Bills Digest No. 2   1997-98 States Grants (General Purposes) Amendment Bill 1997

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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.


Passage History

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.

Main Provisions

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.

Contact Officer and Copyright Details

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 the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

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Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 23 July 1997

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