House of Representatives

Explanatory Memorandum

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

Chapter 3 - National Specific Purpose Payments

Outline of chapter

3.1 The Commonwealth will provide on-going National Specific Purpose Payment (National SPPs) to the States as a financial contribution to support State service delivery in the areas of:

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healthcare;

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schools;

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skills and workforce development;

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disability services; and

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affordable housing.

Context of amendments

3.2 On 29 November 2008, COAG agreed to a new framework for federal financial relations which provides a robust foundation for collaboration on policy development and service delivery and facilitate the implementation of economic and social reforms in areas of national importance.

3.3 As part of its implementation of the new framework for federal financial relations, the Commonwealth committed to the provision of on-going financial support for the States' service delivery efforts through National SPPs to be spent in the key service delivery sectors. These new payments rationalise a myriad of existing payments.

Summary of new law

3.4 The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 July 2009 to support State service delivery in the areas of:

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healthcare;

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schools;

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skills and workforce development;

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disability services; and

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affordable housing.

Comparison of key features of new law and current law

Detailed explanation of new law

National Healthcare SPP

3.5 The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 July 2009 to support State service delivery in respect of healthcare - the National Healthcare SPP [subsection 10(1)].

3.6 The base funding for the National Healthcare SPP for 2009-10 is $11,224,185,000 [subsection 10(2)(a)].

3.7 The base funding for the National Healthcare SPP is provided on an on-going basis and indexed annually by a growth factor determined by the Minister [subsections 10(2)(b) and 10(3)].

3.8 A State's share of the National Healthcare SPP in a financial year is also to be determined by the Minister [subsection 10(4)].

3.9 The amount of the National Healthcare SPP for 2009-10 is specified in the Intergovernmental Agreement. The agreement also provides that the growth factor will be the product of a health specific cost index, growth in population estimates weighted for hospital utilisation and a technology factor, and each State's share of the National Healthcare SPP in a given year will be its population share, based on the Australian Statistician's determination of State populations as at 31 December for that year.

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In recognition that the move to distributing National SPPs equal per capita will result in a shift in notional payment shares, the Intergovernmental Agreement provides that the arrangements will be phased in over a period of five years.

3.10 To improve transparency and accountability to Parliament, the Bills provide for the Minister's determinations under subsection 10(3) and subsection 10(4) to be legislative instruments and thereby disallowable.

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Determinations made by the Minister under subsection 10(3) and subsection 10(4) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

3.11 The States are required to spend the National Healthcare SPP in the healthcare sector but they have full budget flexibility to allocate funds within that sector as they see fit to achieve any mutually agreed objectives for that sector [subsection 10(5)]. This is the only condition imposed on the States in respect of the National Healthcare SPP.

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The objectives agreed between the Commonwealth and the States are set out in the National Healthcare Agreement, which is a schedule to the Intergovernmental Agreement.

National Schools SPP

3.12 The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 July 2009 to support State service delivery in the area of government schools - the National Schools SPP [subsection 11(1)].

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The non-government schools component of the National Schools SPP is determined in accordance with the Schools Assistance Act 2008 .

3.13 The base funding for the National Schools SPP for 2009-10 is $3,286,594,000 [subsection 11(2)(b)].

3.14 The base funding for the National Schools SPP is provided on an on-going basis and indexed annually by a growth factor determined by the Minister [subsection 11(2)(c) and 11(4)].

3.15 A State's share of the National Schools SPP in a financial year is also to be determined by the Minister [subsection 11(5)].

3.16 The amount of the National Schools SPP for 2009-10 is specified in the Intergovernmental Agreement. The agreement also provides that the growth factor will be the product of growth in average government schools recurrent cost and growth in full-time equivalent enrolments in government schools, and each State's share of the National Schools SPP in a given year will be its share of full-time equivalent student enrolments in government schools.

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In recognition that the move to distributing National SPPs equal per capita will result in a shift in notional payment shares, the Intergovernmental Agreement provides that the arrangements will be phased in over a period of five years.

3.17 To improve transparency and accountability to Parliament, the Bills provide for the Minister's determinations under subsection 11(4) and subsection 11(5) to be legislative instruments and thereby disallowable.

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Determinations made by the Minister under subsection 11(4) and subsection 11(5) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

3.18 The States are required to spend the National Schools SPP in the schools sector but they have full budget flexibility to allocate funds within that sector as they see fit to achieve any mutually agreed objectives for that sector [subsection 11(6)]. This is the only condition imposed on the States in respect of the National Schools SPP.

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The objectives agreed between the Commonwealth and the States are set out in the National Education Agreement, which is a schedule to the Intergovernmental Agreement.

National Skills and Workforce Development SPP

3.19 The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 July 2009 to support State service delivery in the area of skills and workforce development - the National Skills and Workforce Development SPP [subsection 12(1)].

3.20 The base funding for the National Skills and Workforce Development SPP for 2009-10 is $1,317,877,000 [subsection 12(2)(b)].

3.21 The base funding for the National Skills and Workforce Development SPP is provided on an on-going basis and indexed annually by a growth factor determined by the Minister [subsections 12(2)(c) and 12(4)].

3.22 A State's share of the National Skills and Workforce Development SPP in a financial year is also to be determined by the Minister [subsection 12(5)].

3.23 The amount of the National Skills and Workforce Development SPP for 2009-10 is specified in the Intergovernmental Agreement. The agreement also provides that the growth factor will be the weighted product of wage cost indices, and each State's share of the National Skills and Workforce Development SPP in a given year will be its population share, based on the Australian Statistician's determination of State populations as at 31 December for that year.

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In recognition that the move to distributing National SPPs equal per capita will result in a shift in notional payment shares, the Intergovernmental Agreement provides that the arrangements will be phased in over a period of five years.

3.24 To improve transparency and accountability to Parliament, the Bills provide for the Minister's determinations under subsections 12(4) and 12(5) to be legislative instruments and thereby disallowable.

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Determinations made by the Minister under subsection 12(4) and 12(5) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

3.25 The States are required to spend the National Skills and Workforce Development SPP in the skills and workforce development sector but they have full budget flexibility to allocate funds within that sector as they see fit to achieve any mutually agreed objectives for that sector [subsection 12(6)]. This is the only condition imposed on the States in respect of the National Skills and Workforce Development SPP.

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The objectives agreed between the Commonwealth and the States are set out in the National Skills and Workforce Development Agreement, which is a schedule to the Intergovernmental Agreement.

National Disability Services SPP

3.26 The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 July 2009 to support State service delivery in the area of disability services - the National Disability services SPP [subsection 13(1)].

3.27 The base funding for the National Disability Services SPP for 2009-10 is $903,686,000 [subsection 13(2)(b)].

3.28 The base funding for the National Disability Services SPP is provided on an on-going basis and indexed annually by a growth factor determined by the Minister [subsections 13(2)(c) and 13(5)].

3.29 A State's share of the National Disability Services SPP in a financial year is also to be determined by the Minister [subsection 13(5)].

3.30 The amount of the National Disability Services SPP for 2009-10 is specified in the Intergovernmental Agreement. The agreement also provides that the growth factor will be a rolling five year average of nominal GDP year-on-year growth, and each State's share of the National Healthcare SPP in a given year will be its population share, based on the Australian Statistician's determination of State populations as at 31 December for that year.

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In recognition that the move to distributing National SPPs equal per capita will result in a shift in notional payment shares, the Intergovernmental Agreement provides that the arrangements will be phased in over a period of five years.

3.31 To improve transparency and accountability to Parliament, the Bills provide for the Minister's determinations under subsections 13(4) and 13(5) to be legislative instruments and thereby disallowable.

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Determinations made by the Minister under subsections 13(4) and 13(5) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

3.32 The States are required to spend the National Disability Services SPP in the disability services sector but they have full budget flexibility to allocate funds within that sector as they see fit to achieve any mutually agreed objectives for that sector [subsection 13(6)]. This is the only condition imposed on the States in respect of the National Disability Services SPP.

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The objectives agreed between the Commonwealth and the States are set out in the National Disability Agreement, which is a schedule to the Intergovernmental Agreement.

National Affordable Housing SPP

3.33 The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 July 2009 to support State service delivery in the area of housing services - the National Affordable Housing SPP [subsection 14(1)].

3.34 The base funding for the National Affordable Housing SPP for 2009-10 is $1,202,590,000 [subsection 14(2)(b)].

3.35 The base funding for the National Affordable Housing SPP is provided on an on-going basis and indexed annually by a growth factor determined by the Minister [subsection 14(2)(c) and 14(4)].

3.36 A State's share of the National Affordable Housing SPP in a financial year is also to be determined by the Minister [subsection 14(5)].

3.37 The amount of the National Affordable Housing SPP for 2009-10 is specified in the Intergovernmental Agreement. The agreement also provides that the growth factor will be a weighted average of a wage cost index and a consumer price index, and each State's share of the National Affordable Housing SPP in a given year will be its population share, based on the Australian Statistician's determination of State populations as at 31 December for that year.

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In recognition that the move to distributing National SPPs equal per capita will result in a shift in notional payment shares, the Intergovernmental Agreement provides that the arrangements will be phased in over a period of five years.

3.38 To improve transparency and accountability to Parliament, the Bills provide for the Minister's determinations under subsection 14(4) and 14(5) to be legislative instruments and thereby disallowable.

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Determinations made by the Minister under subsections 14(4) and 14(5) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

3.39 The States are required to spend the National Affordable Housing SPP in the housing services sector but they have full budget flexibility to allocate funds within that sector as they see fit to achieve any mutually agreed objectives for that sector [subsection 14(6)]. This is the only condition imposed on the States in respect of the National Affordable Housing SPP.

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The objectives agreed between the Commonwealth and the States are set out in the National Affordable Housing Agreement, which is a schedule to the Intergovernmental Agreement.

2008-09 National SPPs

3.40 The Bill provides for the Minister to determine the amount of financial assistance payable to the States as National SPPs in 2008-09 [subsections 11(2)(a), 12(2)(a), 13(2)(a) and 14(2)(a)].

3.41 To improve transparency, the Minister's determinations are legislative instruments and will be registered on the Federal Register of Legislative Instruments, but will not be disallowable.

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Determinations made by the Minister under subsections 11(2)(a), 12(2)(a), 13(2)(a) and 14(2)(a) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

3.42 The exemption will allow the Treasurer to fulfil his obligation to make these payments to the States within the financial year. If the Minister was to wait for the determination to be tabled in Parliament for the required number of sitting days, they would not be able to make the payment until 2009-10.

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If the payments were delayed until the following financial year, then this would have significant impact on the fiscal positions of the States.

3.43 To provide a layer of scrutiny, Parliament is asked to approve the maximum amount that the Treasurer may determine.

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The total amount of financial assistance payable under subsections 11(2)(a), 12(2)(a), 13(2)(a) and 14(2)(a) is limited to $4,000,000,000 [section 35].

Application and transitional provisions

3.44 This measure applies from 1 April 2009.

Consequential amendments

3.45 The Federal Financial Relations (Consequential Amendments and Transitional Arrangements) Bill 2009 provides for the repeal of the Health Care (Appropriation) Act 1998 , with effect from 1 July 2009.

3.46 The Bill also provides for the maximum amount that may be paid by way of financial assistance under section 4 of the Health Care (Appropriation) Act 1998 for the period starting on 1 July 2003 to be increased to $52,760 million (an increase of $500 million). This will allow the Commonwealth to pay the additional $500 million in base funding for 2008-09 agreed by COAG on 29 November 2008.

3.47 The appropriation contained in the Health Care (Appropriation) Act 1998 ceases on 30 June 2009, and no further payments can be made from that appropriation after that date. The purpose of section 3 of Schedule 4 is to ensure that, although the Health Care (Appropriation) Act 1998 is repealed by section 1 of Schedule 3 with effect 1 July 2009, the requirement in the Health Care (Appropriation) Act 1998 to report to Parliament as soon as practicable after the end of the appropriation period on expenditure under the appropriation remains, and to allow for appropriate finalisation of reporting by States and Territories for monies received in the appropriation period ending 30 June 2009.