EXPLANATORY STATEMENT
Issued by authority of the Treasurer
A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999
Determination of the Guaranteed Minimum Amounts for 2008-09
Clause 2 of Schedule 1 to the A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999 (the Act) requires the Treasurer to make a determination in writing of the Guaranteed Minimum Amount for each State and Territory (State) before 20 June in a transitional year.
In 1999, Commonwealth, State and Territory leaders signed an Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations (the IGA). The IGA, which is Schedule 2 to the Act, 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.
Under the IGA, the Australian Government guarantees that, in each of the transitional years following the introduction of the GST, the budgetary position of each individual State will be no worse than it would have been had the reforms set out in the IGA not been implemented. The transitional years were originally defined under the Act to cover the period from 1 July 2000 to 30 June 2003. This has been extended to cover the financial years up to 30 June 2009.
To meet this guarantee in the IGA, the Australian Government has legislated to provide additional funding to the States to ensure that each individual State will be no worse off in the transitional years.
The guaranteed minimum amount for each State is a calculation of the amount of revenue each State would have had available to it under the previous system of financial relations. Components of the GMA comprise estimates of Australian Government Financial Assistance Grants forgone, state taxes abolished by tax reform and other items.
Under the Act, a State is entitled to additional funding to offset any shortfall between its entitlement to GST revenue for a transitional year and its guaranteed minimum amount for that year.
The IGA outlines components used to construct the guaranteed minimum amount for each State. These form the basis of the guaranteed minimum amount for each State for 2008-09.
The Act requires that the Treasurer consult with each of the States before determining the guaranteed minimum amounts. Accordingly, consultation has been undertaken with the States.
As four States’ entitlement to GST revenue for 2008-09 does not exceed its guaranteed minimum amount for 2008-09, four States are entitled to additional funding for 2008-09.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 was enacted to address the need for reform in the financial relations between the Commonwealth and the States, ensuring a fair distribution of revenue and fiscal stability during the transition to a new tax system. The Act was introduced by the Parliament of Australia to implement the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, which aimed to establish a more equitable financial relationship between the Commonwealth and the States by providing for the transfer of all GST revenue to the States and the abolition of certain state taxes. The Act includes provisions for the calculation of Guaranteed Minimum Amounts (GMA) for each State to ensure that no State would be worse off during the transitional period following the implementation of the Goods and Services Tax (GST). The policy objective of the Act is to provide additional funding to the States to compensate for any shortfall in their revenue during the transitional years, thereby fulfilling the guarantee stipulated in the Intergovernmental Agreement.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the Commonwealth of Australia, each of the States and Territories, and involves the financial arrangements and agreements between these entities. Specifically, the Act pertains to the calculation and distribution of Guaranteed Minimum Amounts (GMA) to States to ensure that their budgetary positions are not negatively affected by the reforms set out in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA), which is Schedule 2 to the Act. The Act mandates that the Treasurer must determine the GMA for each State before 20 June in a transitional year, and this determination is based on a calculation of the revenue each State would have had under the previous system of financial relations. The Act applies to the transitional years, which have been extended to cover financial years up to 30 June 2009. The GMA for each State includes estimates of Australian Government Financial Assistance Grants forgone, state taxes abolished by tax reform, and other relevant items. Any shortfall between a State’s entitlement to GST revenue and its GMA results in the State being entitled to additional funding. The Act requires the Treasurer to consult with each State before determining the GMA, a process that has been followed in this instance.
Key Provisions
The primary operative sections of the Determination of the Guaranteed Minimum Amounts for 2008-09 are found in Clause 2 of Schedule 1 to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act). This clause mandates that the Treasurer must issue a written determination of the Guaranteed Minimum Amount (GMA) for each state and territory before 20 June in a transitional year. This determination is based on the provisions of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the IGA), which is Schedule 2 to the Act.
The Act imposes specific obligations and requirements on the parties it governs. Most notably, it mandates that the Treasurer consult with each state before determining the GMAs, ensuring that all states have a say in the calculation process. The GMA is calculated based on the amount of revenue each state would have had available under the previous system of financial relations, taking into account various components such as estimates of Australian Government Financial Assistance Grants forgone, state taxes abolished by tax reform, and other relevant items.
The Act also ensures that states are compensated to maintain their budgetary positions during the transitional years. If a state's entitlement to GST revenue for a transitional year falls short of its GMA, the state is entitled to additional funding to offset the shortfall. This mechanism is designed to uphold the guarantee set out in the IGA that no state will be worse off as a result of the reforms.
Regarding breaches, the Act does not explicitly outline specific offences, penalties, or civil or criminal consequences for failure to comply with the determination of GMAs. However, the underlying principle is that the Australian Government will provide the necessary additional funding to states to ensure compliance with the guarantee. The focus is on ensuring that states are adequately compensated and not left worse off by the financial reforms, rather than imposing punitive measures for non-compliance.