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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
States Grants (General Purposes) Amendment Bill
1997
Date Introduced: 26 June 1997
House: House of Representatives
Portfolio: Treasury
Commencement: On Royal Assent
To provide 'general purpose' financial assistance to the States
and Territories for 1997-98; (this method of financing covers the
majority of money provided by the Federal Government to the State
and Territory Governments);
To enable the Treasurer to deduct a State or Territory's agreed
fiscal contribution either from this year's or next year's
financial assistance grant;
To allow for this year's payments to the States and Territories
under the Agreement to Implement the National Competition Policy
and Related Reforms.
Commonwealth funding
Since the State Governments lost the capacity to levy income tax
in 1942, they have become increasingly financially dependent on the
Federal Government. Now, the bulk of their funds come from
Commonwealth sources - and almost half of that comes from
generalpurpose grants.
This Bill covers general purpose grants. These grants, as
opposed to other types of Commonwealth funding, like specific
purpose grants, are 'untied' in that the Commonwealth does not
specify how the money should be spent.There are three categories of
general purpose grants: financial assistance grants, special
revenue assistance, and national competition payments. They total
about $16 830 million for this financial year.
The financial assistance grants (FAGS) are the largest category
of general purpose grants. The overall pool of money from which
FAGS are allocated is determined according to a formula which
maintains the grants in real per capita terms, making adjustments
for inflation and national population growth.
FAGS are distributed among the States essentially upon
recommendations by the Commonwealth Grants Commission.
This funding is guaranteed on a rolling three-year basis.This
year for the first time, FAGS will absorb 'identified road funding'
- Commonwealth funding for arterial roads, previously allocated
separately.(Until 1 January 1994, this type of road funding was
given as a 'tied grant').Total FAG payments for this year are
expected to be about $16 144 million.
In 1997-98, special revenue assistance (SRA) has been set aside
for: payments to help the Australian Capital Territory with its
transition to self-government and other special fiscal needs; and
medicare guarantee payments to Victoria and New South Wales.SRA may
either come out of the funds set aside for financial assistance
grants, or be direct payments from the Commonwealth.Total payments
for this year are expected to be about $470.8 million, of which
about $62.3 million will be in direct funding.
National competition payments (NCP) are made under the Agreement
to Implement the National Competition Policy and Related
Reforms.This is a Commonwealth-State/Territory agreement finalised
at the April 1995 Council of Australian Governments. These payments
come in three tranches and commence this year.They are contingent
on the States and Territories meeting micro-economic reform
benchmarks.Total payments for this year are expected to be about
$214.7 million.
States contribution to the Commonwealth
The States and Territories have agreed to pay back to the
Commonwealth this year about $626.5 million.This payment is one of
three 'fiscal contributions' from the States and Territories to
help the Commonwealth cover the $10 billion 'black hole' Treasurer
Peter Costello announced on coming into government.The payment is
the second of three, and was agreed to at the 1996-97 Premiers'
Conference.
The States/Territories may pay their share either:
- from general revenue;
- by direct payment to the Commonwealth; or
- by reduced funding under specific purpose grants.
This year, the Commonwealth has agreed to allow the ACT and
Tasmania to delay paying half of their annual contribution because
of their financial difficulties.
Item 1 inserts in subsection
4(1) a definition of competition agreement - that is 'the
Agreement to Implement the National Competition Policy and Related
Reforms at the Council of Australian Governments on 11 April
1995'.
Item 3 repeals the sections dealing with road
funding (no longer necessary now that funding is subsumed into
FAGS) and substitutes new sections 10 and
11.New section 10 allows the Treasurer to keep funds
allocated under the national competition agreement if the
States/Territories do not meet conditions set out in the
agreement.New section 11 allows
the Treasurer to refund any excess money paid by a State or
Territory as part of its 'fiscal contribution'.
Item 5 inserts a new
section 15B.This makes it clear that financial
assistance from the Commonwealth to a State is conditional on the
State making a 'fiscal contribution' to the Commonwealth.The new
section also allows the Treasurer to deduct a State's fiscal
contribution for the 1997-98 financial year from that year's
FAGS.And if any amount is still outstanding at the end of the year,
the Treasurer may deduct that from next financial year's FAGS.
Items 6 and 7 allows the Treasurer to delegate
powers given under new sections 10,
11 and 15B.
Item 8 amends Schedule 4 of
the Act dealing with State financial entitlements.It implements
agreements made at the 1997 Council of Australian Governments and
includes formulas for calculating national competition payments,
and fiscal contributions.For a more detailed discussion, see the
Bill's Explanatory Memorandum.
Bronwyn Young
18 July 1997
Bills Digest Service
Information and Research Services
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.
IRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
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ISSN 1328-8091
© Commonwealth of Australia 1997
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Published by the Department of the Parliamentary Library,
1997.
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Commonwealth of Australia
Last updated: 23 July 1997
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