Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 3 - Transitional arrangements
Overview
1.18 The transitional arrangements will ensure that no State or Territory budget is worse off as a result of the reforms to Commonwealth-State financial arrangements.
Summary of the legislation
1.19 To provide a State or Territory with transitional assistance to ensure that its budget is no worse off.
1.20 States and Territories will be entitled to receive transitional assistance from 1 July 2000.
Background to the legislation
1.21 The reform of Commonwealth-State financial arrangements will involve the States and Territories forgoing some existing revenues (such as financial assistance grants and a range of inefficient State taxes) and assuming additional expenditure responsibilities (such as local government, GST administration costs and first home owners schemes). The budget of each State and Territory will also be affected by other measures such as reduced gambling tax revenues and the abolition of wholesale sales tax.
1.22 GST revenues are not expected to fully offset the net budgetary cost of these measures for each State and Territory in the early years. To meet its commitment that no State or Territory budget will be worse off, the Commonwealth will provide a balancing amount of transitional assistance to those States and Territories.
Explanation of the legislation
1.23 The transitional arrangements are set out in Schedule 1 of the Bill.
1.24 Clause 1 specifies that the transitional arrangements will apply for at least three years and other years that may be prescribed by regulation.
1.25 Clause 2 requires the Treasurer to make a written determination of a guaranteed minimum amount for each State and Territory by 10 June in each year. The guaranteed minimum amount will be the amount of funding that the new arrangements must at least provide to a State or Territory to ensure that its budget is no worse off. The Treasurer must conses and Territories before making this determination.
1.26 In the first three years of the transitional arrangements, GST revenue grants will be distributed in accordance with the principle that no State or Territory budget will be worse off. Sub clauses 3(3)(a), 4(3)(a), 5(2) and 5(3) implement this principle by adjusting the distribution of GST revenue grants on the basis of the difference between a State or Territory's guaranteed minimum amount and the amount of a GST revenue grant which it would have received under horizontal fiscal equalisation.
1.27 In these years, if a State's entitlement to GST revenue under clause 12 exceeds the guaranteed minimum amount, that excess is available for redistribution to States or Territories whose GST entitlements is below their guaranteed minimum amount.
1.28 No State or Territory can receive less than its guaranteed minimum amount. In a year in which GST revenue is less than the sum of the guaranteed minimum amount of each State and Territory, the adjustments to GST revenue grants under sub clauses 3(3)(a) and 4(3)(a) will not satisfy this condition. If this circumstance arises, sub clauses 3(5) and 4(5) provide a State and Territory with an entitlement to a balancing amount of transitional assistance. In 2000-01, transitional assistance will be provided as an interest free loan to be repaid in 2001-02. Transitional assistance in following years will be provided as a grant.
1.29 Sub clause 6(1) may be used to extend the transitional arrangements to beyond three years by prescribed regulation issued under clause 21 of Part 4 of the Bill. Under sub clause 6(2), in these years the distribution of GST revenue grants will be in accordance with horizontal fiscal equalisation and transitional assistance will be provided as a grant. The need to extend the transition arrangements will be considered by the Commonwealth and the States and Territories in light of up to date estimates of GST revenues and the guaranteed minimum amounts.
1.30 Clauses 16 and 17 provide threr with the authority to determine the frequency and amount of the payments of transitional assistance during a year. This will enable the Treasurer to make payments according to a schedule which is agreed between the Commonwealth and the States and Territories.
1.31 Clause 15(1) requires the Treasurer to deduct any overpayments from payments to a State or Territory in the following year. Clause 15(2) requires the Treasurer to add the amount of any underpayments to payments to a State or Territory in the following year.
Regulation Impact Statement
1.32 No impacts are expected as the assistance to the State and Territory Governments will be freely available for use for any purpose. No Regulation Impact Statement is required.