16 TREASURY
16.1.5 Fiscal
16.1.6 Debt Management
16.4.1 Income and other taxes
16.4.2 Child Support Agency
16.5 Productivity Commission
16.6 Australian Competition and Consumer Commission
16.7 Insurance and Superannuation Commission
A substantial source of State and Territory revenue are the Financial Assistance Grants (FAGs) provided to them by the Federal Government. Beginning in 1994-95, the Commonwealth agreed to maintain the size of the FAGs pool in real per capita terms on a rolling three-year basis. This guarantee has been reconfirmed at both the 1995 and 1996 Premiers' Conferences.
However, at the 1996 Premiers' Conference, the Treasurer, Mr Costello, announced that, in view of the Commonwealth's desire to make substantial Budget savings, it would raise revenue from the States by removing the sales tax exemption enjoyed by them. Such a measure was estimated to raise $1.2 billion per annum. The States objected to this proposal and threatened to abort the Premiers' Conference and the associated Council of Australian Governments meeting.
A compromise was reached whereby Commonwealth sales tax was extended only to vehicles purchased for use by State government executives, while for their part, the States agreed to make annual payments to the Commonwealth over the next three years as a contribution to the Commonwealth's deficit reduction program. The need for such contributions will be reviewed annually at the Premiers' Conference.
The method of payment is expected to vary from State to State and to take the form of direct weekly payments to the Commonwealth, weekly deductions from the general revenue assistance provided by the Commonwealth or as reductions in the Commonwealth's contribution to agreed specific purpose payments.
It should be noted that the payment of State fiscal contributions will not be taken into account in the the application of the local government funding formula (which links the growth in local government Financial Assistance Grants to those of the States). Local government grants will thus continue to be maintained in real per capita terms.
In expressing its concern about the size of the Budget deficit, the Government has drawn a distinction between the 'headline' balance and the 'underlying' balance. The underlying balance subtracts 'net advances' from the headline balance. Net advances comprise net loans (loans minus repayments) from the Commonwealth to off-budget agencies, other governments and the private sector as well as the proceeds of equity asset sales. The underlying deficit is alleged to be a better indication of the Commonwealth's financial position by removing substantial, non-recurrent items.
In recent years, net advances have been large and positive, that is, they have contributed significantly to lowering the headline Budget balance. Apart from asset sales, there have also been large debt repayments from the States to the Commonwealth. Prior to 1987-88, the Commonwealth raised a considerable amount of debt on behalf of the States under Loan Council arrangements. With the States raising much of their own debt from the early 1980s, the Commonwealth ceased borrowing on their behalf as from 1988. However, a substantial amount of Commonwealth debt on behalf of the States remains outstanding.
At the 1990 Special Premiers' Conference, it was agreed that the States would make accelerated debt sinking fund payments to the Commonwealth to redeem all outstanding debt by the year 2005-06. Thus, the stream of debt repayments will continue for some years yet, notwithstanding the total repayment of debt by Queensland and Victoria in 1995-96. As the above figures show, the Commonwealth can expect to receive around $750 million in each of the next two years from this source and over $1 billion in 1999-2000.
Taxation administration involves a major web of activities in the Australian taxation system. The objectives of taxation administration are to collect efficiently and effectively the revenue properly payable, while ensuring that clients are aware of their obligations and their compliance costs are reduced. Taxation administration is central and crucial to many of the Budget measures and it is targeted by reference to 5 market segments:
Major Budget Measures
Major Budget Measures discussed in the Taxation and Superannuation sections (found at the front of this Brief) include:
Election Commitments
Other measures announced in the Budget involving taxation administration were pursuant to the Government's election commitments. These are found in press releases and include:
Other taxation election commitments which the Government has already implemented or is in the process of implementing, include:
Further consideration of other FBT matters like entertainment, car parking and the issue of aligning the FBT and income tax years will be made pursuant to the Taskforce's report. Also the Government will not be proceeding with amendments to the PAYE provisions of the tax law proposed by the previous Government. (TPR 71)
Anti-avoidance and anomalies
Measures introduced to address taxation compliance, avoidance and anomalies also found in press reports include and further discussed in the taxation section include:
The Child Support Agency assists the payment of Child Support between payers and payees for the benefit of children.
The difference between the total outlays can be explained by 2 major sources.
Total outlays are affected by receipts collected by the Child Support Agency (CSA) which are held in a Trust Account. These are expected to increase by some $50 million.
Also, there has been a net increase of some $45 million allocated to the Agency factoring in a significant workload adjustment. This increase in funding followed a joint review by the CSA and the Department of Finance. The funding provides for:
The review also agreed on minimum performance standards for CSA against key service indicators, including the debt reduction, collection, correspondence and telephone inquiries.
The formation of the new Productivity Commission was initiated on 11 March 1996 arising from Administrative Arrangements Orders of the newly elected Howard Government. During 1996-97, as part of its broader microeconomic reform agenda, the Government proposes to introduce legislation to formally establish the Commission through the amalgamation of the Industry Commission (which is presently in the Treasury portfolio), the Bureau of Industry Economics (formerly in the Industry portfolio) and the Economic Planning Advisory Commission (which was originally established as the supporting agency to the Economic Planning Advisory Council by the Hawke Government and contained within the Prime Minister and Cabinet portfolio).
Pending the introduction of the legislation, the Industry Commission and EPAC will continue to pursue their existing objectives and the work program of each of the three agencies will continue. They are now colocated in the Treasury portfolio.The Productivity Commission's objectives are expected to be:
The Productivity Commission's core functions embrace the public inquiry activities of the Industry Commission, undertaking studies and research projects, providing secretariat and research support to bodies, monitoring the performance of Government Business Enterprises, reviewing business regulation and generally promoting public understanding of matters relating to industry and productivity.
It is evident that the Commission will be the Government's main public research agency for pursuing its microeconomic reform program; policy responsibility for the program will continue to rest with relevant policy divisions within the line portfolios and the central agencies. The amalgamation is expected to yield a reduction in Program outlays, amounting to $2.3 million in the first year and $5 million in each year thereafter; offsetting the savings from streamlining in 1996-97 are the one-off costs of the amalgamation process. These are not quantified in the Budget papers, but as is evident in the data presented above, total outlays represented by this Program are expected to increase by about $3.4 million or 13.1%.
Notwithstanding the longer term savings of the streamlining of economic research agencies, it might be argued that the new arrangements will result in the concentration of economic research activities within the Treasury portfolio, raising concerns that public policy will be less broadly informed as a result. On the other hand, private economic research institutions and companies plus academic research agencies provide alternative sources of economic research expertise and a general strand of the new Government's public administration policy framework is that it will not be as heavily reliant on the Public Service for policy analysis and advice as was the case with past governments.
Whereas the Economic Planning Advisory Commission was charged with investigating matters relating to medium and longer term economic and social matters, there is no explicit reference to a social agenda in the Productivity Commission's objectives. It might be argued that in taking care of economic reform and efficiency concerns, the Productivity Commission's objectives implicitly acknowledge social matters because the whole purpose of the pursuit of economic efficiency is the maximisation of community welfare. It is noteworthy that the Productivity Commission's objectives extend to considering reforms that improve the sustainable development of Australian resources; this is a novel feature of the new Commission's scope, possibly opening the door to the type of role previously undertaken by the short-lived Resources Assessment Commission, which was wound up by the former Keating Government.
The Australian Competition and Consumer Commission was formed by the amalgamation of the former Trade Practices Commission and the Prices Surveillance Authority; in the 1995-96 Budget, each of the two former agencies were treated as discrete programs. The objectives of the Commission relate to the prevention of anti-competitive business conduct, the provision of appropriate safeguards for consumers in their dealings with producers and sellers and the promotion of competitive pricing wherever possible. The Commission was established as part of the Commonwealth's response to the agreements reached between Federal, State and Territory Governments to proceed with a National Competition Policy broadly in line with the recommendations of the 1993 Hilmer Enquiry.
Although there are no specific Budget measures affecting this Program, there are some aspects of the Commission's 1996-97 funding arrangements which benefit from explanation. The comparatively small total outlays figure shown above for 1995-96 reflect the sizeable receipts of the Commission in that year arising from penalties applied following successful prosecutions. Receipts were in excess of $28 million with major fines in the areas of pre-mixed concrete (price fixing) and petroleum marketing (anti-competitive conduct).
The Commission's appropriations for 1996-97 are of similar magnitude to 1995-96 even though it will have a wider jurisdiction as a result of the application of the anti-competitive conduct provisions contained in Part IV of the Trade Practices Act to all businesses in Australia from early in 1996-97 and not just those of an interstate trading character, the traditional focus of Commonwealth Trade Practices policy.
The Insurance and Superannuation Commission (ISC) has a 'watchdog' role and promotes public confidence in the Australian insurance and superannuation industries. Through a system of prudential supervision, the ISC protects the interests of policy holders / fund members while allowing the maximum practicable degree of commercial freedom and competition.
The Insurance and Superannuation Commission involves the following 5 Sub-programs:
The Government advises that there are no specific Budget measures affecting any of these sub-programs. Accordingly, the impact of the superannuation changes announced in the Budget (reported in the front section of this Brief) will need to be absorbed. It is noted that the introduction of the proposed Retirement Savings Accounts (RSAs) will mean that the ISC will need to acquaint itself with another product in the market. Also, there will be more clientele for the ISC to be monitoring in its prudential audits.
The difference between the outlay sums is accounted for by a large carry over of funds and funding allocated to capital amounts for fitout costs.
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