House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Chapter 1 - GST payments

Outline of chapter

1.1 The Commonwealth will make GST payments to the States equivalent to the revenue received from the GST.

1.2 GST payments provide the States with revenue from a robust tax base that can be expected to grow over time and will be available for use by the States for any purpose.

1.3 The Commonwealth will distribute GST payments among the States in accordance with the principle of horizontal fiscal equalisation.

1.4 The Bills in effect simply transfer GST payment provisions from the A New Tax System (Commonwealth State Financial Relations) Act 1999 to the Federal Financial Relations Act with effect from 1 July 2009.

Context of amendments

1.5 On 29 November 2008, COAG agreed to a new framework for federal financial relations. As part of its implementation of the new framework, the Commonwealth committed to the provision of on-going financial support for the States' service delivery efforts through the provision of GST payments to be used by the States for any purpose.

Summary of new law

1.6 The Bills provide an appropriation for the Commonwealth to make GST payments to the States equivalent to the revenue received from the GST in respect of financial years starting from 1 July 2009 and for these payments to be distributed in accordance with the principle of horizontal fiscal equalization.

Comparison of key features of new law and current law

Detailed explanation of new law

1.7 The Commonwealth will make GST payments to the States equivalent to the revenue received from the GST. GST payments will be freely available for use by the States for any purpose [section 5].

1.8 The total amount of GST revenue to be paid to the States in a financial year will be determined by the Minister as [section 6]:

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the sum of GST collections, voluntary and notional payments made by government bodies, and amounts withheld from any local government authority representing the amount of unpaid voluntary or notional GST;

reduced by:

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the amounts paid or applied under a provision of a Commonwealth law that requires the Commonwealth to refund some or all of an amount of GST that has been paid.

1.9 The Minister's determination of GST revenue made under subsection 6(1) are not legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 . Subsection 6(6) is included only to assist readers.

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The Minister is constrained to determine GST revenue in accordance with the definition provided in section 6 and the audited amount of GST as published in the Final Budget Outcome.

1.10 The Commonwealth will distribute GST payments among the States in accordance with the principle of horizontal fiscal equalisation [section 5], as expressed in GST revenue sharing relativities recommended to the Minister by the Commonwealth Grants Commission.

1.11 Each State will receive its adjusted population share of the GST revenue. The adjusted population of each State will be calculated by multiplying the State's population, determined by the Australian Statistician [section 7], by a GST revenue sharing relativity, determined by the Minister [section 8(1)].

1.12 To improve transparency, the Bills provide for the Minister's determination of GST revenue sharing relativities to be a legislative instrument, but not disallowable [section 8(3)].

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Determinations made by the Minister under section 8(1) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

1.13 Determinations under section 8(1) are exempt from disallowance because the Minister only makes a determination after consulting with the States and on the basis of the recommendation of the Commonwealth Grants Commission. Furthermore, the GST revenue sharing relativities do not affect the amount appropriated, only the distribution of GST payments between States.

Application and transitional provisions

1.14 This measure applies from 1 April 2009, but the first GST payments provided by this Bill are in respect of 2009-10.

Consequential amendments

1.15 The Federal Financial Relations (Consequential Amendments and Transitional Arrangements) Bill 2009 provides for the repeal of parts of the A New Tax System (Commonwealth State Financial Relations) Act 1999 , with effect from 1 July 2009, and for the Act to be renamed the A New Tax System (Managing the rate and base of the GST) Act to reflect better its abbreviated content.

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Once amended, the on-going provisions of the Act will be limited to the procedures for managing the base and rate of the GST.

1.16 The repeal of parts of this Act allows for the payment of any outstanding GST revenue owed to the States in respect of the 2008-09 financial year, with no GST payments provided for in respect of 2009-10 and subsequent years.