Commonwealth Grants Commission bleg

I am hoping one or more of the economics and public policy gurus who read and write for Troppo might be be able to help me with the following question:

Does the Commonwealth Grants Commission analyse and report on the way States and Territories actually spend their untied grant (GST) funding i.e. whether and to what extent they actually spend it on the areas in respect of which the State/Territory’s level of need for funding purposes was calculated? Or does it just assess the State’s notional revenue-raising capacity and the amount that would notionally be needed for that State to provide its residents with roughly the same level of government services and infrastructure as other States, but not assess whether untied funds are then spent on remedying the services and infrastructure deficiencies on which the funding formula is based?

I should explain the reason for my query.  I’m researching a paper dealing with contemporary NT governance and related issues in the light of the centenary of the handover of the Northern Territory from South Australian to Commonwealth control in 1911. One of the assertions that is frequently made about NT governments of both political persuasions is that the NT is generously funded by the Commonwealth in large measure to remedy Aboriginal disadvantage, but in fact successive NT governments have diverted much of that money to “pork-barrelling”urban electorates where government is won and lost.  This recent article by veteran NT-based Murdoch correspondent Nicolas Rothwell puts the case eloquently:

Since the intervention indigenous policymaking in the NT has twisted in the wind. The Darwin government wants, in theory, to create a set of Aboriginal zone “growth towns” but has no money to pay for them. Its efforts to educate bush children — even to get them to attend school — are a fiasco, masked by heavily massaged attendance figures and claims of success that NAPLAN test results effectively demolish.

One feature of the NT system plays a big part in these disquieting outcomes. A valuable new book of essays edited by Rolf Gerritsen, a former senior public servant in Darwin, examines the bizarre social and economic patterns of the north. His own piece probes into the Ngukurr community, and sets out the method by which the NT government diverts Commonwealth Grants Commission funds from the priority areas of disadvantage to other, more politically useful domains. Gerritsen, who has a nice turn of phrase, writes of “an increasingly sclerotic post-colonial state” redistributing funds provided for needy Aboriginal Territorians to “the expatriates” in Darwin, and this is not, for all its crudity, a misrepresentation. The northern capital groans with leisure facilities far beyond its reasonable needs: stadia, water parks, the notorious harbourside wave pool to re-create Bondi in the tropics. This pattern of funding diversion was present long ago but it has accelerated since the introduction of the GST revenue stream. Accountant Barry Hansen, treasurer of NTCOSS, has compiled the detailed figures. They are beyond belief, and yet they are incontrovertible. Canberra provides more than 80 per cent of the NT’s annual budget of almost $5 billion and much of this inflow is specific remote area remediation money, intended to help disadvantaged communities. Since 2001 the NT has channelled about $2bn from Aboriginal area spending. In the latest year alone, the shortfall in welfare spending was $200m.

Why? The answers to this question lie in the strange electoral logic of the NT, a society set up to administer sparse terrain and subject peoples, but now operating primarily to serve the interests of its administrative class. The population is 220,000, more than 35 per cent of them indigenous, many residents of remote communities. The unicameral parliament has 25 members: each electorate holds 4500 voters. The remote indigenous communities are sectioned off in safe seats. The electoral focus is thus the white majority Darwin suburban belt. Each year, though, 7 per cent of the NT’s population, or 15,000 people, leave, to be replaced by more transients. There is, then, no real political memory. Secure, long-term policymaking is thus replaced by pork barrelling and vote buying on a Herculean scale. This, in turn, has led to a striking cynicism and disengagement from politics: at the 2008 NT election, 30,000 people failed to vote, out of an enrolment of 110,000, and most of the non-voters were in the suburbs.

I have tried to find a clear analysis of this issue in Grants Commission reports but have not succeeded. I’m not sure whether that’s because it isn’t there or because of my own lack of economics literacy.  My own suspicion is that there is a certain amount of diversion of funding from bush to urban areas, but not as much as people like Gerritsen and Hanson assert.  It depends on what proportion of urban infrastructure and services is legitimately notionally attributed to meeting Aboriginal health, welfare and other needs and demands.  For example, although Aboriginal people comprise just over 30% of the NT’s population, they are around 80% of the clientele of the Royal Darwin Hospital and most if not all other public health facilities in Darwin and Alice Springs.  Similarly with the Corrections, Police and Child Protection budgets.  Is it therefore reasonable to claim that 80% of NT government spending in those areas should be regarded as notionally acquitted against Aboriginal needs?

The NT government claims that it spends more than 50% of its total budget on Aboriginal Territorians, which sounds pretty reasonable if true.  But that percentage clearly includes substantial notional debiting of urban expenditures against Aboriginal needs.  As near as I can tell, the disagreement between successive NT governments (the previous CLP government was subjected to similar accusations when it was in office) and commentators like Gerritsen and Hanson is that the latter dispute the legitimacy of the extent of this notional debiting.  Thus I’m wondering whether there is some credible independent source whose analyses might help to resolve the argument.  The Grants Commission is the obvious candidate but, as I say, I can’t find any such clear analyses amongst their reports.  In some documents there are columns which appear to report historical overspending and underspending of individual States and Territories divided by areas of activity, but that doesn’t allow one readily to assess whether or to what extent spending is being diverted from bush to city.

Can anyone help?

 

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Aaron
Aaron
10 years ago

Ken – the Productivity Commission recently published their inaugural Indigenous Expenditure Report may be what you’re after. It aims to measure government spending on indigenous and non-indigenous people, including splitting out ‘mainstream’ spending by usage. It has a narrower focus than the CGC but will certainly be of interest.

http://pc.gov.au/ier/publications/ier-2010

Tim
Tim
10 years ago

The Grants Commission doesn’t assess how untied grants are spent. That is more the job of the COAG Reform Council which measures relative effectiveness of State Govt expenditure in areas like disability, health, housing etc. The Grants Commission applies the idea of ‘horizontal fiscal equalisation’, which is about providing equity (theoretically).

In short, there is no short answer, but this might help:

http://www.budget.gov.au/1997-98/horizont.asp

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
10 years ago

On the earlier parts of your post, my understanding of the Grants Commission is that it tries to ‘level the playing field’ between states in terms of their capacity to provide their residents with services and that they don’t look into the quality of spending. They do however look to the taxes states raise which is one reason why, had WA raised more resource rent taxation revenue, most of the money they raised would have been redistributed to other states by the CGC federal fiscal equalisation process.

Sam
Sam
10 years ago

The States produce these documents called budgets. You should look at them if you want to know where they spend their revenue. It would be a strange thing for the CGC to duplicate.

Sam
Sam
10 years ago

From 2011-12 Australian Government Budget,

General revenue assistance is a broad category of payments. This assistance is provided to the States without conditions, to spend according to their own budget priorities. The main form of general revenue assistance is Goods and Services Tax (GST).

As the GST is provided to the States to spend according to their own budget priorities, the appropriate place to look for information on how they spend it is in their budget papers. If the Australian Government wanted to provide tied funding to be spent on services to indigenous Australians, which you seem to assume they do with the GST, then the States would have to demonstrate that they spent it on those services.

The point I was making was that, neither the CGC nor anybody else, apart from the States, should report on how the States spend their GST revenue lest it perpetuate the myth that they are, or should be, obligated to spend it on specific priorities other than their own.

Sam
Sam
10 years ago

Of course this highlights one of the inherent problems of vertical fiscal imbalance, namely that it creates incentives for States to divert funds from areas of greatest need as assessed by the CGC to areas of greatest political sensitivity, and then report in an opaque manner in their State budgets while blaming the Commonwealth for underfunding them. The best solution would be to remedy the vertical fiscal imbalance and give the States control of adequate growth revenue sources, but in the absence of that sort of solution it’s difficult to see a sensible argument against Commonwealth scrutiny and greater transparency.

I would argue for public scrutiny and transparency through better State budget papers. Commonwealth scrutiny would only create a problem out of the vertical fiscal imbalance. If the States are free to spend their revenues where they wish, does it really matter whether they raise it themselves or it comes from the Commonwealth. VFI is only a problem if the Commonwealth places claims on how the States spend their money.