Equalisation and Cash Limits: A View from Down Under

Abstract

In this paper, the similarities in and differences between the UK and Australian systems of allocating central government grants to local government are used to evaluate the equalisation methodologies employed in each country. In the analytical framework used, fiscal disability is measured vis-à-vis the most advantaged authority. The extent of the horizontal equalisation which occurs is shown to depend on whether this most advantaged authority receives a positive, zero, or negative per capita grant. It is concluded that in the United Kingdom, under the post 1981 unitary block-grant system, a deficiency principle or sequential approach to equalisation has been continued. In Australia, if the recommendations of the 1985 national inquiry are implemented by the local government grants commissions, the equalisation methodology employed by them will imitate the UK approach. It will thus ensure that maximum support is provided to the most disadvantaged authorities, given the constraints imposed on total funds available for equalisation.