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
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.
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.
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.
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.
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.
-
- 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.
-
- Circulated by the Hon. Peter Costello MP, Treasurer of the
Commonwealth of Australia (AGPS) August 1998.
- Hansard, House of Representatives, 2 December 1998, p.
1087.
- Hansard, House of Representatives, 3 December 1998, p.
1343.
- Explanatory Memorandum to the A New Tax System
(Commonwealth-State Financial Arrangements) Bill 1999, paragraph
2.3, p. 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.
Bernard Pulle and Richard Webb
4 May 1999
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1999
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1999.
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