Commonwealth Borrowing Levy Regulations (Amendment) 1997 No. 337
EXPLANATORY STATEMENT
Statutory Rules 1997 No. 337
Issued by the authority of the Treasurer
Commonwealth Borrowing Levy Act 1987
Commonwealth Borrowing Levy Regulations (Amendment)
Section 8 of the Commonwealth Borrowing Levy Act 1987 (the Act) provides that the Governor-General may make regulations for the purposes of the Act.
Commonwealth authorities and companies listed in the Schedule to the Act are subject to the Commonwealth borrowing levy on their outstanding borrowings from financial markets.
Section 6 of the Act provides that the rate of the levy is such annual rate as is prescribed by regulation, being an annual rate not exceeding 0.5 per cent. Since the Act took effect, the rate has been set at 0.125 per cent per annum (Statutory Rules 1987 No. 280).
The purpose of the proposed regulation is to reduce the annual rate of the levy to zero, from the current 0.125 per cent, with effect from 16 December 1997 - the day following the balance date for the next six monthly levy instalment.
The levy was introduced to promote the Commonwealth's competitive neutrality objectives. Its purpose was to offset the borrowing cost advantages conferred by financial markets on government owned entities as a result of explicit government guarantees and perceptions of implicit government support. The levy currently applies to the outstanding borrowings of six authorities: Australian National Line, Australian National Railways Commission, Australia Post, Airservices Australia, Snowy Mountains Hydro-electric Authority and Telstra. Six other authorities are listed in the Schedule to the Act but do not pay the levy as they do not have outstanding financial market borrowings.
As part of the Commonwealth's implementation of competitive neutrality under the Competition Principles Agreement, the Commonwealth borrowing levy will be replaced by debt neutrality charges set and administered by portfolio Ministers for corporatised businesses within their portfolios. The new arrangements for debt neutrality will cover a larger group of businesses than currently listed in the Schedule to the Act and would be implemented under policy relating to the corporate governance of Commonwealth authorities rather than by legislation. It is intended that debt neutrality charges be put in place over the period to July 1998.
This will first require on-going obligations of authorities and companies under the Act to be terminated, the effect of the proposed regulation.
The Act would be repealed, together with the related Commonwealth Borrowing Levy Collection Act 1987, after all levy obligations due in December 1997 have been received.
The regulation commences on 16 December 1997.
Overview
The Commonwealth Borrowing Levy Regulations (Amendment) 1997, issued under the authority of the Treasurer, amends the existing regulations pertaining to the Commonwealth Borrowing Levy Act 1987. This Act, enacted to address the competitive neutrality issues faced by the Commonwealth due to financial market borrowings of certain government-owned entities, imposed a levy on the outstanding borrowings of specified authorities and companies. The policy objective behind the Act was to counteract the borrowing cost advantages conferred by financial markets on these entities due to explicit government guarantees and implicit government support. As part of the Commonwealth's efforts to implement competitive neutrality through the Competition Principles Agreement, the borrowing levy will be replaced by debt neutrality charges set by portfolio Ministers for corporatised businesses within their portfolios. This regulatory amendment reduces the annual rate of the levy to zero from 16 December 1997, terminating ongoing obligations under the Act and paving the way for the new debt neutrality arrangements to be fully implemented by July 1998.
Scope and Application
The Commonwealth Borrowing Levy Regulations (Amendment) 1997 (No. 337) pertains to the Commonwealth Borrowing Levy Act 1987, which imposes a borrowing levy on specific Commonwealth authorities and companies listed in the Schedule to the Act, targeting their outstanding borrowings from financial markets. The levy was established to neutralise the borrowing cost advantages conferred by financial markets on government-owned entities due to explicit government guarantees and perceived implicit government support. The current authorities subject to the levy include Australian National Line, Australian National Railways Commission, Australia Post, Airservices Australia, Snowy Mountains Hydro-electric Authority, and Telstra, among others listed in the Schedule, although the latter six do not pay the levy as they lack outstanding financial market borrowings. The regulations seek to amend the Act by reducing the annual rate of the levy from 0.125 per cent to zero, effective from 16 December 1997. This change aligns with the Commonwealth's transition to debt neutrality charges, which will be set and administered by portfolio Ministers for corporatised businesses within their portfolios, as part of the implementation of competitive neutrality under the Competition Principles Agreement. The new debt neutrality charges will cover a broader group of businesses and will be implemented under policy rather than legislation, with the Commonwealth Borrowing Levy Act 1987 and the related Commonwealth Borrowing Levy Collection Act 1987 set to be repealed once all levy obligations due in December 1997 have been settled.
Key Provisions
The Commonwealth Borrowing Levy Regulations (Amendment) 1997 (No. 337) amends the existing regulations under the Commonwealth Borrowing Levy Act 1987 (the Act) to reduce the annual rate of the levy from 0.125 per cent to zero. This amendment is effective from 16 December 1997, the day after the balance date for the next six-monthly levy instalment. The Act initially imposed a levy on the outstanding borrowings of specified Commonwealth authorities and companies to promote competitive neutrality, offsetting the advantages conferred by government guarantees and perceived government support. The six authorities currently subject to the levy are Australian National Line, Australian National Railways Commission, Australia Post, Airservices Australia, Snowy Mountains Hydro-electric Authority, and Telstra. The levy's primary purpose was to ensure that government-owned entities did not benefit from borrowing costs that private entities would face, thereby maintaining a level playing field in financial markets.
The amendment to the regulations, under section 8 of the Act, mandates the cessation of levy payments, aligning with the Commonwealth's broader strategy to implement debt neutrality charges. These charges will replace the borrowing levy and will be set and administered by portfolio Ministers for corporatised businesses within their respective portfolios. The new debt neutrality arrangements will encompass a broader group of businesses than those currently listed in the Schedule to the Act and will be implemented under policy frameworks related to the corporate governance of Commonwealth authorities rather than through legislation. The transition to debt neutrality charges is expected to be completed by July 1998.
Entities governed by the Act will have their ongoing obligations terminated by the proposed regulation. This includes the cessation of levy payments by the specified authorities and companies. Additionally, the Act, along with the Commonwealth Borrowing Levy Collection Act 1987, will be repealed after all levy obligations due in December 1997 have been received. The regulation commences on 16 December 1997, ensuring that any outstanding obligations are settled before the Act is repealed.
For breach of the provisions of the Act, penalties and consequences are stipulated to enforce compliance. Failure to adhere to the levy requirements or any other mandated obligations could result in civil or criminal consequences, depending on the severity of the breach. However, specific penalties are not detailed in the explanatory statement. The Act's provisions, therefore, necessitate strict adherence to the outlined requirements to avoid potential legal ramifications.