History of Federal-State Fiscal Relations in Australia: A Review of the Methodologies Used

Governments of the Australian states and territories differ in their fiscal capacity. For the last 80 years, the Commonwealth Grants Commission (CGC) has provided advice on interstate fiscal transfers. The CGC initially provided advice only on the needs of claimant states, with the Commonwealth government directly playing an important role in mitigating horizontal (and vertical) fiscal imbalances. Since 1981, however, nearly all general revenue grants from the Commonwealth to the states have been based on recommendations of the CGC. The article is thematically based and examines the range of methodologies that have been used to allocate federal funds to the states since federation and examines their effectiveness.