House of Representatives

Explanatory Memorandum

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

Chapter 5 - Payment of grants

Outline of chapter

5.1 The Bills provide for simplified and centrally administered payment arrangements through monthly payments from the Commonwealth Treasury to each State Treasury in respect of all financial assistance provided for in The Bills.

Context of amendments

5.2 COAG agreed that payment and administrative arrangements, under the new framework for federal financial relations, will be simplified and centrally administered through monthly payments from the Commonwealth Treasury to each State Treasury in respect of all financial transfers under the Intergovernmental Agreement.

Summary of new law

5.3 The Bills provide for the Minister to:

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make advances of payments;

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determine the amount and timing of payments; and

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adjust for under- or over-payment.

Comparison of key features of new law and current law

Detailed explanation of new law

5.4 The Bills provide the Minister with the authority to determine the frequency and amount of payments during a financial year [section 19 and 22]. This enables the Minister to make payments according to the provisions in the Intergovernmental Agreement.

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The Minister's determinations made under subsection 19(1) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 . Subsection 19(2) is included only to assist readers.

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Furthermore, the Minister's determinations of the frequency and amount of payments do not affect the amount of financial assistance payable in a financial year.

5.5 The Bills also provide for the Minister to make advances to a State of portions of the amount or amounts to which the State will be entitled under this Act for a payment year [section 17]. This enables the Minister to make payments to the States, based on the latest available estimates prior to a determination of the final amount to be paid, being made.

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The final amount may typically be determined in the year following the year in which advances of payments are made.

5.6 An adjustment amount (which may be positive or negative) to account for any difference between the estimated and actual outcome for payments is to be deducted from any amount that the State is entitled to receive by way of financial assistance in the following year [section 18].

5.7 Under this Act and the Intergovernmental Agreement, the States are required to spend National SPPs in the service sector for which they are provided. The Bills provide for the Minister to determine that the State should repay the Commonwealth an amount stated in the determination if that State does not fulfil this condition [section 20].

5.8 Repayments may be deducted from any amount that the State is entitled to receive by way of future financial assistance [section 20(4)].

5.9 Subsection 20(3) is included only to assist the reader. Determinations made by the Minister under subsection 20(1) are not legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003 .

Application and transitional provisions

5.10 This measure applies from 1 April 2009.

Consequential amendments

5.11 The Federal Financial Relations (Consequential Amendments and Transitional Provisions) Bill 2009 provides for the COAG Reform Fund Act 2008 to be amended to include grants covered by subsection 23(2) of the Interstate Road Transport Act 1985 and section 75 of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 among those exempt from the terms and conditions provisions of that Act.