A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 - Determination of the Final Per Capita Relativities for 2006-07

Overview

The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 was enacted to reform the financial relations between the Commonwealth and the states and territories in Australia, providing a new tax system that includes the allocation of GST revenue to states based on per capita relativities. This Act addresses the need to ensure equitable distribution of GST revenue to states, taking into account their population sizes and fiscal capacities. The Australian Parliament enacted this Act to implement the intergovernmental agreement on the reform of Commonwealth-State financial relations, ensuring that states receive funding in accordance with the principle of horizontal fiscal equalisation, which aims to provide each state with the capacity to deliver public services at an average standard. The policy objective of this Act is to facilitate a fair distribution of GST revenue, thereby supporting efficient and equitable public service delivery across all states.

Scope and Application

The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 mandates the Treasurer to determine, in writing, the per capita relativities factor for each state and territory before 10 June each year. This act applies to the Commonwealth Government, states, and territories in Australia and is integral to the allocation of GST revenue and unquarantined Health Care Grants among these entities. The calculation of each state's share of the GST revenue pool is based on its weighted population, which is determined by applying the relativities factor to the state's population. The relativities factors are established in accordance with the principle of horizontal fiscal equalisation, ensuring that each state has the capacity to provide the average standard of state-type public services. This principle is further detailed in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, which is incorporated as Schedule 2 to the Act. The determination of these relativities factors is based on recommendations from the Commonwealth Grants Commission and is subject to consultation with the states, as exemplified by the consultation held during the Ministerial Council for Commonwealth-State Financial Relations meeting on 31 March 2006.

Key Provisions

The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act) mandates the Treasurer to issue a written determination of the per capita relativities factor for each State and Territory before 10 June each GST year (section 9). This determination is crucial for calculating the GST revenue distribution among the States for the fiscal year. Each State's share of the GST revenue pool is determined by its weighted population, which is calculated by applying the relativities factor to the State's population. This weighted population is then used to determine the State's share of the combined GST revenue and unquarantined Health Care Grants, less its unquarantined Health Care Grants. The relativities factor is based on the recommendations of the Commonwealth Grants Commission, which adhere to the principle of horizontal fiscal equalisation. This principle ensures that each State receives funding sufficient to provide the average standard of State-type public services, assuming the State operates at an average level of efficiency and makes the average effort to raise revenue from its own sources. The relativities factors are set out in Schedule 2 of the Act, which is the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA). The IGA, signed in 1999 by Australian Government, State, and Territory leaders, outlines reforms that include the provision of all GST revenue to the States and the abolition of certain state taxes. The Act also stipulates that the Treasurer must consult with the States before making the GST relativities determination. This consultation took place at the Ministerial Council for Commonwealth-State Financial Relations meeting held on 31 March 2006. The relativities factors for 2006-07 were prepared by the Commonwealth Grants Commission, taking into account amended data provided by South Australia after the release of the Commission's Report on State Revenue Sharing Relativities 2006 Update. Under the Act, the primary obligations imposed on the Treasurer include the timely determination of the per capita relativities factor and the requirement to consult with the States before making this determination. The Treasurer must ensure that the relativities factors are based on the Commission's recommendations and are in accordance with the principle of horizontal fiscal equalisation. Failure to comply with these obligations could lead to legal challenges or disputes over the distribution of GST revenue among the States. The Act does not explicitly outline offences, penalties, or civil/criminal consequences for breach. However, non-compliance with the Act's requirements could potentially result in legal action by the States or other stakeholders affected by the GST revenue distribution. The Treasurer's failure to consult with the States or to make a timely determination could be challenged in court, leading to significant financial and administrative consequences for the Commonwealth Government.