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 2007‑08
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 2007‑08.
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 2007‑08 exceeds its guaranteed minimum amount for 2007‑08, no State is entitled to additional funding for 2007‑08.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 was enacted by the Australian Parliament to implement the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. This Act aimed to address the gap created by the introduction of the Goods and Services Tax (GST) by ensuring that the budgetary position of each State would not be worse off than it would have been under the previous system. The policy objective of the Act is to guarantee that States receive sufficient funding during the transitional period following the implementation of tax reforms, ensuring they are not financially disadvantaged by the shift from state taxes to GST revenue.
The Act requires the Treasurer to determine the Guaranteed Minimum Amount (GMA) for each State before 20 June in each transitional year. The GMA calculation involves estimating the revenue each State would have received under the previous financial relations system, including estimates of forgone Australian Government Financial Assistance Grants and abolished state taxes. For the financial year 2007-08, the Act's provisions ensured that all States received adequate GST revenue, thereby negating the need for additional funding as none of the States' entitlements to GST revenue fell below their respective GMA.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 applies to the Commonwealth, State, and Territory governments of Australia. Its primary focus is on the financial arrangements and revenue distribution between these levels of government, particularly concerning the introduction of the Goods and Services Tax (GST) and the subsequent reforms outlined in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. This legislation ensures that no State is worse off in the transitional years following the introduction of GST by guaranteeing minimum funding to each State through the calculation of Guaranteed Minimum Amounts (GMA). The Act mandates that the Treasurer determines these amounts annually, consulting with the relevant State treasurers, and provides additional funding to States where their GST revenue falls below their calculated GMA. The Act's jurisdictional reach is national, affecting all States and Territories within Australia, and it operates within the transitional period originally defined as 1 July 2000 to 30 June 2003, later extended to 30 June 2009.
Key Provisions
The main operative sections of the Determination of the Guaranteed Minimum Amounts for 2007-08 (sections referenced in parentheses) require the Treasurer to make a written determination of the Guaranteed Minimum Amount (GMA) for each State and Territory before 20 June in a transitional year (Clause 2 of Schedule 1 to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999). This determination is based on the calculation of the amount of revenue each State would have had under the previous system of financial relations, which includes estimates of Australian Government Financial Assistance Grants forgone, state taxes abolished by tax reform, and other items (Clause 2 of Schedule 2 to the Act). The calculation must be completed in consultation with each of the States, as stipulated by the Act.
The obligations imposed by the Act include the requirement for the Treasurer to ensure that each State is no worse off in the transitional years due to the reforms set out in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA) (Clause 2 of Schedule 2 to the Act). The Treasurer must determine the GMA for each State and Territory and consult with the respective State treasurers before making the determination (Clause 2 of Schedule 1 to the Act). Additionally, the Act requires that the Australian Government provide additional funding to the States if their entitlement to GST revenue for a transitional year is less than their GMA, ensuring that no State is worse off due to the reforms (Clause 2 of Schedule 1 to the Act).
For breach of the obligations outlined in the Act, there are no specific offences, penalties, or civil/criminal consequences stated within the explanatory statement. However, the failure to comply with the requirements to consult with the States and to make a timely determination of the GMA could potentially lead to legal challenges by the affected States. Such challenges could arise under the IGA, which guarantees that no State will be worse off due to the reforms, and the Act, which mandates the Treasurer to provide additional funding if necessary to meet this guarantee. The consequences of such challenges could include court-ordered remedies or additional funding to ensure compliance with the GMA guarantee.