Bills Digest No 72 2003-04
A New Tax
System (Commonwealth State Financial Arrangements) Amendment Bill
2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
A New Tax System
(Commonwealth State Financial Arrangements) Amendment Bill
2003
Date Introduced:
4 December 2003
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal
Assent
The purpose of the Bill is to authorise the
Commissioner of Taxation to make necessary accounting adjustments
to the amount of goods and services tax (GST) revenue collected by
the Commonwealth and provided to the States and Territories. The
proposed method for revenue adjustments has been agreed to by the
States and Territories.(1)
Background
Arrangements for Commonwealth general purpose
payments to the States (including the Territories) entered a new
phase with the introduction of the goods and services tax (GST) on
1 July 2000.
The A New Tax System (Commonwealth-State
Financial Arrangements) Act 1999 (the Act) is the legislative
authority for general purpose payments. The Act builds on and
incorporates, as a Schedule, the Intergovernmental Agreement on the
Reform of Commonwealth-State Financial Relations (IGA). The IGA
sets out the terms under which GST revenue is paid to the States.
It was endorsed by the Commonwealth, State and Territory heads of
government in June 1999.
The main features of the IGA are:
-
the Commonwealth must pass all GST revenue (net of
administrative costs) to the States
-
the States may spend the GST as they wish
-
the Commonwealth has guaranteed that in each of the transitional
years following the introduction of tax reform, no State will be
worse off than had the reform not been implemented. To fulfil this
commitment, each State is entitled to receive a Guaranteed Minimum
Amount (GMA)
-
the Commonwealth meets the difference between each State's GMA
and GST entitlement in the form of budget balancing assistance
(BBA)
-
the inter-State allocation of the GST revenue is based on the
relativities calculated by the Commonwealth Grants Commission based
on the fiscal equalisation principle(2)
-
the States undertook to abolish a number of taxes, reduce
gambling taxes and administer a new uniform First Home Owners
Scheme, and
-
the establishment of the Ministerial Council to oversee the
implementation and operation of the IGA.(3)
One technical and practical problem with the
current Act is that it operates in a way that excludes GST refunds
made by the Commonwealth under the Tourist Refund Scheme (TRS).
This means that marginally more GST revenue is provided to the
States than is actually collected. TRS allows travellers going
overseas to recover GST (or Wine Equalisation Tax) paid on eligible
goods purchased in Australia and then taken overseas in their hand
luggage. The Bill rectifies this matter (and some other technical
anomalies) by allowing the Commissioner of Taxation to account for
all GST refunds when making a determination of GST revenue.
The basis for the legislative policy that
underpins this Bill is to ensure that the GST arrangements with the
States operate in the way originally intended. As noted above, the
States and the Territories have agreed with the measures proposed
by the Bill.(4)
The current subsection 5(4) of the Act allows
adjustments to the amount of GST to be provided to the States and
Territories to take into account certain refunds. The current
subsection 5(6) of the Act provides an interpretive definition
applicable under section 5. Items 1 and
2 in Schedule 1 of this Bill broaden the category
of refunds that may be taken into account by the Commissioner of
Taxation e.g. TRS.
It is also noted that the proposed new
definition in Item 2 of a GST refund
provision contains a reminder of the effect of the
current section 11 in the Act (i.e. section 11 requires the
agreement of the States to any changes to the GST base). These new
provisions do not affect the existing limitation on the creation of
new GST refund provisions found in section 11 of the Act, in
particular, the requirement for agreement of the States. Section 11
includes the following restrictions:
11 (1) The rate of the GST, and the GST base,
are not to be changed unless each State agrees to the change. Such
changes to the GST base should be consistent with:
(a) maintaining the integrity of the GST base;
and
(b) administrative simplicity; and
(c) minimising compliance costs for
taxpayers.
(2) In particular, but without limiting
subsection (1), a Minister may only make a determination under the
GST Act, or the A New Tax System (Goods and Services Tax
Transition) Act 1999, that affects the GST base if the
determination is made in accordance with a procedure to which all
of the States have agreed.
Item 3 is necessary since the
amount of GST revenue is determined in June each year, based on an
estimate of revenue for that particular month. The determination
for the subsequent year makes an adjustment to take into account
the amount actually received at the end of the previous June.
Paragraph 1 ensures that the proposed
amendment is not taken into account when adjusting for the estimate
made in June the previous year, when the Bill had not
commenced.
Paragraph 2 recognises that processing the
effects of the increase in GST refunds on GST revenue will take
time. If the Bill commences in June, the month in which the GS
revenue is determined, it may delay the Commissioner's
determination beyond the mandatory deadline. Hence, Item
3 ensures that, if the Bill commences on or after 1 June,
the new refunds will only be taken into account in the following
and later years.
Items 4 to 9
adjust timelines for the dates that apply to the filing of relevant
determinations that calculate such matters as hospital grants and
each State's population. In turn, the data is then used for the
preparation of the determination of GST revenue. Unfortunately,
some of the current statutory deadlines in the scheme technically
coincide. This problem has been overcome by informal agreement for
the 'input' data determinations, used to prepare the determination
of GST revenue, to be brought forward. The Bill amends the
statutory deadlines to ensure that the existing working
arrangements are formalised.
Item 10 has the same effect
as Item 3 above.
Schedule 1 to the current Act contains
transitional arrangements for the first 3 GST years and other GST
years that are prescribed. Under the current Act, the Treasurer
makes a determination each year of the Guaranteed Minimum Amount
(GMA) for a State. The Commissioner of Taxation makes a
determination of GST revenue. As noted above, these determinations
are made in June and then adjusted the following June for under or
overestimate once the actual outcomes for a particular year are
known.
The difference between GMA and GST is referred
to as Budget Balancing Assistance (BBA). A State's BBA may need to
be adjusted in some cases.
Item 12 inserts a new
Clause 7 in Schedule 1 to the current Act. The new
Clause 7 will allow 'residual adjustments' to be made to
amount paid to a State or Territory for a GST year, as a technical
refinement to the existing arrangements. These amounts will be
known as Residual Adjustment Amounts (RAAs).
The proposed amendments made by
this Bill are technical refinements to
the existing GST scheme.
-
Explanatory Memorandum, A New Tax System (Commonwealth
State Financial Arrangements) Amendment Bill 2003, p. 1.
-
This principle is that all State governments should be able to
provide services at the same standard if they make the same effort
to raise revenue from their own sources and operate at the same
level of efficiency.
-
The summary has been drawn from Richard Webb, 'GST Revenue and
Budget Balancing Assistance to the States', Research Note
No. 33, 2001 02, Department of the Parliamentary Library, 19 March
2002, at: http://www.aph.gov.au/library/pubs/rn/2001-02/02rn33.htm
.
-
See Note 1, above.
Brendan Bailey
12 January 2004
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2004
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2004.
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