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 2004-05
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 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, 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 2006.
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 GST 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 2004-05. Details of the calculation of each State’s Guaranteed Minimum Amount for 2004‑05 were published in Final Budget Outcome 2004‑05.
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 State treasurers.
As every State’s entitlement to GST revenue for 2004-05 exceeds its Guaranteed Minimum Amount for 2004-05, no State is entitled to additional funding for 2004‑05.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 was enacted to address the complexities and inefficiencies of the previous system of financial relations between the Australian Government, the states, and territories. This legislation was introduced by the Australian Parliament to provide a framework for the reform of Commonwealth-State financial relations, as outlined in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, which serves as Schedule 2 to the Act. The Act aims to ensure that the budgetary positions of the states are not worse off following the implementation of the reforms, particularly in the transitional years post-GST introduction. The policy objective is to provide a stable and predictable financial arrangement that supports state governments during the transition to a new tax system, ensuring that the states' revenue is at least as robust as it would have been under the old system. The Act requires the Treasurer to determine the Guaranteed Minimum Amounts for each state before 20 June in each transitional GST year, thereby providing a guarantee that no state will be worse off during this period.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the Commonwealth Government and the states and territories of Australia. It governs the financial arrangements between these entities, particularly in the context of the introduction of the Goods and Services Tax (GST). The Act is designed to ensure that the budgetary position of each state is no worse following the implementation of the IGA, which includes the provision of all GST revenue to the states and the abolition of certain state taxes. The Act mandates that the Treasurer must determine the Guaranteed Minimum Amounts (GMA) for each state before 20 June in a transitional GST year, ensuring that no state is left worse off. For the 2004-05 financial year, the calculation of each state's GMA, detailed in the Final Budget Outcome 2004-05, was based on the components outlined in the IGA, including estimates of Australian Government Financial Assistance Grants forgone and state taxes abolished by tax reform. As the states' entitlements to GST revenue exceeded their GMAs for 2004-05, no additional funding was required for that year. The Act allows for the extension of its application through subordinate instruments, ensuring its continued relevance and effectiveness in maintaining the financial balance as agreed under the IGA.
Key Provisions
The key operative sections of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, particularly as amended by the Determination of the Guaranteed Minimum Amounts for 2004-05, require the Treasurer to determine in writing the Guaranteed Minimum Amounts (GMA) for each State and Territory before 20 June in each transitional Goods and Services Tax (GST) year (s.2). This provision ensures that each State’s financial position does not deteriorate due to the introduction of the GST, as stipulated in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA) (Schedule 2). The GMA represents the revenue each State would have received under the pre-GST system, calculated from estimates of forgone Australian Government Financial Assistance Grants, abolished state taxes, and other relevant components (s.2).
Under the Act, the Australian Government must ensure that no State is worse off financially in the transitional years following the GST implementation, which originally covered the period from 1 July 2000 to 30 June 2003 but has since been extended to 30 June 2006 (s.2). To fulfil this guarantee, the Treasurer must provide additional funding to any State whose GST revenue entitlement for a transitional year falls below its GMA. This funding ensures that the State’s financial position remains at least as favourable as it would have been without the GST reforms (s.2). The Act mandates that the Treasurer consult with each State before making these determinations, as demonstrated by the consultations with State Treasurers prior to the determination of GMAs for 2004-05 (s.2).
For the financial year 2004-05, the GMA for each State was calculated based on the components outlined in the IGA, with detailed calculations published in the Final Budget Outcome 2004-05. As the entitlement to GST revenue for each State exceeded its respective GMA for 2004-05, no additional funding was required for that year (s.2). The Act thus imposes on the Treasurer the obligation to calculate and consult on these amounts to ensure compliance with the financial guarantees set forth in the IGA.
In terms of consequences, the Act does not specify explicit offences or penalties for non-compliance with the GMA determination process. However, failure to adequately provide for the GMA could potentially undermine the financial assurances given to the States under the IGA, leading to significant political and fiscal repercussions. The Act’s focus is on ensuring fiscal stability and adherence to the intergovernmental agreements, rather than on punitive measures for non-compliance.