House of Representatives

Explanatory Memorandum

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

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

A new framework for federal financial relations

The Federal Financial Relations Bill 2009 appropriates funds to provide financial assistance to the States and implements this Government's reforms to modernise federal financial relations in accordance with the new financial framework agreed by COAG in the Intergovernmental Agreement on Federal Financial Relations.

The Federal Financial Relations (Consequential Amendments and Transitional Arrangements) Bill 2009 provides for the relevant consequential amendments arising from these measures, including the repeal or amendment of inconsistent legislation.

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

In agreeing 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:

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general revenue assistance, including the on-going provision of GST payments, to be used by the States for any purpose;

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National Specific Purpose Payments (National SPPs) to be spent in the key service delivery sectors; and

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National Partnership payments to support the delivery of specified outputs or projects, to facilitate reforms or to reward those jurisdictions that deliver on nationally significant reforms.

The new federal financial framework commenced on 1 January 2009.

GST payments

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.

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, by a GST revenue sharing relativity, determined by the Minister.

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These provisions are equivalent to the current GST payment provisions in the A New Tax System (Commonwealth State Financial Relations) Act 1999.

The Bills provide 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 1999 to reflect better its abbreviated content.

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

National Specific Purpose Payments

The Bills provide an appropriation for the Commonwealth to make an on-going financial contribution from 1 January 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.

National Partnership payments and general purpose financial assistance

The Bills provide for the Minister to credit amounts to the COAG Reform Fund for the purpose of providing financial assistance to the States in the form of National Partnership payments and general purpose financial assistance.

While the annual Appropriation Acts will not appropriate amounts to be paid as National Partnership payments and general purpose financial assistance, the maximum amount that the Minister may credit to the COAG Reform Fund in a particular financial year will be specified in an annual Appropriation Act related to that year.

The COAG Reform Fund will be used to disburse National Partnership payments and general purpose financial assistance to the States under the new federal financial framework.

Date of effect : 1 April 2009. A transitional period will apply from 1 January 2009 until the new legislation is in place. During this period, Treasury will bring forward GST payments to match the cash flow which the States would have received if the necessary appropriations had been in place. However, if new appropriations are not in place by 30 April 2009, GST revenue may not be sufficient to sustain the Commonwealth's transitional payments commitments to the States.

Proposal announced : This measure was announced on 26 March 2008 and agreed by COAG on 29 November 2008.

Financial impact : As part of the funding package agreed by COAG, additional appropriations of $6.3 billion are provided in these Bills over five years.

The Federal Financial Relations Bill 2009 provides appropriations for the Commonwealth to provide an additional $5.8 billion in National SPP funding to the States over five years to improve services for all Australians. The total appropriation for National SPPs in 2009-10 is $17.9 billion.

The Federal Financial Relations Bill 2009 provides for the Commonwealth to make GST payments to the States equivalent to the revenue received from the GST. These provisions are equivalent to the current GST payment provisions in the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999.

The Bills do not provide an appropriation for general purpose financial assistance or National Partnership payments, although they do provide for a global limit on National Partnerships in 2008-09 of $8 billion, general purpose financial assistance in 2008-09 of $500 million and National SPPs in 2008-09 of $4 billion. Future year global limits will be provided in annual Appropriation Acts.

The Federal Financial Relations Bill (Consequential Amendments and Transitional Provisions) Bill 2009 provides for the appropriation under the Health Care (Appropriation) Act 1998 to be increased by $500 million.

Compliance cost impact : Nil.

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.

Chapter 2 - Other general revenue assistance

Outline of chapter

2.1 The Commonwealth will provide general purpose financial assistance to be used by the States for any purpose.

Context of amendments

2.2 On 29 November 2008, COAG agreed to a new framework for federal financial relations. 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 general revenue assistance, other than GST payments, to be used by the States for any purpose.

Summary of new law

2.3 The Bills provide for the Minister, through a written determination, to credit amounts to the COAG Reform Fund for the purpose of providing financial assistance to the States in the form of general purpose financial assistance.

Comparison of key features of new law and current law

Detailed explanation of new law

2.4 The Bills provide for the Minister, through a written determination, to credit amounts to the COAG Reform Fund for the purpose of making a grant of general purpose financial assistance to the States [subsection 9(1)].

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The COAG Reform Fund Act 2008 established the COAG Reform Fund and specifies that it is a Special Account for the purposes of the Financial Management and Accountability Act 1997.

2.5 The Government intends that payments of general purpose financial assistance are transparent and subject to parliamentary scrutiny.

2.6 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 subsection 9(1) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003.

2.7 The Minister has an obligation under the Intergovernmental Agreement to make payments of general purpose financial assistance in a prescribed manner. Exemption from the disallowance provisions will allow the Minister to meet this obligation.

2.8 Parliamentary scrutiny is provided by requiring that the Minister gain approval for the maximum amount he may credit to the COAG Reform Fund for the purpose of providing financial assistance in a particular financial year.

2.9 While the annual Appropriation Acts will not appropriate amounts to be paid as general purpose revenue assistance, the maximum amount that the Minister may credit to the COAG Reform Fund, and the total amount covered by drawing rights authorising debits from the Fund, under subsection 9(1) in a particular financial year will be specified in an annual Appropriation Act related to that year [subsection 9(3)].

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Subsection 9(3) provides for the annual Appropriation Acts to declare that a specified amount is a general drawing rights limit in relation to a particular financial year.

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The general drawing rights limit will operate by restricting the total amount that may be covered by drawing rights under the Financial Management and Accountability Act 1997, and hence, the amount that can be paid out from the COAG Reform Fund in a financial year.

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Limiting the ability to issue drawing rights is an effective mechanism because the Financial Management and Accountability Act 1997 does not permit expenditure without the person making the payment having been issued with a valid drawing right.

2.10 This ensures that the Parliament's role in approving Commonwealth expenditure is preserved.

2.11 The COAG Reform Fund Act 2008 requires that the terms and conditions on which financial assistance is granted through the COAG Reform Fund are set out in a written agreement between the Commonwealth and the State.

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The terms and conditions on which general purpose financial assistance is granted will be set out in the Intergovernmental Agreement.

2.12 The maximum amount that the Minister may credit to the COAG Reform Fund for the purpose of providing financial assistance to the States in the form general purpose financial assistance in the 2008-09 financial year is $500,000,000.

Application and transitional provisions

2.13 This measure applies from 1 April 2009.

Consequential amendments

2.14 The Federal Financial Relations (Consequential Amendments and Transitional Arrangements) Bill 2009 provides for the Offshore Petroleum and Greenhouse Gas Act 2006 to be amended to remove the appropriation for royalty payments to Western Australia. The royalty payments will be made using provisions in the Federal Financial Relations Act.

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;

•

schools;

•

skills and workforce development;

•

disability services; and

•

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:

•

healthcare;

•

schools;

•

skills and workforce development;

•

disability services; and

•

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.

Chapter 4 - National Partnership payments

Outline of chapter

4.1 The Commonwealth will provide National Partnership payments to support the delivery of specified outputs or projects, to facilitate reforms or to reward those jurisdictions that deliver on nationally significant reforms.

Context of amendments

4.2 On 29 November 2008, the Council of Australian Governments 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 National Partnership payments to support the delivery of specified outputs or projects, to facilitate reforms or to reward those jurisdictions that deliver on nationally significant reforms.

4.3 Some existing payments for specific purposes and election commitments will become National Partnership project payments where they support national objectives and provide a financial contribution to the States to deliver specific projects - for example, the Commonwealth will continue to provide a financial contribution to the States' road and rail projects through AusLink National Partnership payments.

Summary of new law

4.4 The Bills provide for the Minister to credit amounts to the COAG Reform Fund for the purpose of providing financial assistance to the States in the form of National Partnership payments.

Comparison of key features of new law and current law

Detailed explanation of new law

4.5 The Bills provide for the Minister, through a written determination, to credit amounts to the COAG Reform Fund for the purpose of providing financial assistance to the States in the form of National Partnership payments [subsection 16(1)].

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The COAG Reform Fund Act 2008 established the COAG Reform Fund and specifies that it is a Special Account for the purposes of the Financial Management and Accountability Act 1997.

4.6 The Government intends that National Partnership payments are transparent and subject to Parliamentary scrutiny.

4.7 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 subsection 16(1) would not otherwise be legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003.

4.8 The Minister has an obligation under the Intergovernmental Agreement to make National Partnership payments in a prescribed manner. Exemption from the disallowance provisions will allow the Minister to meet this obligation.

4.9 Parliamentary scrutiny is provided by requiring that the Minister gain approval for the maximum amount he may credit to the COAG Reform Fund for the purpose of providing financial assistance in a particular financial year.

4.10 While the annual Appropriation Acts will not appropriate amounts to be paid as general purpose revenue assistance, the maximum amount that the Minister may credit to the COAG Reform Fund, and the total amount covered by drawing rights authorising debits from the Fund, under subsection 16(1) in a particular financial year will be specified in an annual Appropriation Act related to that year [subsection 16(3)].

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Subsection 16(3) provides for the annual Appropriation Acts to declare that a specified amount is a general drawing rights limit in relation to a particular financial year.

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The general drawing rights limit will operate by restricting the total amount that may be covered by drawing rights under the Financial Management and Accountability Act 1997, and hence, the amount that can be paid out from the COAG Reform Fund in a financial year.

•

Limiting the ability to issue drawing rights is an effective mechanism because the Financial Management and Accountability Act 1997 does not permit expenditure without the person making the payment having been issued with a valid drawing right.

4.11 This ensures that the Parliament's role in approving Commonwealth expenditure is preserved.

4.12 The COAG Reform Fund Act 2008 requires that the terms and conditions on which financial assistance is granted through the COAG Reform Fund are set out in a written agreement between the Commonwealth and the State.

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The Government has entered into numerous National Partnership agreements to implement its COAG reform agenda.

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In addition, existing payments to the States which conform to the provisions of these Bills, and which are not rationalised into National SPPs, will be paid as if they are National Partnership payments.

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The COAG Reform Fund Act 2008 established the COAG Reform Fund and specifies that it is a Special Account for the purposes of the Financial Management and Accountability Act 1997.

Application and transitional provisions

4.13 This measure applies from 1 April 2009.

Consequential amendments

4.14 The Federal Financial Relations (Consequential Amendments and Transitional Arrangements) Bill 2009 provides for the Interstate Road Transport Act 1985 to be amended to allow payments from the Interstate Road Transport Account to be made through the COAG Reform Fund as these payments are National Partnership payments under the new federal financial framework.

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.