EXPLANATORY STATEMENT
STATUTORY RULES 2007 NO.
Issued by authority of the Treasurer
A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999
Determination of the Guaranteed Minimum Amounts for 2006‑07
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, 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 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 2006‑07.
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 2006‑07 exceeds its Guaranteed Minimum Amount for 2006‑07, no State is entitled to additional funding for 2006‑07.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, enacted by the Australian Parliament, was introduced to reform and streamline the financial arrangements between the Commonwealth and the states. It was established in response to the need to realign and modernise the financial relations that had evolved since Federation. The Act was designed to implement the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, ensuring that the states' budgetary positions would not deteriorate as a result of the new tax arrangements, specifically the introduction of the Goods and Services Tax (GST). The policy objective was to guarantee that each state would be no worse off financially in the transitional period following the implementation of these reforms. The Act mandates that the Treasurer, in consultation with the states, determines the Guaranteed Minimum Amount for each state each year, which represents the amount of revenue a state would have received under the previous financial arrangements. This statutory rule, issued by the Treasurer in 2007, concerns the determination of these Guaranteed Minimum Amounts for the financial year 2006-07.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the financial relations between the Australian Government and the states and territories, ensuring that no state is worse off following the implementation of the Goods and Services Tax (GST) as part of the broader reforms set out in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. This Act is primarily concerned with the calculation and provision of Guaranteed Minimum Amounts (GMA) to states for the specified transitional years to uphold the budgetary positions they would have had under the previous financial arrangement. The Act applies to all states and territories of Australia, with the Treasurer required to determine the GMA for each state before 20 June in each transitional GST year, based on consultations with state treasurers. The scope of the Act extends to ensuring that the additional funding provided to states aligns with the GMA to compensate for any shortfall in GST revenue, ensuring no state is financially disadvantaged by the transition to the new tax system. The Act's jurisdiction is national, impacting all states and territories collectively through the provision of additional funding to maintain their financial stability during the transitional years.
Key Provisions
The operative sections of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, particularly Clause 2 of Schedule 1, require the Treasurer to determine the Guaranteed Minimum Amounts (GMA) for each state and territory before 20 June in a transitional GST year. This determination ensures that the budgetary position of each state will not be worse off than it would have been without the reforms set out in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA). This IGA, which is Schedule 2 to the Act, outlines the measures for the reform of financial relations, including the provision of all GST revenue to the states and the abolition of certain state taxes. For the 2006-07 financial year, the Treasurer has calculated these Guaranteed Minimum Amounts, taking into account components such as estimates of Australian Government Financial Assistance Grants forgone and state taxes abolished by tax reform.
The Act imposes several obligations on the parties involved. Firstly, it mandates that the Treasurer consult with each state before determining the GMAs. This consultation ensures that each state's unique financial circumstances and needs are considered. Secondly, the Act requires the Treasurer to ensure that each state's entitlement to GST revenue for a transitional GST year does not fall below its GMA, providing additional funding if necessary. This obligation ensures that states are not disadvantaged by the transition to the new tax system. Furthermore, the Act requires that the components used to construct the GMA for each state be outlined in the IGA, which forms the basis of the GMA for each state for the specified financial year.
Breaches of the obligations imposed by the Act can lead to various civil and criminal consequences. For instance, failure to consult with the states before determining the GMAs could result in legal challenges from the states, arguing that their financial interests were not adequately considered. If the Treasurer fails to provide additional funding to offset any shortfall between a state's entitlement to GST revenue and its GMA, it could result in financial hardship for that state. While the Act does not specify maximum penalties for breaches, such failures could lead to litigation, with potential financial implications for the Commonwealth government. Additionally, if the calculations of the GMAs are found to be inaccurate or unfair, this could lead to legal disputes and potential financial liabilities for the Commonwealth.