Finance Circular
No. 2010/02
To agencies subject to the Financial Management and Accountability Act 1997
Classification of Payments to the States and Territories and Commonwealth Own-Purpose Expenses
Purpose
To provide guidance to agencies on the classification of payments to other levels of government for specific purposes as distinct from Commonwealth own-purpose expenses (COPEs) that may involve payments to other levels of government. The correct classification of payments is important as this determines: how each payment is reported in the Australian Government’s budget papers;and,which Commonwealth agency is responsible for making and reporting the payment in financial statements. This Circular replaces Finance Circular 2005/10 – Definition of Commonwealth OwnPurpose Expenses and Payments to the States and Territories (in particular, specific purpose payments).
Key Points
1.The Federal Financial Framework (FFF) consisting of the Federal Financial Relations Act 2009 (FFR Act), the COAG Reform Fund Act 2008and the corresponding Intergovernmental Agreement was introduced on 1 January 2009. The FFF centralised payments classified as payments to and through the States and Territories (the States) for general and specific purposesand is administered by the Department of the Treasury. It provides ongoing financial support for the delivery of services by the States through:
a. general revenue assistance, includingGoods and Services Tax (GST) payments and other general revenue assistance, to be used by the States for any purpose; and
b. payments for specific purposes, comprising:
i.National Specific Purpose Payments (NSPPs) to be spent by the States in key service delivery sectors (examples of which include healthcare, schools, skills and workforce development, affordable housing and disability services); and
ii.National Partnership payments (NPs) to support the delivery of specifiedoutputs or projects, to facilitate reforms or to reward the States for nationally significant reforms.
2.The Department of the Treasury (Treasury) is responsible for making payments under the FFF. These payments are reported in Budget Paper No.3, Australia’s Federal Relationsas either payment to or through the States.
3.The Department of Finance and Deregulation (Finance) is responsible for the classification of revenue and expenses in the Budget papers. This Circular sets out how Finance makes the distinction between a COPE and a payment to other levels of government for specific purposes.
What is a COPE?
4.A COPE is an expense made by the Australian Government in the conduct of its own general government sector activities, and includes expenses for the purchase of goods and services and associated transfer payments. COPEs may be paid to other levels of government, in which case the payments are:
a. made and reported by the responsible Australian Government agency; and
b. not reported in Budget Paper No.3.
5.The following criteria determine whetherpayments made to other levels of government are recognised as COPEs. The attached diagram illustrates the classification process.
Contestability
6.First, determining whether the funding is available to all sectors will influence its classification as a COPE or a payment to/through the States or direct to local government.
a.For example, where the allocation of Commonwealth funding is open to all sectors of the economy, including all levels of government, this expenditure is a COPE[1]. This includes fee-for-service type arrangements.
b.In contrast, when the funding is not open and is instead restricted to other levels of governmentor particular bodies in areas of state government responsibility such as public hospitals, schools and local councils, it is classified as payments to or through the States or direct to local government.
The nature of transactions
7.Second, the nature of the transaction helps to determine whether a payment to other governments is a COPE. A payment made to the state public sector, or sectors regulated by the States through legislation, will not typically be considered a COPE. For example, payments to the States for nongovernment schools are not regarded as COPE even though the Australian Government provides the majority of government funding. Their classification as a payment through the States derives from the fact that nongovernment schools are established by the States, which are responsible for regulating schools and have principal influence on their operation.
Contacts
8.Further information on the new FFF and the corresponding centralised payments can be found at the website of the Ministerial Council for Federal Financial Relations (
9.Enquiries regarding payments made under the Federal Financial Framework should be directed to the Treasury (email ).
10.For advice on whether an Australian Government payment should be classified as a COPE or as a payment to or through the States or direct to local government should be directed to .
11.Enquiries regarding CommonwealthState expenditure policy issues should be directed to relevant Agency Advice Units.
12.Enquiries about the Commonwealth Grant Guidelines( should be directed to .
Matthew King
Assistant Secretary
Financial Reporting Branch
14October2010
Classifying Commonwealth Payments for Specific Purposes to the States and Territories and Commonwealth Own-Purpose Expenses
A General Guide Used by Finance
Page 1 of 4Finance Circular 2010/02
Department of Finance and Deregulation
[1]Certain arrangements for the provision of Commonwealth financial assistance might also fall within the definition of a ‘grant’ in sub-regulation 3A(1) of the Financial Management and Accountability Regulations 1997 (FMA Regulations), and will therefore be subject to the Commonwealth Grant Guidelines (CGGs).