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This Digest is prepared for debate. It reflects the legislation as
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This Digest was available from 19 September 1996.
CONTENTS
States Grants (General Purposes) Amendment Bill
1996
Date Introduced: 11 September 1996
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent
To provide for general revenue assistance to the States and
Territories for 1996-97. The Bill also makes financial assistance
grants conditional on payments towards the Commonwealth's deficit
reduction programme and provides the formula for Commonwealth
payments to the States and Territories in 1997-98 for
implementation of the National Competition Policy.
As a result of the Commonwealth's dominant position in raising
revenue through income tax, the provision of financial assistance
to the States and the Territories through grants is an important
element in the financial relationship between governments.
1996 Premiers Conference
This Bill gives effect to certain of the arrangements agreed to
at the 1996 Premiers' Conference. Decisions taken by the 1996
Premier's Conference included:
- financial assistance grants (FAGs) will be increased in real
per capita terms in 1996-97;
- real per capita guarantee for FAGs will be extended to 1998-99
and continue to be conditional on the States and Territories
complying with their obligations under the Agreement to Implement
the National Competition Policy;
- States and Territories will contribute to the Commonwealth's
deficit reduction programme (ie. States and Territories will make
payments the Commonwealth of $619 million in 1967-97, $640 million
in 19997-98 and $300 million in 1998-99 with contributions to be on
a per capita basis);
- wholesale sales tax will apply to general purpose road vehicles
provided wholly or partly for private use as part of salary by
Commonwealth, State, Territory and local governments;
- a reduction in the aggregate level of specific purpose payments
to the States and Territories of approximately 3% in 1996-97;
- special revenue assistance will not be provided in the future
in respect to year to year adjustments to new per capita
relativities recommended by the Commonwealth Grants Commission;
and
- two-thirds of identified road grants will be distributed in
1996-97 on the same basis as FAGs, one-third on the basis of
historical shares as agreed at the 1995 Premiers' Conference, and
in 1997-98 the total amount of identified road grants will be
absorbed into the FAGs pool.(1)
General Revenue Assistance
This Bill deals with general revenue assistance to the States
and Territories for 1996-97. This assistance is the principal
source of funds for States and Territories. Other types of
assistance, such as specific purpose grants, are directed toward
particular areas of service delivery or capital spending and are
provided for in separate Bills.
General revenue assistance is broken down into three
categories:
- FAGs;
- special revenue assistance grants; and
- identified road grants.
General revenue assistance to the States and Territories is
estimated to total $16 324.3 million in 1996-97. This compares with
a total of $15 777.3 million in 1995-96.(2)
FAGs account for the bulk of general revenue assistance and are
estimated to total $15 459.7 million in 1996-97. This compares with
a total of $14921.3 million in 1995-96.(3)
Special revenue assistance grants include Medicare guarantee
payments and special and transitional allowances for the Australian
Capital Territory and Northern Territory. Medicare guarantee
payments are estimated to total $428 million in 1996-97 ($188.4
million for Victoria and $240.0 million for New South Wales). This
compares with a total of $413.9 million in 1995-96 ($182.0 million
for Victoria and $231.9 million for New South Wales).(4)
In June 1992, the then Prime Minister indicated that the
Commonwealth would untie $350 million of arterial roads funding
from 1 January 1994. The central features of the arrangements
were:
- in 1993-94 and 1994-95, payments would be $175 million and $350
million distributed on the average arterial roads allocation to
each State for the three years to 1992;
- for 1995-96 and 1996-97, the aggregate level of funds would be
indexed to the movements in financial assistance grants; and
- in 1997-98 the funds would be absorbed into financial
assistance grants.
Identified road grants are estimated to total $384.0 million in
1996-97. This compares with a total of $371.0 million in
1995-96.(5) The bulk of identified road grants in 1996-97 are to go
to New South Wales, an estimated total of $113.6 million.(6)
Contributions of States and Territories to Reduction of
Commonwealth Deficit
It was agreed at the 1996 Premiers' Conference that the States
and Territories would make payments to the Commonwealth for the
period 1996-99 as a contribution to the Commonwealth's deficit
reduction programme. The Government states in Budget Paper No.
3 that:
The method of payment is expected to vary among the States and
to be by direct weekly payments to the Commonwealth, weekly
deductions from general revenue assistance or reductions in the
Commonwealth's contribution to a specific purpose payment (SPP).
Where the last approach is taken, any conditions attaching to the
SPP, including the level of the States matching commitments prior
to the reduction, will continue unchanged.(7)
Figure 1 below shows the estimated contribution of each State
and Territory for the period 1996-99.
1996-97 1997-98 1998-99
NSW $209.5m $216.3m $101.3m
VIC $153.4m $158.1m $73.8m
QLD $114.0m $118.9m $56.1m
WA $59.8m $62.2m $29.3m
SA $49.9m $51.2m $23.8m
TAS $15.9m $16.3m $7.6m
ACT $10.4m $10.8m $5.1m
NT $6.0m $6.3m $3.0m
TOTAL $619.0m $640.0m $300m (8)
The contributions were agreed to as part of a compromise where
the Commonwealth dropped plans to remove the sales tax exemption
for States and Territories.
National Competition Policy Payments
The Commonwealth, States and Territories agreed at the Council
of Australian Government (COAG) meeting of 11 April 1995 to a
program for the implementation of the National Competition Policy
and related financial arrangements.
The Commonwealth agreed to make additional general purpose
payments to the States and Territories in the form of a series of
Competition Payments. It was agreed that:
- Competition Payments would commence in July 1997 at a level of
$200 million in 1994-95 prices and increase to $400 million in July
1999 and $600 million in July 2001, in 1994-95 prices; and
- the payments would be paid on a quarterly basis and be indexed
annually.(9)
1997-98 Commonwealth payments are conditional on each State and
Territory:
- giving effect to the Competition Policy Intergovernmental
Agreement;
- effective implementation of all COAG agreements on electricity
arrangements through the National Grid Management Council and the
national framework for free and fair trade in gas;
- observance of road transport reforms.(10)
1999-2000 Commonwealth payments are conditional on each State
and Territory:
- continuing to give effect to the Competition Policy
Intergovernmental Agreements;
- implementation of COAG agreements on the establishment of a
competitive national electricity market, the national framework for
free and fair trade in gas and the strategic framework for the
efficient and sustainable reform of the Australian water industry;
and
- observance of road transport reforms.(11)
2001-02 Commonwealth payments are conditional on each State and
Territory:
- having given full effect to and fully observing the Competition
Policy Intergovernmental Agreements; and
- having fully implemented, and continuing to fully observe, all
COAG agreements with regard to electricity, gas, water and road
transport.(12)
Item 1 of Schedule 1 of the Bill inserts a
new section 12A in the States Grants (General
Purposes) Act 1994 (the Principal Act) which gives the
Treasurer a discretionary power to make Competition Policy payments
to the States and Territories for 1997-98.
Item 2 of Schedule 1 of the Bill inserts a
new section 15A in the Principal Act which makes
financial assistance grants to the States and Territories for
1996-97 conditional on payment of an amount of fiscal contribution
(ie. towards the Commonwealth's deficit reduction programme).
Item 3 of Schedule 1 of the Bill inserts
new Schedules 3 and 4 in the Principal Act.
Proposed Schedule 3 sets out:
- relativity factors for the States and Territories for 1996-97
(these are used in determining per capita grants);
- the formula for determining the amounts of arterial road grants
payable to the States and Territories for 1996-97; and
- base assistance amounts for each State and Territory for
1996-97 with respect to special revenue assistance grants.
Proposed Schedule 4 contains the formula for Commonwealth
payments to the States and Territories in 1997-98 for
implementation of the National Competition Policy. The formula is
based on an indexed amount divided by the States and Territories
population.
- Commonwealth Financial Relations With Other Levels Of
Government 1996-97, Budget Paper No. 3, pp 3 and 4.
- ibid., at p. 5
- ibid.
- ibid.
- ibid.
- ibid.
- ibid., at p. 25.
- ibid.
- Commonwealth Financial Relations With Other Levels Of
Government 1995-96, Budget Paper No. 3, p 10.
- ibid., at p. 11.
- ibid
- ibid., at p. 12.
Ian Ireland Ph. 06 277 2438
18 September 1996
Bills Digest Service
Parliamentary Research Service
This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
amendments.
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the public.
ISSN 1323-9032
© Commonwealth of Australia 1996
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Published by the Department of the Parliamentary Library,
1996.
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Last updated: 19 September 1996
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