Explanatory Memorandum
(Circulated by authority of the Minister for Regional Services, Territories and Local Government, Senator the Hon. Ian Macdonald)FINANCIAL IMPACT STATEMENT
The Local Government (Financial Assistance) Act 1995 is the basis upon which the Commonwealth financial assistance is provided to local government through the States and Territories. This financial assistance has two components:
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- general purpose funding (section 9 payments) and
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- local roads funding (section 12 payments).
Under this Act local government is estimated to be entitled to around $1.238 billion in financial assistance grants for 199899. Each year, the Treasurer determines the escalation of local government assistance by having regard to movements in the level of the financial assistance grants and special revenue assistance paid to the States.
Under the Governments tax reform package, the States and the Northern Territory will take over responsibility for providing assistance to local government from their GST revenue. The Commonwealth will make the payment of the GST revenue conditional on the States and the Northern Territory making these payments in accordance with existing conditions on the payment of the grants. Maintaining the growth of these financial assistance grants on a real per capita basis would constitute one of the conditions to be met by the States and the Northern Territory in order for them to receive GST revenue.
In the ACT, the ACT Government directly provides services commonly provided by local government in the States and the Northern Territory. Therefore, these conditions on the payment of grants are not relevant to the ACT.
The main function of the States Grants (General Purposes) Act 1994 is to appropriate funding from consolidated revenue for the payment of general revenue assistance to the States and Territories.
More than 95 per cent of general revenue assistance is accounted for by financial assistance grants which are distributed amongst the States and Territories on the basis of horizontal fiscal equalisation principles. Under the Governments reform package, financial assistance grants are to be abolished from 1 July 2000 and, subject to transitional arrangements, GST revenue grants will be distributed amongst the States and Territories on the basis of horizontal fiscal equalisation principles. GST revenue grants are to be provided to the States and Territories under the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 .
The A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 also contains provisions which will maintain payments to the States and Territories under the Agreement to Implement the National Competition Policy and Related Reforms and the Commonwealths undertaking to provide the States and Territories with any remittances of business franchise fee windfall taxes under the section 90 safety net arrangements.