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Tuesday, 19 August 1980
Page: 268

Outlays not allocated to specific functions comprise those payments to the States, the Northern Territory and local government authorities which are not elsewhere classified, natural disaster relief, public debt interest payments, and a bulk allowance for prospective increases in wages and salaries of Commonwealth Government employees, other than Defence Service personnel and employees paid from votes included in the Defence function.


Outlays under this heading comprise general revenue funds for the States, State Government Loan Council programs, assistance related to State debt, assistance for local government and outlays for natural disaster relief. Similar forms of assistance in respect of the Northern Territory are also included. These payments, which mainly constitute general purpose Commonwealth financial assistance, amount to 61.1 per cent of total Budget funds to be made available to the States in 1980-81 and 75.1 per cent of those to be made available to the

Northern Territory. Most specific purpose payments to the States and the Northern Territory are not included under this heading, being classified elsewhere in this statement under the relevant functional headings. Details of total payments to the States and the Northern Territory are provided at the end of this section.

States' General Revenue Funds

General revenue funds are provided by the Commonwealth to the States for purposes determined by them. A total of $6026.9 million, representing an increase of $601.1 million, or 11.1 per cent compared with 1979-80, is expected to be provided to the States in 1980-81 in this form.

Tax Sharing Entitlements

Tax sharing entitlements make up the bulk of general revenue assistance to the States. Arrangements based on a Commonwealth undertaking to provide the States with a fixed percentage of personal income tax collections commenced in 1976-77. These arrangements replaced financial assistance grants which were determined under a formula which took into account increases in States' population and in average wages in the economy as a whole, and a further 'betterment' factor.

Under 'Stage 1' of the tax sharing arrangements, the States became entitled to receive: in 1976-77, 33.6 per cent of Commonwealth net personal income tax collections (excluding the revenue effects of any special surcharges or rebates applied by the Commonwealth) in that year; in 1977-78, a fixed amount of $4336.1 million; and, in each subsequent year, 39.87 per cent of collections in the preceding year. The 'Stage 1' arrangements included a 'guarantee' provision to ensure that each State's entitlement in any year would not be less in absolute terms than in the previous year. In the four years 1976-77 to 1979-80, there was a supplementary undertaking (the 'formula guarantee') which ensured that the entitlements in those years would not be less than the amount which would have been yielded by the financial assistance grants formula which applied before 1976-77.

In anticipation of the expiry of the formula guarantee' on 30 June 1980, the Premiers' Conference of December 1979 adopted interim arrangements for the determination of entitlements pending the outcome of a comprehensive review of the tax sharing agreement. These arrangements provide for the States to receive in 1980-81 39.87 per cent of net personal income tax collected in 1979-80, distributed according to existing tax sharing relativities, with the guarantee that each State will receive no less in real terms than the amount it received in 1979-80. The comparison of these amounts in real terms is made using the ratio of the Consumer Price Index for the four quarters ending March 1981 to that for the four quarters ending March 1980, the index being that for the capital city of the State in question. The present estimates provide for the States' entitlements in 1980-81 to be $6020.2 million or 11.2 per cent higher than in 1979-80.

In addition to the review of the tax sharing arrangements, a special division of the Commonwealth Grants Commission is currently reassessing the State relativities which are the basis for allocating entitlements among the States. Both review processes are expected to be completed by the end of 1980-81.

Special Grants

Each of the four less populous States is entitled to apply for special grants which are paid on the recommendations of the Commonwealth Grants Commission. In recent years Queensland has been the only claimant State; an amount of $6.7 million is included as the payment in 1980-81 to that State.


The repayments shown under this heading are in respect of special repayable interest bearing advances which were made to New South Wales in 1971-72 and 1972-73 in the context of arrangements to assist that State to cope with its prospective budget deficit at that time.

State Government Loan Council Programs

State Government Loan Council borrowing programs are underwritten by the Commonwealth, loans being raised by the Commonwealth and the proceeds being paid to the States from the Commonwealth Budget. At its June 1980 meeting, the Loan Council approved a total State Government program of $1307.2 million for 1980-81, an increase of $62.2 million or 5.0 per cent. As in recent years, twothirds of this program ($871.5 million) will comprise interest-bearing advances and one-third ($435.8 million) will be by way of interest-free capital grants.

At its June 1980 meeting the Loan Council also approved a borrowing program for larger State semi-government authorities (which is not reflected in the Budget) of $1929.6 million for 1980-81 - $239.6 million, or 14.2 per cent, greater than in 1979-80. This includes an amount of $1225 million for the basic program of the States' larger semi-government authorities, special non-infrastructure additions of $72.3 million, and $632.3 million for the semi-government infrastructure financing program. The infrastructure program was introduced in 1978-79 with the purpose of facilitating borrowings for economically viable projects that have a special significance for national development, and are for the provision of services of kinds normally provided by government or public utility enterprises which cannot be reasonably accommodated within the resources made available under 'normal' Loan Council programs and which require outlays within a relatively short period of time.

These borrowings, and those expected to be undertaken in 1980-81 by smaller' State authorities (which are not subject to Loan Council approval), are summarised in the following table:

1978-79 1979-80 1980-81

Actual Actual Estimate Change

S million $ million $ million S million Per cent

Borrowing Program for State Semi-Government Authorities -

Larger Authorities . 1 295.6 1 290.6 1 297.3 + 6.7 + 0.5

Smaller Authorities 419.5 472.3 522.2 4- 49.9 + 10.6

Taking Budget and off-Budget sources together, gross capital funds provided for the States and their semi-government and local authorities are estimated to be $3759.1 million in 1980-81, an increase of $351.8 million, or 10.3 per cent, on 1979-80.

Assistance Related to State Debt

Under the Financial Agreement the Commonwealth is to pay $15.17 million to the States each year until 1985 as a contribution towards interest payable on their debt. The Commonwealth also makes sinking fund contributions under the Agreement in respect of State debt; these payments are estimated at $39.9 million in 1980-81.

Assistance for Local Government

Under the tax sharing arrangements introduced in 1976-77, the Commonwealth provides funds to the States for general purpose assistance to local government authorities. The assistance is provided as a proportion of Commonwealth net personal income tax collections in the preceding year. The proportion applying from 1976-77 to 1978-79 was 1.52 per cent. In 1979-80, the proportion was increased to 1.75 per cent, and, in accordance with an undertaking given by the Prime Minister in November 1977, the proportion has been increased to 2 per cent in 1980-81. Partly as a result of the increased share these grants are estimated to increase by $79.0 million, or 35.6 per cent, to $300.8 million in 1980-81.

Payments to the Northern Territory

Under the Northern Territory (Self-Government) Act 1978, the Legislative Assembly of the Northern Territory has power, with the assent of the Administrator or the Governor-General, to make laws for the peace, order and good government of the Territory, and Ministers of the Territory have executive authority in respect of specified functions of a State-type nature. An outline of the financial arrangements applying to the Northern Territory is provided in Chapter V of Budget Paper No. 7, Payments to or for the States, the Northern Territory and Local Government Authorities, 1980-81.

The financial arrangements agreed between the Commonwealth and Northern Territory Governments provided that, as from 1979-80, Commonwealth assistance to the Territory would be on a State-type basis, and include both specific purpose and general purpose funds.

The main payments to be made to the Territory in 1980-81 which are not included under other functional headings are described below:

General Revenue Assistance

The bulk of general purpose assistance is provided as a tax sharing entitlement in a similar manner to arrangements applying in respect of the States. The Territory's entitlement changes each year in proportion to changes in net personal income tax collections in Australia (lagged by one year) and to changes in the population of the Territory.

The Northern Territory's entitlement for 1980-81 is $269.1 million, an increase of $60.3 million on the 1979-80 amount. Included in this increase is a small adjustment relating to the cost of functions transferred after the date of self-government.

Additional Assistance

For each of the six years from 1979-80, when State-type financial arrangements began, the Northern Territory receives either a special grant on the recommendation of the Commonwealth Grants Commission or an additional assistance grant, whichever is the greater. The additional assistance grant is $20 million a year for the first three years and will then phase out over the following three years. The Territory did not apply for a special grant in 1980-81 and therefore will receive the additional assistance grant of $20 million.

Grant in Lieu of Uranium Royalties

Commencing in 1980-81, the Commonwealth will make an additional grant to the Northern Territory Government of an amount in lieu of uranium royalties, as provided for in the Memorandum of Understanding. The payment in 1980-81 is estimated at $0.9 million.

General Capital Assistance

The Commonwealth has undertaken to provide general purpose capital funds to the Northern Territory on the same terms and conditions as apply to the State Loan Council programs. In line with this undertaking one-third of these funds is provided as grants and the remaining two-thirds as advances from the Commonwealth at rates of interest and on similar terms to those applying to the States under the Financial Agreement. The level of general purpose capital assistance to the Territory changes each year in proportion to changes in State Government

Loan Council programs, excluding any special additions. The level of assistance may, by agreement, be supplemented by temporary or permanent additions to the Territory program.

In accordance with the 5 per cent increase in the States' Loan Council programs in 1980-81, the Territory's general purpose capital funds would normally also be increased by 5 per cent. The inclusion of an additional small increase to cover the full-year cost of functions transferred to the Northern Territory Government in 1979-80, brings the amount to be provided to $114.9 million, an increase of 6.9 per cent or $7.4 million on 1979-80.

Debt Charges Assistance

Under the State-type financial arrangements the Northern Territory in 1979-80 began receiving general purpose capital advances from, and paying associated debt charges to, the Commonwealth. These charges will rise rapidly in the early years of self-government and the Commonwealth has agreed to fund them by way of annual specific purpose payments during this initial period. The Budget provision of $10.6 million is equal to the debt charges estimated to be incurred by the Territory in 1980-81 and is an increase of $9.0 million on the 1979-80 payment.

Assistance for Local Government

A specific purpose payment of $1.4 million will be provided to the Northern Territory for distribution as general purpose assistance among local government authorities in the Territory in 1980-81 in a similar manner to the local government tax sharing entitlement payments to the States. The payment in 1980-81 represents an increase of $0.4 million on 1979-80 and is in line with the agreement that annual payments are to vary in proportion to changes in net personal income tax collections (lagged by one year) and changes in the percentage of personal income tax payable to local authorities in the States.

Natural Disaster Relief

Under arrangements introduced in 1978-79, the Commonwealth provides assistance on a $3 Commonwealth: $1 State basis for expenditures by each State (and the Northern Territory) on agreed relief and restoration measures necessitated by major disasters where such expenditures exceed annual base amounts established for the State. In addition the Commonwealth meets half of the cost of assistance provided by the States for the immediate relief of personal hardship and distress.

A provision of $12.8 million is made for natural disaster relief payments to the States and the Northern Territory in 1980-81. This provision is to meet outstanding commitments, mainly in respect of disasters occurring in previous years in New South Wales, Queensland and Western Australia, and to make some allowance for expected payments in respect of possible new disasters of which some, on the basis of past experience, can be expected to qualify for Commonwealth assistance in 1980-81.

Summary of Commonwealth Payments to the States, the Northern Territory and Local Government Authorities

The payments described above are largely of a 'general purpose'-^as distinct from 'specific purpose' - nature. Detailed information on both categories of payments is provided in Budget Paper No. 7, Payments to or for the States, the Northern Territory and Local Government Authorities, 1980-81. Estimated total Commonwealth payments to the States and the Northern Territory in 1980-81 are summarised below.

Net Payments to the States and Local Authorities 10 478.1 11 118.7 12 265.5 +1 146.8 +10.3


Interest payments from the Budget sector to other sectors are recorded under this heading. OSset against gross interest payments on Commonwealth securities is interest received on Commonwealth securities held by Government Trust Funds. Public debt interest is estimated at $2409.1 million in 1980-81, an increase of 8.4 per cent on the amount in 1979-80. As a proportion of total outlays, public debt interest is estimated at 6.7 per cent in 1980-81 compared with 7 0 per cent in 1979-80.

1978-79 1979-80 1980-81

Actual Actual Estimate Change $ million S million S million $ million

Gross Interest Paid on Commonwealth

Securities...... 2 068.6 2 349.3 2 575.2 +225.9

Other Interest Payments . 10.0 9.5 8.2 -1.3

Gross Interest Payments 2 078.5 2 358.8 2 583 .4 +224.6 Interest Received on Government Securities and Cash Balances held by the Commonwealth Government on its own behalf-

Loan Consolidation and Investment

Reserve...... 83.2Cr 106. 5Cr 140. OCr -33.5

Other...... 24.6Cr 29.7Cr 34.3Cr - 4.6

Cross Interest Paid on Commonwealth Securities

Recorded under this heading is interest paid on all Commonwealth securities including Commonwealth Bonds, Australian Savings Bonds, Treasury Notes, Treasury Bills and Income Equalisation Deposits.

The Commonwealth securities in question include those issued on behalf of the States and certain Commonwealth authorities. Reimbursement of interest paid on these Comonwealth securities by the States and the relevant authorities is recorded as receipts under the heading 'Interest Rent and Dividends' (see Statement No. 4).

The estimated increase in interest payments in 1980-81 is $186.4 million or 8.4 per cent, compared with the $252.0 million or 12.8 per cent increase recorded in 1979-80. The effect on interest payments in a particular year of securities issued in that year depends on the type of security and, in the case of bonds, on the timing of the borrowing within the year. Large sales of Treasury Notes were recorded in 1979-80; Treasury Notes "are short-term securities, with maturities of 13 and 26 weeks, and are issued at a discount and repayable at par so that the interest cost falls within the financial year of issue; as a result, there was a disproportionate increase in interest payments recorded in 1979-80.

New arrangements for the marketing of Commonwealth Bonds and Treasury Notes came into effect in 1979-80. A Treasury Note tender system was introduced in December 1979 and a new 'tap' arrangement for Commonwealth Bonds was introduced in April 1980. Under the new 'tap' arrangements Commonwealth Bonds will be available in one or more maturities on a more or less continuous basis throughout the year at prices which may be varied during the period of issue. This contrasts with the past practice of issuing new Commonwealth Bonds in periodic cash/conversion loans with fixed issue prices and set closing dates for subscriptions.

Other Interest Payments

Interest paid by the Commonwealth on trustee moneys lodged with it at call ($7.5 million in 1980-81) comprises the bulk of this item. Included also are interest payments on borrowings from private lenders by the ACT Commissioner for Housing ($0.7 million in 1980-81). Final interest payments of $0.4 million were made in 1979-80 in respect of credit arrangements in the United States for defence equipment purchases.

Loan Consolidation and Investment Reserve (LCIR)

Interest is received by the LCIR on investments in Commonwealth securities which were issued mainly in Special Loans to assist with the financing of State Loan Council programs. These amounts, which represent the receipt of interest by the Commonwealth (through one of its Trust Accounts) from the Commonwealth itself, are offset against gross interest payments, in order to record only public debt interest payments to other sectors.

The LCIR subscribed to three special loans totalling $609.4 million during 1979-80. This is the main cause of the estimated increase of $33.5 million in interest receipts of the LCIR in 1980-81.


Interest is received also on investments in Commonwealth securities and in cash balances held by other Commonwealth Trust Funds, including the National Debt Sinking Fund. These amounts are also offset in arriving at public debt interest payments.


A bulk allowance of $125 million is included in the 1980-81 Budget estimates, to allow for prospective increases during the year in wage and salary rates (including those on account of work value increases) of public service employees, other than for employees and service personnel paid from votes included under the Defence function. A separate allowance of $110 million is included in the Defence function. These bulk allowances are not appropriated at this stage. Their purpose is to allow a more accurate picture of the prospective calls on the Budget to be presented. The allowances are necessarily approximate; any supplementation of appropriations that proves to be needed in the light of actual wage and salary rate increases will be reflected in additional appropriations later in the year.

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