EXPLANATORY STATEMENT
Federal Financial Relations (General Purpose Financial Assistance) Determination No. 129 (November 2019)
Background
The Intergovernmental Agreement on Federal Financial Relations (the IGA) provides a foundation for collaboration on policy development and service delivery between the Commonwealth and the States and Territories (the States).
Consultation
The IGA was subject to extensive consultation with the States before it was agreed by the Council of Australian Governments on 29 November 2008. The IGA is publicly available on the Council for Federal Financial Relations website.
General purpose financial assistance
All money raised or received by the Commonwealth forms part of the Consolidated Revenue Fund. Legislative authority is required for the Commonwealth to spend money from the Consolidated Revenue Fund. The Public Governance, Performance and Accountability Act 2013 (s 80) provides that, if another Act establishes a special account and identifies the purposes of the account, the Consolidated Revenue Fund is appropriated up to the balance of the account at any point in time for expenditure for the purposes of the account.
In this context, the relevant Act is the COAG Reform Fund Act 2008 which establishes the COAG Reform Fund, a special account which has the purpose of making grants and financial assistance to States and Territories.
The Federal Financial Relations Act 2009 then allows for the Minister (who can be any Treasury portfolio Minister) to credit funds to the COAG Reform Fund for the purpose of providing general purpose financial assistance to the States. Once the funds are credited to the COAG Reform Fund they are debited from the Fund to make the grants to the States.
The Treasurer’s determinations in respect of general purpose financial assistance are legislative instruments and are registered on the Federal Register of Legislation, but are not disallowable. The Commonwealth has an obligation under the IGA to make payments of general purpose financial assistance in a prescribed manner. Exemption from the disallowance provisions of the Legislation Act 2003 allows the Treasurer to ensure that this obligation is met.
Payment conditions
Subsection 7(2) of the COAG Act requires that the terms and conditions on which financial assistance is granted through the COAG Reform Fund are to be set out in a written agreement between the Commonwealth and the States. The terms and conditions for general purpose financial assistance are set out in Schedule D to the IGA.
Debit limits
Under subsection 9(3) of the Federal Financial Relations Act 2009, the total amount credited to the COAG Reform Fund for the purpose of making a grant of general purpose financial assistance in the financial year starting on 1 July 2019 must not exceed $5,000,000,000. This amount is set out in Supply Act (No. 2) 2019-2020 and Appropriation Act (No. 2) 2019-2020.
The total amount determined for general purpose financial assistance payments to date in the 2019-20 financial year does not exceed the debit limit.
Commencement
The determination commenced on the day it was made.
Summary of relevant agreements for general purpose financial assistance
Payment title | Purpose | Relevant agreement |
Compensation for impact on royalties of excise amendment | The Commonwealth provides general purpose financial assistance to compensate Western Australia for the loss of royalty revenue resulting from the removal in the 2008-09 Budget of the exemption of condensate from crude oil excise. | Schedule D – Payment arrangements of the Intergovernmental Agreement |
ACT Municipal Services | The Commonwealth provides general purpose financial assistance to the Australian Capital Territory to: • assist in meeting the additional municipal costs which arise from Canberra's role as the national capital; and • compensate the Australian Capital Territory for additional costs resulting from the national capital planning influences on the provision of water and sewerage services. | Schedule D – Payment arrangements of the Intergovernmental Agreement |
Royalty payment — Offshore Petroleum and Greenhouse Gas Storage Act 2006 | The Commonwealth provides general purpose financial assistance to Western Australia from royalties payable under the Offshore Petroleum (Royalty) Act 2006 in respect of the North West Shelf oil and gas project off the coast of Western Australia. The Commonwealth collects these royalties because it has jurisdiction over off‑shore areas. These royalties will be shared between the Commonwealth (approximately one third) and Western Australia (approximately two thirds). These payment arrangements are in accordance with section 75 of the Offshore Petroleum and Greenhouse Gas Storage Act 2006. | Schedule D – Payment arrangements of the Intergovernmental Agreement |
Transitional GST top-up payments | To assist the states in transitioning to the new horizontal fiscal equalisation system, the Commonwealth is providing short‑term top‑up payments, until 2021‑22, to ensure that no state has an effective GST relativity below 0.7 (or 4.66024 for the Northern Territory). The Commonwealth provided Western Australia with $434 million of its 2019-20 top-up payment in 2018-19. The payment in this determination constitutes the remainder of the top-up payment, in accordance with the bilateral agreement between the Australian Government and Western Australia. | Western Australia Goods and Services Tax Top-up Agreement |
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
It is difficult to assess the human rights compatibility of either the determination or the making of payments of general purpose financial assistance, as the amounts paid to each State can be used for any purpose. Generally, payments will promote multiple human rights by supporting service delivery in a range of policy areas, at the discretion of each State. Consequently, neither this determination nor the making of general purpose financial assistance payments more generally could be said to have a detrimental impact on any human right.
Overview
The Federal Financial Relations (General Purpose Financial Assistance) Determination No. 129 was enacted in 2019 and is a legislative instrument under the Federal Financial Relations Act 2009, established to facilitate the allocation of general purpose financial assistance to the states and territories in accordance with the Intergovernmental Agreement on Federal Financial Relations (IGA). This determination addresses the need for a structured approach to providing financial support to states and territories to aid in meeting their service delivery obligations and to compensate for specific financial impacts, such as those resulting from changes in excise policies or the collection of offshore petroleum royalties. The determination is made by the Treasurer and is not subject to disallowance, ensuring that the Commonwealth can meet its obligations under the IGA without legislative hurdles. The overarching policy objective is to maintain and enhance the collaboration between the Commonwealth and the states and territories in managing fiscal responsibilities and delivering public services.
The determination outlines specific financial assistance provisions, including compensation for the impact on royalties from excise amendments, support for municipal services in the ACT, royalty payments from offshore petroleum projects, and transitional GST top-up payments to states. These provisions are designed to address specific financial impacts and service delivery needs of the states, thereby supporting the broader policy aim of equitable financial relations between the Commonwealth and the states.
Scope and Application
The Federal Financial Relations (General Purpose Financial Assistance) Determination No. 129, made under the Federal Financial Relations Act 2009, pertains to the Commonwealth's provision of general purpose financial assistance to the States and Territories, as mandated by the Intergovernmental Agreement on Federal Financial Relations. This determination applies to all entities that are part of the Commonwealth’s financial apparatus, specifically the Treasury and the COAG Reform Fund, which is a special account established for the purpose of distributing these grants. The determination is effective within the national jurisdiction of Australia and is aimed at facilitating collaboration between the Commonwealth and the States as per the IGA. The determination sets out specific payment conditions and debit limits for the financial assistance, ensuring that the payments are made in accordance with the obligations outlined in the IGA. Notably, the determination exempts itself from the disallowance provisions of the Legislation Act 2003 to ensure compliance with the Commonwealth’s obligations under the IGA.
The determination specifies various payment arrangements for different States, including compensation for the impact on royalties due to excise amendments, support for municipal services in the Australian Capital Territory, royalty payments from offshore petroleum projects, and transitional GST top-up payments to assist states in transitioning to a new horizontal fiscal equalisation system. Each of these payments is detailed in Schedule D of the IGA and is subject to the conditions set out in the relevant written agreements between the Commonwealth and the respective States. The amounts and specific allocations are subject to the debit limits set by the Federal Financial Relations Act 2009, which for the 2019-20 financial year, must not exceed $5,000,000,000. The determination came into effect on the day it was made and is intended to ensure that the Commonwealth’s obligations under the IGA are met in a transparent and structured manner.
Key Provisions
The Federal Financial Relations (General Purpose Financial Assistance) Determination No. 129 (November 2019) primarily concerns the framework through which the Commonwealth provides general purpose financial assistance to the States and Territories. Section 7 of the COAG Reform Fund Act 2008 establishes the COAG Reform Fund, a special account designed to facilitate the disbursement of grants and financial assistance. The determination itself, issued under the Federal Financial Relations Act 2009, empowers the Minister to allocate funds to this account for the purpose of providing general purpose financial assistance to the States. These funds are then debited from the COAG Reform Fund to make the necessary grants.
The obligations under this determination are multifaceted. Firstly, the Commonwealth is required to provide financial assistance in accordance with the terms and conditions outlined in Schedule D of the Intergovernmental Agreement on Federal Financial Relations (IGA). This includes detailed payment conditions, such as the compensation for the impact on royalties due to excise amendments, support for municipal services in the Australian Capital Territory, and the sharing of royalties from offshore petroleum projects with Western Australia. Additionally, the determination imposes a debit limit on the total amount credited to the COAG Reform Fund for general purpose financial assistance, which for the 2019-20 financial year must not exceed $5,000,000,000, as stipulated in the Supply Act (No. 2) 2019-2020 and the Appropriation Act (No. 2) 2019-2020.
The determination also outlines the consequences of non-compliance. While specific offences or penalties are not explicitly detailed in the determination, it is clear that failure to adhere to the prescribed conditions for providing general purpose financial assistance could result in legal ramifications. The determination, being a legislative instrument, is not subject to disallowance, ensuring that the Commonwealth’s obligations under the IGA are met. Additionally, the provision of financial assistance is intended to support various human rights by enhancing service delivery across different policy areas, although the exact impact on human rights is difficult to ascertain due to the broad discretion given to each State on how to use the funds.
In summary, the determination establishes a clear framework for the provision of general purpose financial assistance, imposes specific obligations on the Commonwealth to adhere to the IGA, and ensures that any breaches could lead to legal consequences. The funds are intended to support various human rights by enabling States to address their specific needs, although the exact impact remains somewhat indeterminate.