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 2008-09
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 GST relativities factor for each State and Territory (State) before 10 June in the current GST year.
As agreed by the Council of Australian Governments in the Intergovernmental Agreement on Federal Financial Relations, the Commonwealth makes GST payments to the States equivalent to the revenue received from the GST. The GST payments are distributed among the States and Territories in accordance with the principle of horizontal fiscal equalisation and having regard to the recommendations of the Commonwealth Grants Commission.
The Commission recommends GST relativities to be used in calculating each State's share of GST payments. The relativities determine how much GST revenue each State receives compared with an equal per capita share and are determined such that, if each State made the same effort to raise revenue from its own sources and operated at the same level of efficiency, each State would have the capacity to provide services at the same standard.
This does not necessarily result in the same standard of government services — just the equalisation of each State's capacity to provide the same standard of services. In calculating the GST relativities, the Commission takes into account differences in the States' capacities to raise revenues and differences in the costs the States would incur in providing the same standard of government services.
Horizontal fiscal equalisation generally provides the necessary budget support to the smaller States so they have the capacity to provide services at a comparable standard to the larger States, while ensuring that the interstate transfers are not so large that they would significantly distort economic behaviour and reduce productivity growth.
For 2008-09, the Commission was asked to recommend a relativity to distribute a pool of GST payments plus health care grants provided by the Commonwealth under the Australian Health Care Agreements (some health care grants were quarantined from the GST pool). Details of this calculation are set out in Budget Paper No. 3, Australia’s Federal Relations 2008-09.
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 14 March 2008.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 was enacted to establish a framework for the financial relations between the Australian Commonwealth and the States, ensuring equitable distribution of revenue, particularly from the Goods and Services Tax (GST). The Act aims to address the problem of unequal fiscal capacities among different states and territories by implementing horizontal fiscal equalisation. This principle ensures that states with lower revenue-raising capacities receive Commonwealth support to enable them to provide government services at a standard comparable to that of more affluent states. The policy objective is to maintain economic stability and productivity growth while preventing significant interstate economic distortions. The Treasurer, as the enacting body, is mandated to determine the GST relativities each year, consulting with the states to reflect their specific fiscal needs and capacities, as recommended by the Commonwealth Grants Commission.
In line with this legislative framework, the Explanatory Statement for the Determination of Final Per Capita Relativities for 2008-09 outlines the process and considerations for calculating GST relativities for the specified financial year. It highlights the importance of horizontal fiscal equalisation in distributing GST payments and healthcare grants, ensuring that smaller states have the necessary resources to maintain service standards comparable to larger states. The determination of these relativities is based on the relative capacities of states to raise revenue and the costs associated with providing government services. This systematic approach aims to foster equitable fiscal arrangements and support the economic and social objectives of the nation.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the Commonwealth government, specifically the Treasurer, who is mandated to determine the GST relativities for each state and territory before 10 June of the current GST year. The Act ensures that the Commonwealth makes GST payments to the states equivalent to the revenue received from the GST, which are distributed according to the principle of horizontal fiscal equalisation and the recommendations of the Commonwealth Grants Commission. This legislation extends its reach across all states and territories within the Australian jurisdiction, aiming to equalise each state's capacity to provide the same standard of government services despite variations in their revenue-raising capacities and service provision costs. The determination of these relativities is instrumental in achieving a balance where smaller states receive necessary budget support without causing significant economic distortions. The Act mandates consultation with the states before making the GST relativities determination, ensuring a collaborative approach in its implementation.
Key Provisions
Section 9 of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act) mandates the Treasurer to issue a written determination of the GST relativities factor for each state and territory (referred to as "State") before 10 June of the current GST year. This determination is based on the principle of horizontal fiscal equalisation, which seeks to ensure that each state has the capacity to provide government services at the same standard, even though it does not guarantee the same level of services across all states. The Commonwealth Grants Commission is responsible for recommending the GST relativities, which are used to calculate each state's share of GST payments.
The obligations imposed by the Act on the parties involved are significant. The Treasurer must make the determination of GST relativities before 10 June in the current GST year, as stipulated in section 9 of the Act. Furthermore, the Treasurer is required to consult with the states before making this determination, ensuring that their views and considerations are taken into account. This consultation process took place at the Ministerial Council for Commonwealth-State Financial Relations meeting on 14 March 2008, as per the Act's requirements.
The Act does not explicitly outline specific offences, penalties, or consequences for non-compliance with its provisions. However, the importance of the GST relativities determination in maintaining the balance of financial arrangements between the Commonwealth and the states underscores the significance of adhering to the Act's requirements. Non-compliance could potentially lead to disputes over the distribution of GST payments and health care grants, as well as impact the capacity of states to provide government services at a comparable standard. The potential consequences of such non-compliance could be far-reaching and detrimental to the overall stability of the Commonwealth-State financial arrangements.