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Telex to state premiers and the chief minister of the northern territory

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F O R MEDIA T U E S D A Y , 12 M A Y , 1981

, The Prime Minister today sent the attached telex to all

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State Premiers and the Chief Minister of the Northern Territory.

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Following representations from Premiers I wish . . . .

to reconfirm that the total amount of tax sharing grants

for the States and the Northern Territory in 1981-82 will

be determined on the basis settled at the Premiers'

Conference of 4 May 1981. We .continue to believe that the ,

approach adopted at that Conference is appropriate having regard

in particular for the need for overall restraint in public ,C

sector e x p e n diture.

During our discussion of 4 M a y , the Treasurer

and I undertook to refer back to Cabinet the question of

whether the new tax sharing arrangements should be based

on total tax or personal income tax r e c e i p t s .

We have now had a further careful look at this matter

but have decided t h a t , as advised at the Premiers' Conference

the tax base for calculation of tax sharing grants for ■

1982-83 and subsequent years will be determined by: ......

(i ) ■ taking the 1981/82 tax sharing grant as advised

at the 4 May Premiers' Conference i.e. including

·. the amounts of specific purpose grants absorbed

into that g r a n t , as a proportion of total tax

collections in 1980/81;

(ii) applying that percentage to the previous year's

total Commonwealth tax c o l l e c t i o n s .

As indicated at the Premiers' Conference the Commonwealth

believes that a move to a sharing of total taxation would .

provide an equitable basis for financial relationships

My dear P r e m i e r , '·

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between the Commonwealth and the States-.^ It would mean a

sharing with the States of the growth in total tax revenues

available to the Commonwealth and would avoid any problems

that could arise in the future if there were to be a change

in the mix of taxation. Total tax collections, moreover,

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tend to fluctuate somewhat less than personal income tax - " ' r

collections and the use of a total tax base should thus help .

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meet the States request to 1 reduce the degree of uncertainty ' "

in the level of funds' available from year to year from

Commonwealth s o u r c e s .' . . ·; . . ■ " ■ · · ·

You may recall that, when this matter was discussed

on 4 May, I suggested that Commonwealth and State officials .

should seek to reach agreement on the definition of total tax

for purposes of the new arra n g e m e n t s . There was-no dissent

to that suggestion and I understand that the Secretary to the ,

Treasury has already been in touch with the Under Treasurers of

each State and the Northern Territory on the matter.

Legislation will, of course, be necessary to cover

the new tax sharing arrangements based on total Commonwealth

tax collections. It is appropriate that the legislation also

include provision for health payments for New South Wales, -

Victoria, Queensland, Western Australia and the Northern Territory

which as you know are to be a separate grant under the tax sharing

a r r a n g e m e n t s . Separate appropriations will be incorporated in

the legislation to cover the hospital cost-sharing arrangements

for South Australia and Tasmania in the event that they decide

to continue their present agreements. Passage of this legislation

in the present sittings of the Parliament to operate from 1 July

means that there will be no need for any special supply arrangements

Commonwealth and State Health Ministers met on

8 May 1981 to discuss details of the new arrangements for :

health funding. The Commonwealth has reviewed the proposed

funding arrangements in the light of comments received from

States and, in particular, against questioning of the

Commonwealth's assessment of States' capacity to increase

revenue by applying or raising charges. The Government has

decided, towards the end of the 1981/82 financial year, to

review its assessment of States' capacity to increase revenue

in the light of experience and will make any necessary - " ' · · ' ' ' ■ .

adjustments in funding at that time.

The Government is concerned that the new health

funding arrangements should not impose an unmanageable rate

of change on any State. After reviewing the proposed funding

levels for each State, the Government considers that ··

modification of the arrangements is necessary only in the

case of Queensland. Queensland would be required to make a

particularly large adjustment if its funding for 1981/82 were

reduced by the full 60% of assessed capacity to increase revenue

The Commonwealth has, therefore, decided that, as a

one year only "cushioning" adjustment, the deduction on account

of assessed capacity to increase revenue in Queensland will be

reduced, resulting in additional funds to Queensland for 1981/82

of $16 million. .

As has already been announced, the Grants Commission

will be asked to examine interstate relativities in health

funding and make recommendations on the appropriate allocation

of funds among States from 1982/83 o n w a r d s . The total funds on

which the Grants Commission will be recommending allocation will

be based on the 1980/81 real level of funds reduced by 100% of

States' assessed revenue raising capacity. . . c