The Australian Model

Abstract

Australia displays high vertical fiscal imbalance (VFI) for historical and constitutional reasons. It also attempts to achieve the highest degree of horizontal fiscal equalisation (HFE) to be found in any democratic federation. The Commonwealth Grants Commission (CGC), a nonpartisan body at arms length from politicians, oversees the regime. A report published shortly before I visited Australia in September 2002 to study the model (Garnaut and FitzGerald 2001, 2002) claims that equity, efficiency, and transparency would all improve if the regime were abolished. Such a change was politically unachievable, but it raised interesting issues in public finance and public administration, which carry over to other federations and union states, such as the United Kingdom.