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Wednesday, 11 November 1998
Page: 97


Mr HOCKEY (Financial Services and Regulation) (1:16 PM) —I move:

That the bill be now read a second time.

The States Grants (General Purposes) Amendment Bill 1998 is being reintroduced without amendment to the bill which was debated and passed by the House of Representatives on 1 July 1998.

The Commonwealth provides four types of payments to the states and territories: financial assistance grants, competition payments, revenue replacement payments and specific purpose payments.

The bill appropriates funding for financial assistance grants, competition payments and revenue replacement payments. The states and territories are able to use this untied funding according to their own budgetary priorities. The bill puts in place arrangements that will fulfil the terms of the Commonwealth's offer of general revenue assistance to the states and territories at the 1998 Premiers Conference.

The bill will amend the States Grants (General Purposes) Act 1994. The existing act covers the provision of financial assistance for 1997-98, with interim arrangements for the continuation of payments for a maximum of six months. The bill extends for a further 12 months the provisions of the act relating to the payment of financial assistance grants and state and territory entitlements to payments under the safety net arrangements.

The general revenue assistance to be appropriated by this bill is about $17.1 billion, or around 12 per cent of estimated Commonwealth outlays in 1998-99. Accordingly, these payments constitute a significant element of the Commonwealth budget and have an important bearing on the spending and borrowing of the public sector as a whole. The states and territories are able to allocate the funds provided by the Commonwealth under this act according to their own budgetary priorities.

In addition, revenue replacement payments to the states under the safety net arrangements are estimated to be $6.5 billion in 1998-99. The safety net arrangements are revenue neutral for the Commonwealth.

I turn now to the elements of the bill which give effect to the Commonwealth's funding commitments to the states and territories. The states and territories will be provided with real per capita growth in financial assistance grants in 1998-99. Amendments to the act are consistent with the per capita element of the real per capita guarantee being conditional on states meeting the terms of the agreement to implement the National Competition Policy and Related Reforms. In addition to real per capita growth in financial assistance grants, the agreement also provides for up to $217.2 million in competition payments to the states and territories in 1998-99.

The Commonwealth has accepted the recommendations of the National Competition Council that all states except New South Wales receive their full allocation of competition payments. New South Wales may incur a deduction of $10 million from its competition payments if it fails to reform its domestic rice marketing arrangements. The Commonwealth has indicated it will delay a decision on this matter until early next year.

The major part of the assistance provided under this bill is the payment to each state and territory of a share of the pool of financial assistance grants which is estimated to be about $16.9 billion this year. The distribution of financial assistance grants will be in accordance with equalisation per capita relativities recommended by the Commonwealth Grants Commission in its 1998 Update Report. The bill updates the per capita relativities accordingly and makes appropriate amendments to the definition in the act of the amount of unquarantined health funding to be used for calculating the combined pool of financial assistance grants and health care grants. The Australian Capital Territory will also receive $25 million from the Commonwealth in 1998-99 in the form of transitional allowances and special fiscal needs. This payment is outside the scope of this bill and was included in the appropriation bills for the 1998-99 budget.

The payment of financial assistance grants to the states and territories will be conditional upon the states and territories meeting their commitment to make fiscal contribution payments of $313.4 million in 1998-99. This represents a 50 per cent reduction from the total fiscal contribution of the states and territories in the previous year. State fiscal contributions will cease after 1998-99. The states and territories agreed at the 1996 Premiers Conference to make the fiscal contributions in recognition of the deficit reduction task required to stabilise the national economy.

The Commonwealth's fiscal consolidation effort remains a central priority, particularly in light of the recent economic instability in the Asian region. The Commonwealth will continue to provide states and territories with maximum flexibility concerning the method of payment of the state fiscal contributions. A state's share can be paid by way of deductions from general revenue assistance, direct payments to the Commonwealth or a reduction in funding provided under a specific purpose grant. Provisions have been included in the bill to allow for states' 1998-99 fiscal contributions to be deducted from general revenue assistance.

Finally, I turn to the elements of the bill which relate to the safety net arrangements. The safety net measures introduced by the Commonwealth protect state and territory revenues following the High Court decision of 5 August 1997 on state business franchise fees. The Commonwealth is using its tax powers to collect the revenue that the states and territories previously collected by way of business franchise fees on petroleum products, tobacco and alcoholic beverages. The states and territories acknowledge that this represents a state tax imposed and collected by the Commonwealth at their unanimous request and on their behalf.

The proposed amendments provide authority for the Commonwealth to pay the states and territories the revenue it collects under the safety net arrangements this year. These payments are estimated to be $6.5 billion in 1998-99. The amendments also include provisions which return to the states and territories any tax revenues the Commonwealth might receive under the Franchise Fees Windfall Tax (Collection) Act 1997. This will ensure that state and territory finances are protected from claims for refunds, on grounds of constitutional invalidity, of past payments of business franchise fees.

As I noted earlier, the safety net arrangements are revenue neutral for the Commonwealth. Revenue replacement payments will simply return to the states and territories amounts raised by the Commonwealth on their behalf, after allowing for our administrative costs. This bill does not address arrangements for the provision of funding to the states and territories in 1999-2000. These arrangements will be discussed in a congenial atmosphere, I expect, with the states and territories at the 1999 Premiers Conference, which is currently expected to be held on 9 April next year. I present the explanatory memorandum to the bill, and I commend the bill to the House.

Debate (on motion by Mr McClelland) adjourned.