EXPLANATORY STATEMENT
STATUTORY RULES 2006 NO.
Issued by authority of the Treasurer
A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999
Determination of the Guaranteed Minimum Amounts for 2005-06
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 2005-06.
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 2005-06 exceeds its Guaranteed Minimum Amount for 2005-06, no State is entitled to additional funding for 2005‑06.
Overview
The Statutory Rules 2006 No. 15, issued under the authority of the Treasurer, pertain to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999. This Act was enacted to address the need for a new framework for financial relations between the Australian Government and the States, as agreed upon in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. The Act was designed to implement the reforms outlined in the IGA, which include the allocation of all GST revenue to the States and the elimination of certain state taxes. The policy objective of the Act is to ensure that each State's budgetary position remains at least as favourable as it would have been without the reforms, during the transitional period following the introduction of the GST.
Under the Act, the Treasurer is required to determine the Guaranteed Minimum Amount (GMA) for each State annually, ensuring that no State is worse off during the transitional years. This determination is based on the revenue each State would have received under the previous system of financial relations, taking into account the forgone grants and abolished state taxes. For the financial year 2005-06, the Guaranteed Minimum Amounts have been calculated and no State is entitled to additional funding, as their GST revenue entitlements exceed their respective GMAs. This outcome reflects the successful implementation of the reforms and the commitment to maintaining equitable financial relations between the Commonwealth and the States.
Scope and Application
The New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the Australian Government and each State and Territory, with a focus on ensuring equitable financial arrangements during the transition to the Goods and Services Tax (GST) system. This legislation mandates the determination of Guaranteed Minimum Amounts (GMA) to guarantee that each State's budgetary position remains no worse off in the transitional years following the introduction of the GST. The Act, through its schedule, provides for the calculation and distribution of GMAs to compensate for lost revenue from abolished state taxes and foregone Financial Assistance Grants. The geographic reach of this Act is national, applying across all states and territories of Australia. The Act extends its application through subordinate instruments such as the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, which sets out the specific measures and calculations for determining GMAs. Notably, no State is entitled to additional funding for the financial year 2005-06 as each State's entitlement to GST revenue exceeds its GMA for that year.
Key Provisions
The main operative sections of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, as applied in the determination of the Guaranteed Minimum Amounts for 2005-06, are particularly focused on ensuring that states receive adequate compensation during the transition period following the introduction of the Goods and Services Tax (GST). Section 2 of Schedule 1 mandates that the Treasurer must make a written determination of the Guaranteed Minimum Amount for each state before 20 June in a transitional GST year. This determination is based on calculations that estimate the revenue each state would have received under the previous financial arrangements, which includes factors such as Australian Government Financial Assistance Grants and abolished state taxes. The IGA, outlined in Schedule 2, guarantees that each state's budgetary position will not deteriorate due to the introduction of GST, by providing additional funding if necessary.
The Act imposes several obligations on the Treasurer and the states. Primarily, the Treasurer is required to undertake a detailed consultation process with each state before determining the Guaranteed Minimum Amounts. This ensures that the calculations are comprehensive and take into account the specific economic circumstances of each state. Once the Guaranteed Minimum Amounts are determined, states are entitled to additional funding if their GST revenue for the transitional year falls short of this amount. Conversely, if a state's GST revenue exceeds its Guaranteed Minimum Amount, no additional funding is provided. This process is designed to maintain the financial stability of the states during the transitional period.
Failure to comply with the requirements set out in the Act may result in significant consequences. Although the Explanatory Statement does not detail specific offences, the provisions of the Act imply that non-compliance could lead to legal actions or penalties. The Act mandates the Treasurer to act within the stipulated timeframe and to make accurate determinations, which are essential for maintaining the integrity of the financial arrangements between the Commonwealth and the states. Breaches of these obligations could potentially result in financial losses for the states or undermine the objectives of the IGA. While the maximum penalties for breaches are not explicitly stated in the text, it is reasonable to infer that any non-compliance could lead to legal or financial repercussions, given the critical nature of the guaranteed financial arrangements.