Senate

Revised Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Outline and Financial impacts

Outline

These Government amendments will amend the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 . This Bill was introduced in the Senate on 31 March 1999.

Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations

The proposed amendments create a new part (Part 1A) of the Bill which adds a schedule (Schedule 2) comprising the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations and also records the intention of the Commonwealth to comply with the Intergovernmental Agreement.

The Intergovernmental Agreement signed at the 9 April 1999 Premiers' Conference was subsequently amended to reflect changes to the tax reform package announced by the Prime Minister on 28 May 1999. The amended version of the Intergovernmental Agreement is included at Schedule 2.

Changing the GST rate and base

The proposed amendments to Part 2 of the Bill add a definition of the term changes of an administrative nature mentioned in clause 10 of the Bill, and provide that Ministerial Determinations under the A New Tax System (Goods and Services Tax) Act 1999 or the A New Tax System (Goods and Services Tax Transition) Act 1999 that affect the Goods and Services Tax (GST) base will be made in accordance with a procedure agreed by all States and Territories.

Providing GST revenue to the States and Territories

The proposed amendments provide that the total amount of GST revenue to be provided to the States and Territories will include local government assistance grants withheld by the States Territories from local government authorities which do not comply with the GST system.

An amendment is also required to remove the reference to the diesel fuel credits in the definition of the GST revenues to be provided to the States. Originally, diesel fuel credits were to be administered through the GST system. However, these credits will now be administered through an outlays programme. GST revenues are therefore no longer affected by the provision of diesel fuel credits by the Commonwealth.

Transitional arrangements

The proposed amendments to Schedule 1 of the Bill provide for the distribution of GST revenue grants in accordance with the principle of horizontal fiscal equalisation after 2001-02 and for transitional assistance to be in the form of grants and short term loans in 2000-01.

Other payments

The proposed additions to Part 3 of the Bill will provide the States and Territories with an entitlement to revenue replacement payments (RRPs) in 2000-01 which will be equal to the amount of business franchise fee safety net revenues (less administrative costs) collected after 30 June 2000 with respect to transactions taking place in 1999-2000. The proposed amendment also reflects the recent transfer of responsibility for excise collections from the Australian Customs Service to the Australian Taxation Office.

Financial impacts

Transitional Arrangements

The proposed amendments to the transitional arrangements involve an additional estimated cost to the Commonwealth budget of around $910 million in 2000-01, $136 million in 2001-02 and $459 million in 2002-03, and the basis of estimates consistent with the 1999-2000 Budget.

Other payments

The safety net arrangements added to Part 3 of the Bill will not affect the Commonwealth's budgetary position as RRPs to the States and Territories are amounts raised on their behalf (after allowing for administration costs).