Classifying Australian Government payments to other levels of government (RMG 419)

Audience

This guide applies to all relevant officials, particularly chief financial officers and finance teams, in Commonwealth entities that have responsibility for classifying Australian Government payments to other levels of government.

For ease of reference and presentation, the RMG uses:

Key points

This guide:

  • provides advice on the types of payments that are within scope of the federal financial relations (FFR) framework, and the payment classification process undertaken by the Department of Finance (Finance)
  • provides guidance on the classification of payments to other levels of government for specific purposes as distinct from Commonwealth own-purpose expenses (COPEs) that may involve payments to other levels of government
  • replaces Guide to classifying payments to other levels of government for specific purposes and Commonwealth own-purpose expenses (RMG 419), dated October 2019.

Resources

This guide is available on the Department of Finance website at www.finance.gov.au.

Other relevant publications include:

For more information, see the websites for:

Introduction

  1. Australia has three levels of government that work together to provide us with the services we need. Each level of government has its own responsibilities, although in some cases these responsibilities are shared.
  2. Correctly classifying Australian Government payments is important as it assists to determine:

Part 1 - Legislative Framework

  1. Financial relations between the Australian Government and the states are governed by the provisions of the:
    • Intergovernmental Agreement on Federal Financial Relations (IGA FFR) which recognises that the states have primary responsibility for many areas of service delivery, with coordinated action to address Australia’s economic and social challenges. The IGA FFR is a living document, with detailed arrangements set out in schedules which can be updated as necessary, with the agreement of the Council of Australian Governments (COAG).
    • Federal Financial Relations Act 2009 (FFR Act) which provides a standing appropriation for the Australian Government to provide financial support for the delivery of services by the states through national specific purpose payments and for the Treasurer to determine Goods and Services Tax (GST) payments to the states.
    • COAG Reform Fund Act 2008 which establishes the COAG Reform Fund for the purpose of making grants of financial assistance to the states, and specifies that the terms and conditions on which financial assistance is granted are to be set out in written agreements between the Australian Government and the states.

Part 2 - The federal financial relations framework

  1. The federal financial relations (FFR) framework centralises Australian Government payments to and through the states for general and specific purposes for:
    • general revenue assistance - primarily through GST distribution, which has no conditions on how states use the funding
    • a range of specific-purpose payments – to be spent on particular sectors or projects.
  2. The FFR framework provides ongoing financial support for the delivery of services by the states through general revenue assistance, including GST payments and other general revenue assistance, to be used by the states according to their own budget priorities and payments for specific purposes.
  3. The FFR framework includes payments to or through state governments but excludes Commonwealth own-purpose expenses (COPEs) and payments direct to local governments – which are generally subject to the CGRGs.
Roles and responsibilities under the FFR
  1. Under the FFR framework the Treasurer is accountable for payments to the states, including through the COAG Reform Fund. The Treasury (Treasury), in consultation with portfolio entities, is responsible for the administration of estimates and payments under the FFR framework, which are reported in Budget Paper No. 3, Australia’s Federal Financial Relations (Budget Paper No. 3).
  2. The relevant minister and entity remain responsible for ensuring that all necessary policy and budget authority exists, and the day-to-day administration of agreements, including requirements for all relevant legislative approvals to be in place.
  3. Under the FFR framework, Finance is responsible for the classification in Budget papers of Australian Government revenue and expense payments to other governments, which include:
    • payments made 'to' states, including:
      • national specific purpose payments (NSPP) which are a funding mechanism through which the Australian Government supports state efforts in delivering services in key sectors (e.g. health, schools, skills and training, disability services and affordable housing).
      • national partnership payments (NP payments) which support the delivery of specified outputs or projects, to facilitate reforms or to reward the states for nationally signification reforms.
    • payments that are made ‘through’ the states where they have less influence on how the funds are spent and to bodies that fall within the state government responsibilities (e.g. non-government schools)
    • payments made direct to local government.
  4. For more information on the FFR framework and associated arrangements for agreements and payments, see:

Part 3 - Commonwealth own-purpose expenses

  1. Payments to states and direct to local government entities that are classified as a COPE are excluded from the FFR framework. A COPE is an expense made by the Australian Government in the conduct of its own general government sector activities, and includes expenses for the purchase of goods and services and transfer payments. These include:
    • arrangements where the Australian Government is purchasing specific services from state government bodies
    • funds pooling arrangements for projects or services that are of low value and/or low risk where the Australian Government and the states contribute funding on an agreed basis to a third party for the provision of the service or delivery of the project, including by the agreement of ministerial councils
    • competitive grants programs that can be applied for on the same terms and conditions as government and non-government sectors (even where all applications except one are from state or local government entities, the funding will still be classified as a COPE).
  2. COPEs may be paid to other levels of government in which case the payments are:

Part 4 - Classification criteria and process

  1. Two criteria determine whether an Australian Government payment to other levels of government is a payment for specific purposes or a COPE. If the payment is contestable the payment is classified as a COPE and the second criterion is not applied.
    1. Contestability of the payment(s) - whether the funding is available to all sectors of the economy. Where the:
      • allocation of Australian Government funding is open to all sectors of the economy, including all levels of government, this expenditure is a COPE (including fee-for-service type arrangements)
      • funding is not open and is restricted to other levels of government or particular bodies in areas of state government responsibility (e.g. public hospitals, schools and local councils), it may be classified as payments to, or through, the states or direct local government.
    2. The nature of the transaction(s) - the level of government with responsibility for the activity influences classification as a COPE. A payment to other governments, or sectors regulated by other governments through legislation, for an activity under their responsibility will not typically be considered a COPE.
  2. A 'payment through the states' classification would be used where:
    • the payment is for a specific purpose but the states pass on the funding to non-government entities (i.e. states act as agents) such as payments for non-government schools
    • indirect Local Government Assistance payments where the states have little impact on how the resources are used
    • programs are jointly administered by the Australian Government and states.
  3. For enquiries regarding Commonwealth-state expenditure policy, email the relevant Agency Advice Units.
Classification process
  1. Figure 1 shows the process for classifying Australian Government payments to other levels of government (including state government entities, authorities, state‑owned corporations, local councils, etc).
 

 

 

 

 
Illustrative examples
  1. The following are hypothetical examples that illustrate the application of the classification and process to classify Australian Government payments to the states.
Example 1 - Classified as 'COPE'

Scenario: To support older people, the Australian Government decided to fund the costs of a robot for each Australian aged over 70 years and living at home. The trial program made grants through a competitive tender process using selection criteria, which resulted in state governments being selected as service providers.

Process: To determine the classification of the payments, consideration is given to: 1. contestability – the Australia Government funding is available to all sectors of the economy, including other levels of government 2. this scenario, the second criterion is not required.

Classification: Payments are a COPE and subject to the CGRGs.

Example 2 - Classified as 'payments to the states'

Scenario: A state government announced that it will fund the redevelopment of a public children’s hospital. The Australian Government will contribute $200 million.

Process: To determine the classification of the payments, consideration is given to: 1. contestability – the Australian Government’s contribution of $200 million is provided directly to the state government so it is non-contestable 2. the nature of the transaction – the hospital is a part of the state health system and the state is responsible for the delivery of public hospital services. The state government funds the project and is responsible for the delivery of the project.

Classification: The contribution is a ‘payment to the states’ under the FFR framework and is published in Budget Paper No. 3.

Example 3 - Classified as 'payments direct to local governments'

Scenario: The Australian Government will provide $100 million for a local council to build a community centre, which will increase the number of tourists to the town centre.

Method: To determine the classification of the payments, consideration is given to: 1. contestability – funding is provided directly to the council (non-contestable) 2. the nature of the transaction – this is the council’s project. The council has responsibility for project delivery and will realise the benefits from the project.

Classification: The payments are ‘payments direct to local government’, which are generally subject to the CGRGs.

Example 4 - Classified as 'payment through the states'

Scenario: The Australian Government makes payments to the states for non government schools.

Process: To determine the classification of the payments, consideration is given to: 1. contestability – the funding is provided directly to the states so it is non-contestable 2. the nature of the transaction – non-government schools are established under state education systems (i.e. the states are responsible for regulating schools and have primary responsibility for the sector). The states will pass the payments on to non-government entities.

Classification: The payments are ‘payments through the states’ – even though the Australian Government provides the majority of government funding to these schools, such payments are not classified as COPE as the states have responsibility for the education system.


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