POLICY / FEDERALISM

Vertical Fiscal Imbalance

The Commonwealth collects the revenue. The States deliver the services. The result is structural inefficiency and blame-shifting.

Australia has one of the highest degrees of Vertical Fiscal Imbalance (VFI) of any OECD federation. The Commonwealth government raises roughly 80% of all taxation revenue, but is only responsible for roughly 50% of government expenditure.

The Grants Commission Maze

Because states (like NSW and Victoria) run the hospitals, schools, and police forces, they rely on Commonwealth grants (both tied and untied GST) to survive. This destroys accountability.

Entity	Revenue Raised	Services Delivered
Commonwealth	~81%	Defence, Welfare
States & Territories	~19%	Hospitals, Schools, Police

The Tied-Grant Friction Calculator

Calculate the administrative deadweight loss created when the Commonwealth attaches compliance conditions to State infrastructure funding.

Total State Program Cost ($M) Commonwealth Grant Share (%) Administrative/Reporting Friction (%)

Total Grant Value ($M)

Deadweight Administrative Loss ($M)

Interactive Tool Requires JavaScript

This calculator requires JavaScript to function. Below is the underlying formula so you can perform the calculation manually:

Friction = (Total Budget × Grant Share) × Friction %

Shows the bureaucratic waste caused by dual-layer reporting requirements in a federation.

Frequently Asked Questions

Why don't the States just raise their own taxes?: The High Court broadly interpreted the Constitution to grant the Commonwealth monopoly power over income and excise taxes, leaving the States with highly inefficient taxes like Stamp Duty and Payroll Tax.