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States Grants (General Purposes) Amendment Bill 1998
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States Grants (General Purposes) Amendment Bill 1998
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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
STATES GRANTS (GENERAL PURPOSES) AMENDMENT BILL 1998
(Circulated by Authority of the Treasurer, the Hon Peter Costello, MP)
STATES GRANTS (GENERAL PURPOSES) AMENDMENT BILL 1998
The purpose of this Bill is to give effect to the terms of the Commonwealth’s offer of financial assistance to the States at the 1998 Premiers’ Conference on 20 March 1998. The Bill also provides for payments to each State in 1998-99 under the safety net arrangements which were put in place by the Commonwealth at the request of the States and Territories to protect their revenues following the High Court’s decision on 5 August 1997 relating to business franchise fees.
General Revenue Assistance
General revenue assistance in 1998-99 will comprise financial assistance grants (FAGs) and competition payments. FAGs account for around 99 per cent of general revenue assistance.
The Commonwealth has undertaken to maintain the level of FAGs to the States in real per capita terms in 1998-99 and to extend the real per capita guarantee until 2000-01. Receipt of the per capita component of the growth in the pool of FAGs is conditional on a State meeting its obligations under the Agreement to Implement the National Competition Policy and Related Reforms.
FAGs will be distributed on the basis of the equalisation relativities recommended by the Commonwealth Grants Commission in its Report on General Revenue Grant Relativities 1998 Update . Hospital funding arrangements have implications for the distribution of the FAGs pool, due to the application of per capita relativities to a combined pool of FAGs and hospital funding grants and the Commission’s inclusion of health service provision in its assessment procedures. Accordingly, the Bill amends the definitions of health funding to the States in the Act to reflect the proposed implementation of the Australian Health Care Agreements and the expiry of the 1993 Medicare Agreements with the States.
Competition payments will be available to the States in 1998-99 in accordance with the terms of the Agreement to Implement the National Competition Policy and Related Reforms. Those States which are satisfactorily meeting the objectives of the Agreement will receive an equal per capita share of a total amount of $217.2 million in 1998-99.
The amount of general revenue assistance finally payable to the States will be determined in accordance with an index factor and a population factor. The index factor will be the sum of the CPI for the four quarters to March 1999 divided by the sum of the CPI for the four quarters to March 1998. This calculation will be based on the index numbers published in the March quarter 1999 CPI release by the Australian Bureau of Statistics. The population index factor is defined as the quotient of the estimated population of the States as at 31 December 1998 and the estimated population of the States as at 31 December 1997.
State Fiscal Contribution Payments
The payment of financial assistance grants to the States and Territories will be conditional upon the States and Territories meeting their commitment to make the final fiscal contribution payments of $313.4 million in 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.
A State’s share of the fiscal contribution 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 this Bill for the Treasurer to deduct States’ fiscal contributions for 1998-99 from the FAGs component of general revenue assistance.
Revenue Replacement Payments
Each State will receive a payment comprising the State’s agreed share of revenue raised by the Commonwealth in 1998-99 on behalf of the States under the safety net arrangements. The total amount of revenue will be determined by the Commissioner of Taxation and the Chief Executive Officer of Customs. The distribution of this revenue is unchanged from the revised shares which were agreed among the States in 1997-98.
A State will also be paid any amounts received by the Commonwealth under the Franchise Fees Windfall Tax (Collection) Act 1997 which imposed a 100 per cent windfall gains tax to protect State budgets against refund claims in respect of past business franchise fee payments. Any windfall tax reimbursement payment to a State will be equal to the amount collected by the tax in that State.
FINANCIAL IMPACT STATEMENT
The arrangements to be established by this Bill provide for the payment to the States in 1998-99 of general revenue assistance estimated at around $17.1 billion and revenue replacement payments of around $6.5 billion. The amount of any windfall tax reimbursement payments is difficult to predict, although no such payments have been required since the introduction of the safety net arrangements in 1997. The safety net arrangements will have a neutral impact on the Commonwealth’s finances overall as revenue replacement payments and any windfall tax reimbursement payments will return to the States amounts raised by the Commonwealth on their behalf (after allowing for Commonwealth administrative costs).
The following abbreviations are used in this Explanatory Memorandum:
Bill: States Grants (General Purposes) Amendment Bill 1998
the Act: States Grants (General Purposes) Act 1994
State(s): Includes the Australian Capital Territory and the Northern Territory
FAGs: Financial Assistance Grants
NOTES ON CLAUSES OF THE BILL
Clause 1: Short title
Clause 2: Commencement
Clause 3: Schedule
Clause 3 amends the Act in accordance with the 9 clauses contained in Schedule 1 of the Bill.
AMENDMENT OF THE STATES GRANTS (GENERAL PURPOSES) ACT 1994
NOTES ON CLAUSES OF SCHEDULE 1
Clause 1: Subsection 4(1) of the Act - Interpretation
This amendment inserts a definition of Torres Strait Treaty which is referred to in subsection 5(2) of the Act (see Clause 4 below) in relation to a formula for calculating the amount of a health care grant that is payable to a State.
Clause 2: Subsection 5(1) of the Act - Health Care Grants - (definitions of TAP, RCC and SDA)
Under the Australian Health Care Agreements (AHCAs), health care grants will replace grants previously paid to the States as hospital funding grants. This amendment substitutes a new definition of the total amount payable (TAP) to a State under a health care grant which is consistent with the Health Care (Appropriation) Act 1998 . The definition includes any payments to a hospital or another person of amounts which would have been payable to a State satisfying the principles set out in the Health Care (Appropriation) Act 1998 .
A new definition of the ‘sum of deductible amounts’ (SDA) is inserted to specify that it is the sum of amounts defined in Subsection 5(2) of the Act (see Clause 3 below). Under the AHCAs, SDA is to be quarantined from the horizontal fiscal equalisation processes and therefore not included in the combined pool of FAGs and health care grants which is to be distributed on the basis of the equalisation per capita relativities recommended by the Commonwealth Grants Commission.
The amendment also updates the definition of ‘reduction in certain circumstances’ (RCC) to refer to a ‘health care grant’.
Clause 3: Subsection 5(2) of the Act - Health Care Grants - (deductible amounts and meaning of health care grant)
This amendment specifies the meaning of deductible amounts which comprise SDA and that “Health Care Grant” means a grant of financial assistance under section 4 of the Health Care (Appropriation Act) 1998 .
Clause 4: Section 10 of the Act - Competition Agreement: per capita growth deductions
This clause is a self explanatory technical amendment which will eliminate the repetition of clauses within section 10.
Clause 5: Subsection 11AA of the Act - Payments in relation to excess State fiscal contributions - 1998-99
This amendment will allow the Treasurer to return to a State any overpayment of its scheduled fiscal contributions in 1998-99 and 1999-2000.
Clause 6: Section 12A of the Act - Competition Agreement: competition payments
This clause is a self explanatory technical amendment which will eliminate the repetition of clauses within section 12A by shifting the detail of State entitlements to the Schedules of the Act.
Clause 7: Insertion of a new Section 15C - State fiscal contribution-1998-99
Section 15C (1) makes the payment of FAGs to a State in 1998-99 conditional on the payment of its share of the States’ 1998-99 fiscal contribution to the Commonwealth.
Section 15C (2) allows the Treasurer to deduct a State’s 1998-99 fiscal contribution and any unpaid amount of a State’s 1997-98 fiscal contribution from FAGs paid in 1998-99. The amount of the fiscal contribution that can be deducted is limited so that the deduction plus any amounts paid (or taken to have been paid) by the State in satisfaction of its fiscal contribution is no greater than the State’s fiscal contribution.
Section 15C (3) provides that an amount deducted under subsection (2) from the State’s FAGs is taken to have been paid by the State to the Commonwealth in satisfaction of the State’s fiscal contribution.
Section 15C (4) specifies that the unpaid amount of a State’s fiscal contribution does not include any amounts that may be paid by the States under any other Act (such as through a deduction from a specific purpose payment).
Clause 8: Subsection 20(1) of the Act - Delegation by Treasurer
The clause enables the Treasurer to delegate his powers under section 15C in the same manner as for other sections of the Act.
Clause 9 of Schedule 1 inserts Schedule 5 into the Act to provide all the entitlement details in 1998-99.
Grant year commencing 1 July 1998
The quantum of the FAGs pool in 1998-99 and the distribution of the pool among the States are to be determined in accordance with the formula set out in Section 9 of the Act, the “base assistance amount” to be worked out under Clause 2 of Schedule 5 and the relativities factors provided in Clause 3 of Schedule 5. In brief:
· The base assistance amount is increased by two factors to determine the total amount of FAGs in 1998-99:
- the quotient of the sum of quarterly consumer price index numbers for the year to the March quarter 1999 and the sum of the quarterly consumer price index numbers for the year to the March quarter 1998; and
- a population factor derived by dividing the estimated total population of the States as at 31 December 1998 by the estimated total population of the States as at 31 December 1997;
· the “relativities factors” are applied to each State’s population as at 31 December 1998 to arrive at a weighted population share; and
· each State is then entitled to its weighted population share of the combined pool of FAGs and health care grants.
NOTES ON CLAUSES IN SCHEDULE 5
Clause 1: Application
This clause specifies that the Schedule relates to the grant year commencing on 1 July 1998.
Clause 2: Interpretation
The definitions of the Chief Executive Officer of Customs and the Commissioner of Taxation in subclause 2 (1) are self explanatory.
The definitions of amounts determined by either the Chief Executive Officer of Customs or the Commissioner of Taxation and the “pre-1 June period” are referred to in Clause 5 below in reference to each State’s entitlement to a revenue replacement payment in 1998-99.
The “base assistance amount” to be calculated under subclause 2 (2) is the sum of the amount of FAGs and pool funded special revenue assistance which will be paid to the States under the Act in 1997-98.
Clause 3: Relativities factors
Clause 3 lists the relativities factors for 1998-99. The relativities factors are the equalisation relativities recommended by the Commonwealth Grants Commission in its Report on General Revenue Grant Relativities 1998 Update .
Clause 4: Per capita growth deductions
This clause specifies a formula which determines the maximum amount which the Treasurer may deduct from a State’s financial assistance under section 10 of the Act.
In clause 4 the base assistance amount is worked out according to the formula contained in subclause 2 of Schedule 5. A State’s share of the per capita growth in the base assistance amount is determined by its weighted population share as defined in the introduction to Schedule 5 in this Explanatory Memorandum.
Clause 5: Revenue replacement payments
This clause specifies how each State’s entitlement in 1998-99 to a revenue replacement payment is to be worked out.
Under Clause 5, determinations will be provided by the Commissioner of Taxation and the Chief Executive Officer of Customs in relation to the revenues collected by the Commonwealth on behalf of the States. These determinations will comprise actual collections from 1 July 1998 to 31 May 1999 (the pre-1 June period defined in subsection 2 (1)), an estimate of collections for the period 1 June 1999 to 30 June 1999 and the difference between estimated and actual collections paid to the States in June 1998, less administrative costs incurred by the Commonwealth.
The distribution of the revenues is on the same basis which was agreed among the States in 1997-98.
Clause 6: Franchise fees windfall tax reimbursement payments
This clause specifies how each State’s entitlement in 1998-99 to a franchise fees windfall tax reimbursement payment is to be worked out.
Under Clause 6, the amount of a windfall tax reimbursement payment to a State will be determined by the Commissioner of Taxation according to amounts received by the Commissioner of Taxation under the Franchise Fees Windfall Tax (Collection) Act 1997 .
Clause 7: Special revenue assistance grants
Under the Commonwealth’s offer at the 1998 Premiers’ Conference, no special revenue assistance will be provided to a State under the Act in 1998-99. (Transitional allowances and special fiscal needs for the Australian Capital Territory are met from Appropriation Bill No. 2.)
Clause 8: Competition payments
The clause specifies how each State’s entitlement in 1998-99 to a competition payment is to be worked out.
The Competition Agreement specified that the States may receive up to $200 million (in 1994-95 prices) in 1998-99, to be divided among the States in accordance with their share of the estimated population of all the States as determined by the Statistician under the Act.
In Clause 8, the base amount of $213,138,038 represents the real value of $200 million in 1994-95 prices based on CPI growth between the year to the March quarter 1995 and the year to the March quarter 1998. The maximum amount of competition payments that may be provided to the States in 1998-99 will depend upon the movement in the CPI between the year to the March quarter 1998 and the year to the March quarter 1999.
Clause 9: State fiscal contribution
In accordance with the terms of the agreement at the 1996 Premiers’ Conference, Clause 9 specifies that the amount of a State’s fiscal contribution in 1998-99 will be equal to its per capita share of a base amount of $300 million, with the exceptions that Tasmania and the Australian Capital Territory will also pay the amounts of their scheduled 1997-98 State fiscal contributions which were deferred to 1998-99.
The final amount of each State’s 1998-99 fiscal contribution will depend on the Statistician’s determination of the population of the States as at 31 December 1998.