Bills Digest 32 1996-97 States Grants (General Purposes) Amendment Bill 1996


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WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 19 September 1996.

CONTENTS

Passage History

States Grants (General Purposes) Amendment Bill 1996

Date Introduced: 11 September 1996
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent

Purpose

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.

Background

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)

Main Provisions

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.

Endnotes

  1. Commonwealth Financial Relations With Other Levels Of Government 1996-97, Budget Paper No. 3, pp 3 and 4.
  2. ibid., at p. 5
  3. ibid.
  4. ibid.
  5. ibid.
  6. ibid.
  7. ibid., at p. 25.
  8. ibid.
  9. Commonwealth Financial Relations With Other Levels Of Government 1995-96, Budget Paper No. 3, p 10.
  10. ibid., at p. 11.
  11. ibid
  12. ibid., at p. 12.

Contact Officer and Copyright Details

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.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9032
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 19 September 1996

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