Senator NEWMAN (Minister for Social Security and Minister Assisting the Prime Minister for the Status of Women)(5.34 p.m.) —I table a revised explanatory memorandum and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard

Leave granted.

The speech read as follows—

The bill has two main purposes: first, to put in place arrangements for the provision of general revenue assistance to the states and territories in 1997-98, consistent with decisions reached at the 1997 Premiers' Conference and related agreements with the states and territories; and secondly to provide authority for the Commonwealth to pay the states and territories the revenue it collects under the safety net arrangements which are being implemented to protect State and Territory revenues following the High Court decision of 5 August on State business franchise fees.

The bill will amend the States Grants (General Purposes) Act 1994. The existing act covers the provision of financial assistance grants and special revenue assistance for 1996-97 only, 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 special revenue assistance, and specifies State and Territory entitlements in 1997-98 to payments under the safety net arrangements.

The general revenue assistance to be appropriated by this bill is about $16.8 billion, or around 12 per cent of estimated Commonwealth outlays in 1997-98. 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, the bill appropriates revenue replacement payments to the states under the safety net arrangements estimated to exceed $5 billion in 1997-98. The safety net arrangements are revenue neutral for the Commonwealth.

I turn now to the elements of the bill which give effect to decisions of the 1997 Premiers' Conference and related agreements.

The 1997 Premiers' Conference agreed that the states and territories will be provided with real per capita growth in financial assistance grants in 1997-98 and that the real per capita guarantee for financial assistance grants will be extended to 1999-2000. 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. This Agreement also provides for the commencement of $214.7 million in competition payments to the states and territories in 1997-98. On 7 July 1997, the Treasurer announced that in light of the National Competition Council's report on competition policy reform, each State will receive the per capita element of growth in financial assistance grants and an equal per capita share of a total amount of $214.7 million in competition payments in 1997-98.

At the 1997 Premiers' Conference it was decided that the states and territories would make fiscal contribution payments of $626.5 million in 1997-98 and $313.5 million in 1998-99. It was also agreed that half of the scheduled 1997-98 fiscal contributions of Tasmania and the Australian Capital Territory will be deferred until 1998-99 in recognition of their difficult economic circumstances. The need for the 1998-99 fiscal contribution will be reviewed at the 1998 Premiers' Conference in light of developments in the Commonwealth's fiscal position.

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 for states' 1997-98 fiscal contributions to be deducted from general revenue assistance.

The major part of the assistance provided under this bill is the provision to each State and Territory of a share of the pool of financial assistance grants which is estimated to be about $16.1 billion in 1997-98. In accordance with the agreement at the 1996 Premiers' Conference, this amount includes the grants that were previously paid to the states as arterial road grants. The 1997 Premiers' Conference agreed that the distribution of financial assistance grants should be in accordance with the per capita relativities recommended by the Commonwealth Grants Commission. The bill updates the per capita relativities in the act accordingly.

The bill authorises the payment of special revenue assistance to New South Wales and Victoria of $435.5 million in 1997-98 as payments under the guarantee arrangements associated with the Medicare Agreements. The Commonwealth will fund $62.2 million of these payments and the residual will be funded from the financial assistance grants pool.

The Australian Capital Territory will also receive $34.5 million from the Commonwealth in 1997-98 in the form of transitional allowances and special fiscal needs. This payment is outside the scope of this bill and has been included in the Appropriation bills.

I now turn to the elements of the bill which relate to the safety net arrangements.

As announced by the Treasurer on 6 August, the Commonwealth has agreed to introduce safety net measures to protect State and Territory revenues following the High Court decision of 5 August on State business franchise fees. The High Court decision affects annual State revenues of around $5 billion and leaves the states open to refund claims, amounting to many billions of dollars, in respect of past business franchise fee payments.

The Commonwealth will use 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 will represent a State tax imposed and collected by the Commonwealth at their request and on their behalf. The safety net arrangements are intended to be temporary and will be reviewed within six months.

The proposed amendments provide authority for the Commonwealth to pay the states and territories the revenue it collects under the safety net arrangements, expected to exceed $5 billion in 1997-98. It is intended that revenue replacement payments be made together with the Commonwealth's weekly payments of general revenue assistance.

Some states will receive more revenue than they previously raised under their business franchise fees. This is necessary if no State or Territory is to be worse off as a result of the High Court decision since the Australian Constitution requires that the Commonwealth apply taxes uniformly across the states whereas states' business franchise fees vary in their rates and coverage. However, the states and territories have indicated that these excess revenues will be refunded to manufacturers or wholesalers in order to avoid as far as possible price increases for consumers and petroleum users. To ensure the safety net arrangements operate as intended, the Australian Competition and Consumer Commission is monitoring price movements of affected products.

The amendments also include a provision which returns to the states any tax revenues the Commonwealth might receive under the Franchise Fees Windfall Tax (Collection) Act 1997. This will ensure that State 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 amounts raised by the Commonwealth on their behalf, after allowing for Commonwealth administrative costs.

It is vital to the integrity of State and Territory finances that legislation to give effect to the safety net arrangements is enacted without delay. Accordingly, the Government is giving this bill—and the associated revenue bills—the highest priority.

Madam President, I present the explanatory memorandum to the bill and commend the bill to the Senate.

Debate (on motion by Senator Foreman) adjourned.