E Fiscal equalisation in OECD countries OECD countries have a range of fiscal equalisation schemes in place. This appendix discusses the features of those schemes, how they equalise fiscal disparities, and whether there are any lessons for Australia. E.1 Features of fiscal equalisation Countries pursue different equalisation objectives OECD countries exhibit considerable variation in the extent to which their equalisation schemes seek to reduce fiscal disparities among subcentral governments (table E.1). In part, this is a function of differences in how countries Australia, for define ‘equalisation’. example, interprets horizontal fiscal equalisation as the and ‘full comprehensive’ equalisation of both revenue raising capacity and expenditure needs (chapter 2). The Commonwealth Grants Commission (CGC) commented that principle [of HFE] has ‘the focused on the provision of financial support from the Commonwealth to ensure that each State has the same capacity to provide an equivalent standard of services to its residents’ (sub. 1, p. 3). By comparison: Canada seeks comparable levels of public services at reasonably comparable ‘reasonably levels of taxation across provinces’ Germany aims equalise the differences in financial [revenue raising] capacity of ‘to states’ Switzerland looks provide minimum acceptable levels of certain public services ‘to without much heavier tax burdens in some cantons than (Shah 2014, p. 9). others’ Although equalisation largely eliminates fiscal disparities between subcentral ‘full’ governments, (as pursued in most OECD countries) allows for greater ‘partial’ equalisation’ emphasis to be placed on other criteria such as efficiency, transparency, accountability, simplicity and predictability (Shah, sub. DR103, pp. 2-3; Boadway and Shah 2007, p. 36; Brumby, Carter and Greiner 2012a, pp. 44, 135). The extent to which a country reduces fiscal disparities largely reflects the priorities of governments in regards to these criteria, taking into account wider institutional frameworks, political structures and economic constraints. This is discussed in the Australian context in chapter 6.
E Fiscal equalisation in OECD countries OECD countries have a range of fiscal equalisation schemes in place. This appendix discusses the features of those schemes, how they equalise fiscal disparities, and whether there are any lessons for Australia. E.1 Features of fiscal equalisation Countries pursue different equalisation objectives OECD countries exhibit considerable variation in the extent to which their equalisation schemes seek to reduce fiscal disparities among subcentral governments (table E.1). In part, this is a function of differences in how countries define ‘equalisation’. Australia, for example, interprets horizontal fiscal equalisation as the ‘full and comprehensive’ equalisation of both revenue raising capacity and expenditure needs (chapter 2). The Commonwealth Grants Commission (CGC) commented that ‘the principle [of HFE] has focused on the provision of financial support from the Commonwealth to ensure that each State has the same capacity to provide an equivalent standard of services to its residents’ (sub. 1, p. 3). By comparison: Canada seeks ‘reasonably comparable levels of public services at reasonably comparable levels of taxation across provinces’ Germany aims ‘to equalise the differences in financial [revenue raising] capacity of states’ Switzerland looks ‘to provide minimum acceptable levels of certain public services without much heavier tax burdens in some cantons than others’ (Shah 2014, p. 9). Although ‘full’ equalisation largely eliminates fiscal disparities between subcentral governments, ‘partial’ equalisation’ (as pursued in most OECD countries) allows for greater emphasis to be placed on other criteria such as efficiency, transparency, accountability, simplicity and predictability (Shah, sub. DR103, pp. 2-3; Boadway and Shah 2007, p. 36; Brumby, Carter and Greiner 2012a, pp. 44, 135). The extent to which a country reduces fiscal disparities largely reflects the priorities of governments in regards to these criteria, taking into account wider institutional frameworks, political structures and economic constraints. This is discussed in the Australian context in chapter 6.
horizontal-fiscal-equalisation.docx