EXPLANATORY STATEMENT
Select Legislative Instrument 2006 No. 258
Issued by the Authority of the Treasurer
A New Tax System (Commonwealth-State Financial Arrangements) Act 1999
A New Tax System (Commonwealth-State Financial Arrangements) Amendment Regulations 2006 (No. 1)
Section 23 of the A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999 (the Act) provides that the Governor‑General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the Act.
Section 4 of the Act provides that ‘transitional GST year’ means a GST year commencing on or before 1 July 2002 or a later prescribed GST year.
Under clause 10 of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (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 or Territory will be no worse than it would have been had the reforms of the IGA not been implemented. Where required, transitional assistance, also known as Budget Balancing Assistance, is paid to ensure the States and Territories are no worse off due to tax reform.
The transitional years were originally defined under the Act to cover the period from 1 July 2000 to 30 June 2003. A regulation was made at the end of this period to extend the transitional arrangements to 30 June 2006.
The amending Regulations extend the transitional period under the Act to include the years 2006‑07, 2007‑08 and 2008‑09. This extension gives effect to the Australian Government’s commitment to the States and Territories to extend the transitional period as part of the agreement to abolish the next tranche of IGA‑listed taxes. Given current estimates, it is not anticipated that Budget Balancing Assistance will be required.
The Regulations commenced on the day after they were registered.
Overview
The A New Tax System (Commonwealth-State Financial Arrangements) Amendment Regulations 2006 (No. 1) were enacted to address the need for extending the transitional arrangements under the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999. This amendment was introduced to ensure that the budgetary positions of the individual States and Territories would not be adversely affected by the reforms resulting from the introduction of the Goods and Services Tax (GST). The extension of the transitional period was made in line with the Australian Government’s commitment to the states and territories to prolong the transitional period as part of the agreement to abolish the next tranche of Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA)-listed taxes. The Regulations were issued under the authority of the Treasurer and commenced on the day after they were registered. The policy objective of these Regulations is to provide continued financial stability to the states and territories during the transition period.
Scope and Application
The A New Tax System (Commonwealth-State Financial Arrangements) Amendment Regulations 2006 (No. 1) amend the transitional arrangements for Budget Balancing Assistance under the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999. This Act applies to the financial relations between the Commonwealth and the states and territories in Australia. The amending regulations extend the transitional period to include the financial years 2006-07, 2007-08, and 2008-09, thereby ensuring that the budgetary positions of the states and territories are not negatively impacted by the introduction of the Goods and Services Tax (GST) and the associated reforms under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. These regulations are necessary to implement the Australian Government's commitment to the states and territories to extend the transitional period as part of the agreement to abolish the next tranche of IGA-listed taxes. Although the regulations are designed to provide financial assurances to the states and territories, current estimates suggest that Budget Balancing Assistance may not be required.
Key Provisions
The key provisions of the A New Tax System (Commonwealth-State Financial Arrangements) Amendment Regulations 2006 (No. 1) (F2006L03223) revolve around the extension of the transitional period for budget balancing assistance under the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act). Section 23 of the Act allows the Governor-General to make regulations necessary for implementing the Act, and clause 10 of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the IGA) mandates that the Australian Government guarantee the budgetary positions of states and territories will not be worse off due to tax reforms. The Regulations extend the transitional period, originally set to end on 30 June 2003, to include the years 2006-07, 2007-08, and 2008-09. This extension is in line with the agreement to abolish the next tranche of IGA-listed taxes and ensures that states and territories are not adversely affected by these reforms.
The obligations imposed by the Regulations on the Australian Government include ensuring that the budgetary positions of each state and territory do not deteriorate as a result of the tax reforms associated with the GST. This is achieved by providing transitional assistance, also known as Budget Balancing Assistance, where necessary. This assistance aims to maintain the financial stability of states and territories during the transitional period. The Regulations mandate that the Australian Government must continuously monitor and adjust the fiscal arrangements to uphold the guarantee stipulated in the IGA.
Breaches of the obligations outlined in the Regulations could have significant consequences. Although the Regulations do not explicitly state penalties for non-compliance, any failure by the Australian Government to provide the required budget balancing assistance could lead to legal challenges from states and territories. Such challenges could be based on the breach of the guarantee provided under the IGA. Additionally, non-compliance might also result in political and financial instability, affecting the overall fiscal health of the nation. While specific penalties are not outlined in the text, the repercussions of failing to meet these obligations could be severe, impacting both the Commonwealth and the states and territories.