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Federal Financial Framework

On 29 November 2008, COAG reaffirmed its commitment to cooperative working arrangements by agreeing an historic new Intergovernmental Agreement on Federal Financial Relations which provides the overarching framework for the Commonwealth's financial relations with the States. The new framework represents the most significant reform to Australia's federal financial relations in decades.

The new framework is the culmination of extensive joint work by all levels of government. It commenced on 1 January 2009 and provides a solid foundation for COAG to pursue economic and social reforms to underpin growth, prosperity and social cohesion into the future.

A key feature of the new framework is the centralised payment arrangements which will simplify payments to the States, aid transparency and improve the States' budget processes.

Previously, payments to the States were provided by Commonwealth portfolio departments to the relevant state agencies, and each payment has its own payment and administrative arrangements. Under the new arrangements all payments are centrally processed by the Commonwealth Treasury and paid direct to each state treasury. State treasuries will be responsible for distributing the funding within their jurisdiction.

For the first time in decades the complexity of the Commonwealth's financial relations with the States will come under the umbrella of just one piece of legislation, the Federal Financial Relations Act 2009. This will greatly improve public transparency of these payments and the ability of the Parliament to scrutinize the payment arrangements.

The framework also includes a standard form and design principles for agreements between the Commonwealth and States.