Payment of Goods and Services Tax to the States and Territories
In view of the large amount of public money being paid to the states in GST revenue, the objective of the audit was to assess the adequacy and effectiveness of processes and procedures used by Treasury in making payments of GST revenues and associated amounts to the States.
The Goods and Services Tax (GST) came into effect on 1 July 2000. Under arrangements negotiated between the Commonwealth and the States 1, the Commonwealth pays all GST revenue collected to the States. Payments of the actual GST payable to the States are based on estimates and are later adjusted when the actual amount collected is known. Up to the end of 2003–04, the Department of the Treasury (Treasury) paid almost $123 billion (including $8 billion in Budget Balancing Assistance (BBA) (see para 2) to the States.
When the GST was introduced, the Commonwealth gave the States a guarantee that, during a transitional period, none of them would receive any less under the new arrangements than it did under the old arrangements. This is known as the Guaranteed Minimum Amount (GMA) and effectively is the same amount as the States would have received had the old arrangements continued. If the GST payable to any State is less than its GMA, the Commonwealth makes up the difference with BBA.
The States' GST entitlement is a simple calculation based on four variables (population, Commonwealth Grants Commission relativities, GST collections and unquarantined Health Care Grants). In comparison, the GMA calculation is complicated.
All States required BBA in the first two years of the GST's operation. In 2002–03, it was not required by Queensland and the Northern Territory. Only New South Wales required BBA in 2003–04. Treasury estimates that no State will require BBA in 2004–05. However, the Commonwealth is bound by regulation to continue calculating the GMA, and paying BBA if necessary, until 30 June 2006.
In view of the large amount of public money being paid to the States in GST revenue, the objective of the audit was to assess the adequacy and effectiveness of processes and procedures used by Treasury in making payments of GST revenues and associated amounts to the States.
ANAO's audit did not identify any errors in Treasury's calculation of GMA or in Treasury's payment of BBA and GST to the States. Nevertheless, there is scope to improve processes to reduce the risk of errors in the future.
To calculate GMA and BBA, Treasury uses a Microsoft Excel spreadsheet. The spreadsheet was developed in-house with limited resources and without adequate consideration being given to alternatives. The resulting approach did not, in ANAO's view, adequately manage some important risks. Further, ANAO was unable to identify any evidence of a formal risk assessment process, either at the commencement of the GST or later, addressing such issues as the consequences of data corruption.
Recommendations and Treasury response
After 30 June 2006, the payment of GST and associated revenue to the States is likely to be considerably simplified in that calculation of BBA and GMA will not be required (unless the Commonwealth and States decide otherwise). However, it is likely that there will be a continuing need to assess the quantum of the benefit to the States of the introduction of the GST. Accordingly, ANAO has recommended that Treasury reconsider the adequacy of its current calculation mechanism. ANAO has also made recommendations relating to addressing control deficiencies in the existing Treasury spreadsheet.
In addition, ANAO has recommended that, in future similar circumstances, Treasury take a more appropriately robust approach towards managing the development and implementation of systems and related controls and procedures.
Of the three recommendations, the Treasury agreed with two recommendations in full and agreed with qualification in relation to one part of Recommendation 2. Treasury's response to the section 19 proposed audit report was as follows:
Treasury welcomes the ANAO's finding that there have been no errors in Treasury's calculation of states Guaranteed Minimum Amounts (GMA) or payments of Budget Balancing Assistance (BBA) and GST to the states.
1 In this report, ‘States' includes the Northern Territory and the Australian Capital Territory.