Shift to Fiscal Capacity Equalisation and Direct Assessment . Evaluation of the Grants Commission's Methodology ............ Review of State Relativities Under Tax Sharing Arrangements ... Fiscal Performance Equalisation Through Specific Purpose Grants ....................................................... Conclusion .................................................... Chapter 4 The Australian Federal Grants System and Its Impact on Fiscal Relations of the Federal Government With State and Local Governments .............................. by The Hon . Mr . Justice Else.Mitchel1. C.M.G.,Chair- man. Commonwealth Grants Commission of Australia Early Resort to the Grants Power ............................... Judicial Interpretation of This Grants Power .................... The Uniform Tax Scheme ...................................... The Grants Power and Commonwealth Policies ................. Labor Government's Policies from 1972 ......................... Liberal-Country Party Government Policies from 1975 ........... Current Policy Trends .......................................... Interstate Relativities of Commonwealth Grants ................. Chapter 5 Local Government in Australia ......................... by C.P. Harris. James Cook University of North Queens- land General Features of Local Authorities in Australia ................. Population and Area ........................................... Functions and Outlays ......................................... Receipts and Financing Items .................................. A General Review of State-Local Relationships .................... State Legislation ............................................... Administrative Control ......................................... Fiscal Relationships ........................................... Administrative and Operative Agents ........................... Organisational Structures ...................................... Responsibility to Electors ........................................ Summary ........................................................ Chapter 6 The Australian Loan Council ........................... by W.R.C. Jay. Visiting Fellow. Centre for Research on Federal Financial Relations. The Australian National University Origins of the Loan Council .................................... The Financial Agreement ...................................... The Loan Council in the Great Depression ...................... The Gentlemen's Agreement ................................... Allocation of Loan Raisings .................................... Post-War Domination of the Loan Council by the Commonwealth Changes in Relative Debt Positions During the 1970s . A Possible Threat to the Permanence of the Loan Council . Temporary Borrowing and the Loans Affair . Conclusion . Tables Disparities Among the Australian States Affecting Fiscal Ca- pacity, 1976-77 Australian Government Payments to States, 1977-78 Commonwealth Revenue Payments to the States and State Taxation, 1977-78 Estimates of the States' Income Tax-Sharing Entitlements and Specific-Purpose Recurrent Grants in 1979-80 Classification of Australian Local Government Authorities by Population Size as of 30 June 1976 Range of Areas and Populations of Local Authorities, 30 June 1976 Local Authorities and Metropolitan Areas, 30 June 1976 Outlay by Local Authorities, Australia, 1975-76 Outlay of Local Authorities by State, 1975-76 Receipts and Financing Items, 1975-76 vii Population: l4,4l7,OOO Area: INDIAN 2,967,741 Sq. Mi. OCEAN NORTHERN 1 \ TERRITORY PA ClFlC QUEENSLAND OCEAN SOUTH AUSTRALIA - I NEWSOUTH / *"kwNBERRAMELBO NE AUSTRALIA TASMANIA Chapter 1 Regional Disparities in Australia Russell Mathews Centre for Research on Federal Financial Relations The Australian National University Theisland continent of Australia is about the same size as Europe (excluding Russia) and the U.S.A. (excluding Alaska and Hawaii), but it is inhabited by only 14 million people. It is a country of great climatic and physical diversi- ty, ranging from the tropical and monsoonal north to temperate and Mediterranean climatic zones in the south; from great inland deserts to the small alpine region and the densely for- ested mountains of the southeast; and from the high rainfall areas of the northeast and the is- land State of Tasmania to the vast areas in which rain seldom falls. It is a land almost con- tinuously subject to natural disasters- droughts, cyclones, floods, bushfires and even earthquakes-but it also has great mineral, pas- toral and agricultural wealth. Distance is a fac- tor which has great social and economic signif- icance for all Australians, not only because of the problems it creates for internal transport and communications but also because of its ef- fect in isolating Australia from the rest of the world. Despite its small population, Australia is one of the most highly urbanised countries in the world with nearly six million people living in the two cities of Sydney and Melbourne and Printed with permission of the Centre for Research on Federal Financial Relations of the Australian National University. This material originally appeared in The Pro- ceedings of the International Seminar in Public Econom- ics on Regional Aspects of Fiscal Policies, Toledo, Spain, September 6-8, 1978. some three million in seven other major urban export-oriented rural industries have naturally centres. been more susceptible to economic fluctuations Since World