Fiscal Equalisation in Australia

Australia has a vertical imbalance between the revenue and spending powers of the Australian Government and the State governments and horizontal imbalances in the fiscal capacities of the States and Territories. The total revenue from the goods and services tax is provided to the States to reduce the vertical imbalance and it is distributed among them in a way that equalises their fiscal capacities. Fiscal equalisation in Australia is comprehensive, offsetting interstate differences in the capacity to raise revenue, the costs of providing services and the costs of acquiring the necessary infrastructure. The paper outlines the important features of the processes used to distribute the GST, the main factors causing differences in State and Territory fiscal capacities and some of the current issues surrounding inter-governmental financial relations in Australia.