Part 2: Payments for Specific Purposes
The Commonwealth makes payments to the States support specific state services through National SPPs and National Partnership payments. The part discusses key reforms under new National Partnership Agreements.
From 1 January 2009, significant reforms to payments for specific purposes were implemented under the new framework for federal financial relations, including simplified and centrally administered payment arrangements.
Overview of payments
The Commonwealth provides three broad types of payments to the States:
- National SPPs in respect of key service delivery sectors;
- three types of National Partnership payments — project payments, facilitation payments and reward payments; and
- general revenue assistance, consisting of GST payments and other general revenue assistance.
This part contains information about payments in respect of the National SPPs and National Partnerships.
The Intergovernmental Agreement provides that all payments for specific purposes — all the payments covered in this Part — will be paid by the Commonwealth Treasury to each state treasury on the 7th day of each month.
Categories of payments for specific purposes
The Commonwealth has significantly increased the amount of funding provided to the States for specific purposes from $41.9 billion in 2008‑09 to $50.1 billion in 2009‑10.
The Commonwealth provides payments to the States for specific purposes to enable important national policy objectives in areas that may be administered by the States to be pursued. These payments cover most functional areas of state and local government activity — including health, education, skills and workforce development, community services, housing, Indigenous reform, infrastructure and environment.
This section outlines payments to the States under the framework for federal financial relations.
Payments for specific purposes are expected to increase on average by 19.4 per cent in 2009‑10 compared with 2008‑09 (Chart 2.1).
Chart 2.1: Composition of payments for specific purposes
National SPPs
Under the new framework for federal financial relations, many payments have been rationalised into one of the five new National SPPs:
- National Healthcare SPP;
- National Schools SPP;
- National Skills and Workforce Development SPP;
- National Disability Services SPP; and
- National Affordable Housing SPP.
These new National SPPs are the primary way that the Commonwealth supports the States' efforts in delivering services in the major service delivery sectors.
The Intergovernmental Agreement specifies that each National SPP will be on-going and indexed on 1 July 2010 and each year thereafter by a growth factor which is specified in the Intergovernmental Agreement.
Payments made through the year for National SPPs will be advances and based on Commonwealth estimates of the growth factors. A balancing adjustment in respect of the advances will be made after the end of the financial year once outcome data are available.
The National SPPs will be distributed among the States in accordance with population shares based on the Australian Statistician's determination of States' population shares as at 31 December of that year. In recognition that distributing National SPPs according to population shares will result in a shift in notional payment shares, the new method of distribution will be phased in over five years from 2009‑10.
- An equal per capita distribution of National SPPs ensures that all Australians, regardless of the jurisdiction they live in, are provided with the same share of Commonwealth funding support for state service delivery.
- In the case of the government schools component of the National Schools SPP, the relevant population will be each State's share of full‑time equivalent student enrolments in government schools.
Box 2.1: National SPPs — expenditure benchmarking
National SPPs are provided under the Federal Financial Relations Act 2009. Under the Act, the States are required to spend National SPPs in the sector for which they are paid.
Each state and territory Treasurer is required to report to the Ministerial Council for Federal Financial Relations within six months of the end of each financial year on:
- gross state or territory expenditure in each sector;
- National SPPs received in respect of each sector;
- of the amount referred to in (b), how much was spent in the relevant sector; and
- any discrepancy between the amounts specified in (b) and (c) above, including a detailed explanation for the discrepancy.
To ensure this condition is met, the Heads of Treasuries will monitor state expenditure in each sector relevant to the National SPPs. So long as States meet these benchmarks, they have full budget flexibility to allocate funds within that sector as they see fit to achieve the mutually-agreed objectives for that sector.
National Partnership payments
The Commonwealth will provide National Partnership payments to the States to support the delivery of specified projects, to facilitate reforms, or to reward those jurisdictions that deliver on nationally‑significant reforms. Some payments for specific purposes under the previous federal financial arrangements have become National Partnership project payments.
The Government recognises the need to support the States to undertake priority national reforms. Consequently, when an area emerges as a national priority, National Partnership facilitation payments may be paid in advance of the States implementing reforms. This recognises the administrative and other costs associated with undertaking the reforms.
National Partnership incentive payments can be used to reward those States that deliver reform progress or continuous improvement in service delivery. The National Partnership agreements will set out clear, mutually-agreed and ambitious performance benchmarks that encourage the achievement of far‑reaching reforms and continuous improvement in service delivery.
The COAG Reform Council will assess achievement against the performance benchmarks and will make a recommendation as to whether they have been met. The relevant Commonwealth minister will make a determination as to whether the incentive payment will be made.
As part of the federal finances reform package agreed by COAG in November 2008, the Commonwealth and the States implemented several important reform‑based National Partnership agreements:
- Hospitals and Health Workforce Reform;
- Preventive Health;
- Taking Pressure off Public Hospitals;
- Smarter Schools — Quality Teaching;
- Smarter Schools — Low Socio‑economic Status (SES) School Communities;
- Smarter Schools — Literacy and Numeracy;
- Productivity Places Program;
- Early Childhood Education;
- TAFE Fee Waiver for Childcare Places;
- Indigenous Remote Service Delivery;
- Indigenous Economic Participation;
- Remote Indigenous Housing;
- Indigenous Health;
- Social Housing;
- Homelessness; and
- Seamless National Economy.
Total payments for specific purposes
Total payments to the States for specific purposes constitute a significant proportion of Commonwealth expenditure. In 2009‑10, they are estimated to total $50.1 billion, representing 14.8 per cent of total Commonwealth expenditure.
Total payments for specific purposes, including new National SPPs and National Partnership payments are shown in Table 2.1.
Table 2.1: Total payments for specific purposes, 2008‑09 to 2012‑13
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