EXPLANATORY STATEMENT
Issued by authority of the Treasurer
A New Tax System (Commonwealth-State Financial Arrangements) Act 1999
Determination of Final Per Capita Relativities for 2005-06
Section 9 of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act) requires the Treasurer to make a determination in writing of the per capita relativities factor for each State and Territory (State) before 10 June in the current GST year.
In 1999, Australian Government, State and Territory leaders signed an Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations (the IGA). The IGA sets out reform measures which implement changes to Commonwealth‑State financial relations. These measures include, among other things, the provision of all GST revenue to the States and the abolition of certain state taxes.
The relativities factor is used to calculate the GST revenue payable to each State in 2005-06. Each State receives a share of the GST revenue pool equal to its weighted population share of the combined GST revenue and unquarantined Health Care Grants, less its unquarantined Health Care Grants. The relativities factor is applied to a State’s population to determine its weighted population. Details of this calculation are set out in Budget Paper No. 3, Federal Financial Relations 2006-07.
As required by the IGA, which is Schedule 2 to the Act, the relativities factors are based on the recommendations of the Commonwealth Grants Commission, which are in accordance with the principle of horizontal fiscal equalisation. Horizontal fiscal equalisation is the principle that each State should receive funding from the pool of GST revenue and Health Care Grants to ensure that it has the capacity to provide the average standard of State‑type public services, providing it operates at an average level of efficiency and makes the average effort to raise revenue from its own sources. The Commission’s recommendations were published in its Report on State Revenue Sharing Relativities 2005 Update.
The Act also requires the Treasurer to consult the States before making the GST relativities determination. The Treasurer consulted the States at the Ministerial Council for Commonwealth-State Financial Relations meeting on 23 March 2005.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, enacted to implement the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), addresses the need for a revised financial framework between the Australian Government and the states. This legislation mandates the determination of per capita relativities for the distribution of GST revenue to the states, ensuring that each state receives funding to enable the provision of public services at an average standard. The policy objective is to achieve horizontal fiscal equalisation, ensuring equitable distribution of funds based on population and the capacity to raise revenue. The Treasurer is required to consult with the states, as per the Act, before making the GST relativities determination, reflecting the collaborative approach to financial arrangements outlined in the IGA.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the Commonwealth, State and Territory governments within Australia, establishing a framework for the financial relations between these entities. Under this Act, the Treasurer is mandated to determine the final per capita relativities for each State and Territory before 10 June in the current GST year. These relativities are crucial in calculating the share of GST revenue each State is entitled to, based on their population and efficiency in raising revenue. The Act operates on the principle of horizontal fiscal equalisation, ensuring each State receives funding to support the provision of public services at an average standard, assuming they operate with average efficiency. This legislation also requires consultation with the States before the final determination, as exemplified by the consultation held at the Ministerial Council for Commonwealth-State Financial Relations meeting in March 2005. The Act extends its reach through subordinate instruments, such as the recommendations from the Commonwealth Grants Commission, which are incorporated in the determination of these relativities.
Key Provisions
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, specifically Section 9, mandates that the Treasurer must, by written determination, establish the per capita relativities factor for each state and territory before 10 June of the current GST year. This determination is integral to the calculation of GST revenue distribution for the fiscal year 2005-06. Each state's share of the GST revenue pool is calculated based on its weighted population, which is derived from its population and the relativities factor, adjusted for unquarantined Health Care Grants. This calculation ensures that the distribution of GST revenue aligns with the principles of horizontal fiscal equalisation, aiming to provide each state with sufficient funds to maintain an average standard of public services at an average level of efficiency and revenue effort.
Under the Act, the relativities factors are established in accordance with the recommendations of the Commonwealth Grants Commission, as outlined in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), which is Schedule 2 to the Act. The IGA, signed in 1999, outlines significant reforms in financial relations between the Australian government and the states, including the provision of all GST revenue to the states and the elimination of certain state taxes. The relativities factors are determined to ensure that each state has the necessary resources to deliver state-type public services, reflecting the principle that each state should have equitable access to funds from the GST revenue pool and Health Care Grants.
The Act imposes several obligations on the Treasurer and the states. The Treasurer must consult with the states prior to making the determination of the per capita relativities factor. This consultation is an essential part of the process, ensuring that all states have an opportunity to provide input and understand the basis of the determination. In this case, the Treasurer consulted the states during the Ministerial Council for Commonwealth-State Financial Relations meeting on 23 March 2005. The states, in turn, must engage in this process, providing relevant information and feedback to the Treasurer to facilitate an accurate and fair determination of the relativities factors.
Failure to comply with the requirements of the Act can result in legal consequences. While the Act itself does not specify particular offences or penalties for non-compliance, breaches of the principles of horizontal fiscal equalisation or the failure to consult appropriately could potentially lead to legal challenges or disputes over the distribution of GST revenue. These could have significant implications for the financial arrangements between the Commonwealth and the states, potentially affecting the provision of public services and the overall financial stability of the states. The precise consequences would depend on the nature of the breach and the outcomes of any subsequent legal proceedings.