its decision by consensus. If the Commission fails to reach a consensus on the formula for allocation of transfers as has been the case in recent years, then the formula that was operative in the previous five years is allowed to continue to operate until such time that a new consensus can be forged.

# **(d) Independent Agency (Grants Commission) Model**

An independent agency is created usually by the central government to report either to the executive or legislature on a permanent or periodic basis. Australia pioneered this model by creating the Commonwealth Grants Commission in 1933 to assess claims made by states for financial assistance (special grants) under section 96 of the Constitution. This model has since then been adopted in several other countries most notably India, the Republic of South Africa and Uganda. In view of the growing popularity of this model of transfers governance, brief remarks on a sample of such commissions are presented in the following paragraphs.

# **The Commonwealth Grants Commission (CGC) of Australia**

This commission was created in 1933 in response to dissatisfaction expressed by states especially a secession threat by Western Australia with the bilateral negotiations with the federal government on applications for special grants. The Commission in its 1936 report articulated that its assessment of the States’ funding needs were to be based upon their capacity to raise revenue and any abnormal expenditure influences they faced. It stated that “special grants are justified when a state through financial stress from any cause is unable efficiently to discharge its functions as a member of the federation and should be determined by the amount of help found necessary to make it possible for that state by reasonable effort to function at a standard not appreciably below that of other states.” (source Australian Treasury, 2004). The Commission’s mandate was vastly expanded in 1973 (The CGC Act, 1973) when it assumed responsibility for calculating the per capita relativities for allocation of federal general revenue sharing assistance to all states and the Northern Territory and the Territory of Cocos (Keeling) Islands; financing of works and services in the capital; determination of state entitlements for local government as well as determination of state grants to local governments. In 1975, state commissions relieved the CGC of its role in determining state grants to local governments. The determination of state entitlements for local governments was terminated by the Local Government Financial Assistance Act, 1986.The special grant program for selected states under section 9 of the Constitution was terminated in 1981/82 and replaced by program of assistance for all states and calculation of state relativities for general revenue grants that includes tax sharing, health and special grants on a five year basis with annual updates. The Commission consists of a chairperson and a maximum of five members appointed by the federal government in consultation with the states. The Commission has a permanent secretariat of about 60 (as of October 2004) staff members. The day-to day working of the Commission is handled by a Secretary and two assistant secretaries responsible for Expenditure Analysis Branch and Revenue, Budgets and Research Branch respectively.

6