Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Providing GST revenues to States and Territories
Overview
1.1 All Goods and Services Tax (GST) revenues will be paid to the States and Territories and, subject to transitional arrangements, distributed in accordance with the principles of horizontal fiscal equalisation.
Summary of the legislation
1.2 To fulfil the Governments commitment to provide all GST revenue to the States and Territories and maintain the principles of horizontal fiscal equalisation.
1.3 States and Territories will be entitled to receive GST revenue grants from 1 July 2000.
Background to the legislation
1.4 The key element of the reform of Commonwealth-State financial arrangements is the replacement of the current system of Financial Assistance Grants from the Commonwealth to the States and Territories with the provision of GST revenues to the States and Territories. Horizontal fiscal equalisation is a longstanding feature of financial relations between the Commonwealth and the States and Territories.
Explanation of the legislation
1.5 Clause 5 requires the Commissioner of Taxation to make a written determination of the total amount of GST revenue that is collected in each year, inclusive of diesel fuel excise credits and voluntary GST payments by Governments. The Commissioners determination will comprise actual GST collections to 31 May, estimated collections for the month of June and an adjustment for any difference between estimated and actual collections in a previous years determination.
1.6 Subject to the transitional arrangements contained in Schedule 1 of the Bill, clause 12 provides each State and Territory with an entitlement to GST revenue grants according to the principles of horizontal fiscal equalisation. These principles are currently used to allocate Financial Assistance Grants between the States and Territories. A State or Territorys adjusted population incorporates a relativities factor which reflects its relative fiscal needs as assessed by the Commonwealth Grants Commission. The population of a State or Territory will be determined by the Statistician under clause 7 . The relativities factor will be determined by the Treasurer under clause 9 in consultation with the State or Territory. The application of horizontal fiscal equalisation to a combined pool of GST revenue grants and hospital grants (as defined in clause 6 ) is consistent with the terms of the Australian Health Care Agreements between the Commonwealth and the States and Territories.
1.7 Clauses 16 and 17 provide the Treasurer with the authority to determine the frequency and amount of the payments of GST revenue grants during a year. This will enable the Treasurer to make payments according to a schedule which is agreed between the Commonwealth and the States and Territories.
1.8 Clause 15(1) requires the Treasurer to deduct any overpayments from payments to a State or Territory in the following year. Clause 15(2) requires the Treasurer to add the amount of any underpayments to payments to a State or Territory in the following year.
Regulation Impact Statement
1.9 No impacts are expected as the amount appropriated to the State and Territory Governments will be freely available for use for any purpose. No Regulation Impact Statement is required.