Bills Digest No. 170  1998-99 A New Tax System (Commonwealth-State Financial Arrangements-Consequential Provisions) Bill 1999


Numerical Index | Alphabetical Index

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 and Copyright Details

Passage History

A New Tax System (Commonwealth-State Financial Arrangements-Consequential Provisions) Bill 1999

Date Introduced: 24 March 1999

House: House of Representatives

Portfolio: Treasury

Commencement:

Proposed section 2 provides for the A New Tax System (Commonwealth-State Financial Arrangements - Consequential Provisions) Act 1999, except Schedule 2 to come into operation with effect from 1 July 1999. Schedule 2 which repeals the States Grants (General Purposes) Act 1994 and the Local Government (Financial Assistance) Act 1995 comes into operation at the same time as the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 commences.

Purpose

This Bill and its companion A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 seek to replace the general revenue grants - that the Commonwealth provides the States and Territories under the States Grants (General Purposes) Act 1994 - with the revenue from the proposed goods and services tax (GST).

This Bill repeals the States Grants (General Purposes) Act 1994. It also amends and provides for the ultimate repeal of the Local Government (Financial Assistance) Act 1995 as the States and Territories will take over responsibility for funding financial assistance to local government.

The reader is referred to the companion Bills Digest on the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 for an explanation of the purpose, background and main provisions of that Bill. The issues arising from the new Federal - State financial arrangements and the constitutionality of some of the proposed measures are dealt with in the companion Bills Digest.

Background

Implementing A New Tax System

This Bill is one of a package of 31 Bills(1) that was introduced into the House of Representatives to give effect to the Government's proposals of 13 August 1998 for a new tax system, which includes the introduction of a GST. The outlines of the Government's proposals were contained in the policy document Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System,(2) which will be referred to as the A New Tax System (ANTS) in this Digest. An Overview of ANTS and further details of the proposals were contained in Fact Sheets, all of which are available in the Government's Tax Reform Website: http://www.taxreform.gov.au

Proposed clause 1-3 of the A New Tax System (Goods and Services Tax) Bill 1998 (the GST Bill) provides that the Commonwealth will introduce further legislation to give effect to the Agreement on Principles for the Reform of Commonwealth-State Financial Relations endorsed at the Special Premiers' Conference in Canberra on 13 November 1998. In the Second Reading Speech on the GST Bill, the Treasurer stated that the Government proposes to enact the whole package by the end of the 1998-99 financial year and that when the package is enacted, Australia will have a new tax system from 1 July 2000.(3) The Prime Minister also stated in Parliament that further tranches of legislation would be introduced early in 1999 to implement the new tax system.(4)

Intergovernmental Agreement of 9 April 1999 on the Reform of Commonwealth-State Financial Relations

It will be necessary to read this Bill in conjunction with Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the Intergovernmental Agreement) signed on 9 April 1999 as Clause 4 of the Agreement provides that the Commonwealth will attach the Agreement as a schedule to A New Tax System (Commonwealth-State Financial Arrangements) Act 1999. This Agreement is not part of the Bill at present and will probably be included by an amendment to the Bill shortly.

Clause 4 of the Agreement states:

The Commonwealth will attach the Agreement as a schedule to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999. The Commonwealth will use its best endeavours to ensure the Act will require compliance with the Agreement. The States and Territories will use their best endeavours to ensure their legislation will require compliance with the Agreement.

There is no indication from the Intergovernmental Agreement what form the legislation to be passed by the States and Territories must take.

The Intergovernmental Agreement also provides for the establishment of a Ministerial Council to oversee the operation of the Agreement. Its functions include the oversight of the operation of the GST and approving changes to the GST base (Clause 42). The membership of the Ministerial Council will comprise the Treasurer of the Commonwealth and the Treasurers of the States and Territories (Clause 41).

The Agreement further provides for the establishment of a GST Administration Sub-Committee comprising Commonwealth, State and Territory officials to monitor the operation of the GST, make recommendations regarding possible changes to the GST base and rate and to monitor the ATO's performance in GST administration (Clause 46). The Commonwealth Treasury will chair the GST Administration Sub-Committee (Clause F7 of Appendix F to the Agreement).

As the Bill deals with disparate measures in the two Schedules, the Background to the measures in each Schedule will be dealt with together with the Main Provisions for the convenience of the reader.

Main Provisions

Schedule 1 - Amendment of the Local Government (Financial Assistance) Act 1995

Commonwealth general revenue assistance to the States

Under current arrangements, the Commonwealth provides general revenue assistance to the States and Territories. More than 95 per cent takes the form of financial assistance grants (FAGs), which are appropriated from Consolidated Revenue under the States Grants (General Purposes) Act 1994. Under ANTS the Government proposes to replace FAGs with the revenue from the GST. The States will be entitled to receive the GST revenue from 1 July 2000. Schedule 2 of the Bill therefore repeals the States Grants (General Purposes) Act 1994, with effect from the date of commencement of the proposed A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, which replaces general revenue assistance with revenue from the GST.

Local government

The level of general purpose assistance to local governments is estimated by applying an 'escalation' factor. Under the Local Government (Financial Assistance) Act 1995, this factor has regard to the level of general revenue assistance paid to the States. In essence, the escalation factor reflects indexation for population growth and the increase in the consumer price index. An adjusting payment is made for any difference between estimated and actual payments to the States. For example, in 1998-99, the escalation factor is estimated at three per cent. The final escalation factor for 1998-99 will be determined in June 1999 on the basis of actual payments to the States in 1998-99.

The Commonwealth has provided general purpose assistance to local governments since 1974-75. Assistance is provided as a Specific Purpose Payment under the Local Government (Financial Assistance) Act 1995, on the condition that the States pass the funds to local governments (i.e. payment is made 'through' the States). General purpose assistance takes the forms of local government FAGs (sometimes called section 9 payments) and untied road funding (section 12 payments). The interstate distribution of local government FAGs is on an equal per capita basis. Untied road funding is distributed among the States on the basis of the criteria established under the Australian Land Transport Development Act 1988. (The intrastate distribution of FAGs and road funding to local governments is determined by the States Grants Commissions).

Related to the Commonwealth's passing of GST revenue to the States is the Government's decision that the Commonwealth also cease to provide assistance to local government. Under Clauses 14 and 15 and Appendix D of the Intergovernmental Agreement, the States and the Northern Territory will provide ongoing financial assistance grants to local government from 1 July 2000. The Commonwealth will make payment of GST revenue to the States conditional on their making payments to local government according to existing conditions. One such condition is that the States maintain the level of assistance to local government in real per capita terms.

Transitional arrangements

With the States scheduled to receive GST revenue from 1 July 2000, 1999-2000 is the last year in which the Commonwealth would assist local government by payments through the States for that purpose. The Local Government (Financial Assistance) Act 1995 is designed for the continual payment of grants, with adjustments in respect of one year's payments being made in the following year. Items 1 to 16 of Schedule 1 amend the Local Government (Financial Assistance) Act 1995 so that the adjustment process will not be available after 30 June 2000. They do so by one-off provisions for the financial year 1999-2000.The objective of these amendments is to finalise payments for 1999-2000 during the May quarter 2000. The Commonwealth will make three, monthly payments in this quarter, and an adjustment will be made in the June 2000 payment to reflect the difference between the estimated and actual grants for 1999-2000.

Schedule 2 - Repeal of Acts

Item 1 of Schedule 2 repeals the Local Government (Financial Assistance) Act 1995. Items 2 and 3 of Schedule 2 provide for sections 15 and 16 of the Local Government (Financial Assistance) Act 1995 to continue to apply despite the repeal of the Act. Section 15 includes a condition that the Treasurer of a State or Territory must provide a certified statement to the Minister accounting for the distribution of payments to local government during the previous financial year. These statements will be required to be provided in respect of payments made under the Act before its repeal. Section 16 requires the Minister to table in Parliament a National Report on the operation of the Act. The continued operation of this section even after the repeal of the Act will require the Minister to table in Parliament a National Report in relation to the year 1999-2000.

Item 4 repeals the State Grants (General Purposes) Act 1994.

There appears to be an unintended consequence associated with the commencement provision for Schedule 2. The Local Government (Financial Assistance) Act 1995 is repealed at the same time as the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the CSFA Act) commences (proposed subclause 2(2)). The CSFA Act commences either:

  • upon it receiving Royal Assent, or
  • if, at that point, any of 5 other key Acts in the ANTS package have not yet received Royal Assent: the day after the day on which the last of these 5 Bills to receive Royal Assent, actually receives that Assent.

The Explanatory Memorandum(5) to the CSFA Bill, however, links its commencement to the commencement of the 5 nominated ANTS Bills rather than the date on which they receive Royal Assent.

Passage of the ANTS package may occur well before 1 July 2000 - that is certainly the Government's stated intention. According to available information, Royal Assent is customarily obtained soon after passage through both Houses.(6) Putting those two things together, there is a strong possibility that the Local Government (Financial Assistance) Act 1995 will be repealed before 30 June 2000.

The strong impression is that the Government has mistakenly tied repeal of the Local Government (Financial Assistance) Act 1995 to the date of Royal Assent rather than the date of commencement for other key Bills in the ANTS package. The consequence is that key legislation for providing funding to local governments could be prematurely repealed, leaving a void in some part of the financial year 1999-2000.

The Department of Treasury indicated in response to an inquiry from the Parliamentary Library that the Government will be introducing an amendment to avoid the premature repeal of the Act in question. It also referred to remedying the unintended premature repeal of the States Grants (General Purposes) Act 1994, the other Act referred to in Schedule 2.

Concluding Comments

The reader is referred to the Concluding Comments in the Bills Digest on the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 which deals with certain issues arising from the measures in this Bill and the companion Bill.

Endnotes

  1. A list of the Bills is set out below:
  • A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998
  • A New Tax System (Australian Business Number Consequential Amendments) Bill 1998
  • A New Tax System (Australian Business Number) Bill 1998
  • A New Tax System (Bonuses for Older Australians) Bill 1998
  • A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999
  • A New Tax System (Commonwealth-State Financial Arrangements- Consequential Provisions) Bill 1999
  • A New Tax System (Compensation Measures Legislation Amendment) Bill 1998
  • A New Tax System (End of Sales Tax) Bill 1998
  • A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No. 1) 1999
  • A New Tax System (Family Assistance) Bill 1999
  • A New Tax System (Fringe Benefits Reporting) Bill 1998
  • A New Tax System (Goods and Services Tax Administration) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition-Customs) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition-Excise) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition-General) Bill 1998
  • A New Tax System (Goods and Services Tax Transition) Bill 1998
  • A New Tax System (Goods and Services Tax) Bill 1998
  • A New Tax System (Income Tax Laws Amendment) Bill 1998
  • A New Tax System (Indirect Tax Administration) Bill 1999
  • A New Tax System (Luxury Car Tax Imposition-Customs) Bill 1999
  • A New Tax System (Luxury Car Tax Imposition-Excise) Bill 1999
  • A New Tax System (Luxury Car Tax Imposition-General) Bill 1999
  • A New Tax System (Luxury Car Tax) Bill 1999
  • A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Bill 1998
  • A New Tax System (Personal Income Tax Cuts) Bill 1998
  • A New Tax System (Trade Practices Amendment) Bill 1998
  • A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Bill 1999
  • A New Tax System (Wine Equalisation Tax Imposition-Customs) Bill 1999
  • A New Tax System (Wine Equalisation Tax Imposition-Excise) Bill 1999
  • A New Tax System (Wine Equalisation Tax Imposition-General) Bill 1999, and
  • A New Tax System (Wine Equalisation Tax) Bill 1999.
  1. Circulated by the Hon. Peter Costello MP, Treasurer of the Commonwealth of Australia (AGPS) August 1998.

  2. Hansard, House of Representatives, 2 December 1998, p. 1087.

  3. Hansard, House of Representatives, 3 December 1998, p. 1343.

  4. Explanatory Memorandum to the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999, paragraph 2.3, p. 5.

  5. Standing Order 265 for the House of Representatives implies prompt presentation of a Bill which has finally passed both Houses by the Speaker to the Governor-General for assent. The House of Representatives Practice, 3rd edition, (at pp. 443-444) also appears to proceed on the assumption that ordinarily Bills are sent promptly to the Governor-General and that assent is given forthwith. The Attorney-General is permitted to advise as to the giving of assent and the general constitutional convention is that the Governor-General will act on the advice of the Government. But the Practice does not seem to contemplate such advice for the purpose of simply stalling the commencement date of the Act in question or related Acts.

 

Contact Officer and Copyright Details

Bernard Pulle and Richard Webb
4 May 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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

ISSN 1328-8091
© Commonwealth of Australia 1999

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, 1999.

Back to top


Facebook LinkedIn Twitter Add | Email Print