11 March 1996 - 3 December 2007
MEETING OF THE MINISTERIAL COUNCIL FOR COMMONWEALTH-STATE FINANCIAL RELATIONS AND OUTCOME OF LOAN COUNCIL MEETING
Today's meeting of the Ministerial Council for Commonwealth-State Financial Relations noted that, on the basis of current estimates, States and Territories would receive:
- total GST revenue of $26,851.9 million in 2001-02 and $29,335.0 million in 2002-03;
- total budget balancing assistance of $3,843.4 million in 2001-02 and $1,690.2 million in 2002-03 (before the States' contribution to a national scheme for low alcohol beer that was agreed at the meeting - see below); and
- estimated total payments to the States under the Guaranteed Minimum Amount will amount to $31,025 million in 2002-03.
Guaranteed Minimum Amount
Petroleum Revenue Replacement Payments foregone
Following the decisions of the High Court in Ha and Lim v New South Wales and Walter Hammond & Associates v New South Wales in August 1997, the Commonwealth, at the request of the States, increased its taxation of tobacco, petroleum products and alcoholic beverages to collect on behalf of the States the revenue they previously collected as business franchise fees.
These amounts became known as revenue replacement payments (RRPs). RRPs foregone are included in the calculation of the Guaranteed Minimum Amount (GMA) under the IGA.
The Commonwealth began collecting 8.1 cents on behalf of the States indexed to the CPI in accordance with the petrol excise indexation arrangements then in force.
However, consistent with the Commonwealth's decision of 1 March 2001 to cease the bi-annual indexation of petroleum excise, the Commonwealth has indicated that petroleum RRPs foregone by the States will not be increased by indexation in the future. The amount paid to the States will remain constant.
Without this adjustment, the States would have been receiving petrol excise indexation even though it has been abolished. Since consumers are no longer paying excise indexation it cannot be paid to the States.
GST Administration Issues and Revenue
As the Australian Taxation Office (ATO) collects all GST revenue on behalf of the States and Territories, the IGA provides that accountability and performance arrangements will be established between the State and Territory Governments and the ATO. The Ministerial Council endorsed a GST Administration Performance Agreement, developed by the Commonwealth, States, Territories and the ATO. The Performance Agreement was signed today by State and Territory Treasurers and the Commissioner of Taxation, and will take effect from 1 July 2002.
The Ministerial Council also discussed GST administration costs and related issues and agreed the ATO's GST administration budget for 2002-03, consistent with the requirement of the IGA that the States and Territories compensate the Commonwealth for the costs of administering the GST. The Ministerial Council agreed to provide additional GST compliance funding to the ATO of $45 million in 2002-03. This funding is expected to generate a positive net return in terms of additional GST revenue received by the States and Territories.
National Excise Scheme for Low Alcohol Beer
The Ministerial Council has agreed to implement a national excise scheme for low alcohol beer. The scheme will replace a range of existing State subsidy schemes with a nationally uniform and administratively efficient concession in the rate of excise on low alcohol beer.
The national scheme will eliminate the requirement for wholesalers to lodge a claim for a rebate of excise that they have paid. It will also reduce compliance costs for industry and eliminate administration costs for the States.
The new excise schedule for beer is shown below. The new excise rates will
1 July 2002. State rebates will continue to be payable on eligible beer purchased by wholesalers until 30 June 2002.
The cost of the scheme is estimated to be about $68 million in 2002-03. The States will make a financial contribution to the national scheme, which is commensurate with their current State subsidies, and the Commonwealth will fund the shortfall. The Commonwealth will deduct the States' financial contributions from each State's budget balancing assistance, for as long as each State continues to receive budget balancing assistance As the States cease to receive budget balancing assistance the Commonwealth will be effectively fully funding the scheme. Each State's contribution will be indexed annually to the consumer price index.
Each party's financial contribution to the national scheme for 2002-03 is shown in the following table.
The new national scheme is expected to result in low alcohol beer prices falling by up to 8 per cent in some States. Some price increases may arise in some market segments in some States, but the increases are not expected to be significant for these consumers. This is because either the price effects are negligible or the market share of the affected products is quite small.
Overall, the national scheme has been designed to minimise the price effects, while at the same time ensuring that the cost of the subsidies does not increase significantly. The cost of the national scheme in 2002-03 will be about $5.1 million higher than the cost of the current State subsidies. This additional cost will be met by the Commonwealth.
Specific Purpose Payments (SPPs)
On the basis of current preliminary estimates, total SPPs will increase by around 1.8 per cent, or $381.5 million in 2002-03. After abstracting from SPPs paid either direct to local government or which pass "through" the States to other bodies, SPPs "to" the States are estimated to increase by around 2.2 per cent, or $329 million. Detailed estimates of the proposed level of SPPs and their distribution among the States and Territories will be included in the Commonwealth's 2002-03 Budget.
National Competition Policy Payments
The Commonwealth will also provide National Competition Policy Payments of up to approximately $731.2 million to the States and Territories in 2002-03, as specified in the Agreement to Implement the National Competition Policy and Related Reforms. Each jurisdiction's receipt of its per capita share of Competition Payments will be determined once the Commonwealth has considered recommendations from the National Competition Council's assessment of progress under the Agreement.
Total Commonwealth payments to the States
The Statement of Estimated Payments (Attachment A which does not reflect the decision on low alcohol beer) includes current State-by-State estimates of the Guaranteed Minimum Amounts, GST revenue and budget balancing assistance (Tables 1, 2, 3, 4 and 7), general revenue assistance (Table 12), specific purpose payments (Table 10 and 11) and total payments payable to the States and Territories in 2001-02 and 2002-03 (Table 12).
The distribution of GST revenues amongst the States will be in accordance with the final recommendations of the Commonwealth Grants Commission (CGC) after accounting for technical issues identified subsequent to the publication of the CGC's recommendations.
Attachment B shows long term projections of the State-by-State impact of the reforms to Commonwealth-State financial relations. The projections are only indicative guides. The actual impact on each jurisdiction will be significantly affected by GST revenue growth and the CGC's final recommendations on the distribution of GST revenue.
Loan Council Allocations for 2002-03
Loan Council endorsed the Loan Council Allocations nominated by the Commonwealth and each State and Territory for 2002-03 (Attachment C).
Uniform Presentation Framework (UPF)
Loan Council discussed a proposal to extend the reporting requirements of Table 13: General Government Sector Expenses by Function to include more disaggregated data in financial outcomes reports from 2002-03. Jurisdictions agreed with the proposal. States that are unable to publish data at this level of detail in 2002-03, can publish at a more aggregated level with full compliance by 2003-04.
The Commonwealth already publishes comparable disaggregated data. Publication of this data by the States and Territories should improve the quality of public sector financial data in Australia.
22 March 2002
STATEMENT OF ESTIMATED PAYMENTS TO THE STATES AND TERRITORIES
PROVIDED TO THE
MINISTERIAL COUNCIL FOR COMMONWEALTH-STATE FINANCIAL RELATIONS
22 MARCH 2002
Under the terms of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (the Act), the States and Territories (the States) will receive all of the revenue raised by the goods and services tax (GST) from 1 July 2000. GST revenues will be distributed amongst the States on the basis of horizontal fiscal equalisation (HFE) principles.
Tables 1 and 2 show the latest available estimates of the Guaranteed Minimum Amount (GMA), GST revenue entitlement and Budget Balancing Assistance (BBA) for 2001-02 and 2002-03 respectively. These estimates will be subject to revision to account for parameter or estimate changes in the 2002-03 Commonwealth Budget.
Tables 3 and 4 show estimated BBA instalment amounts in 2001-02 and 2002-03.
Tables 5 and 6 provide further detail on the estimation of the GMA for each State in 2001-02 and 2002-03 respectively. Table 6a shows changes in the components of the GMA, GST revenue and BBA for each State in 2002-03 compared to the March 2002 Heads of Treasuries Report.
Table 7 provides details of GST revenue and General Revenue Assistance to the States in 2001-02 and 2002-03, including National Competition Policy Payments and Special Revenue Assistance to the ACT.
Tables 8 and 9 provide further details of the distribution of GST revenue. The incorporation of the relativities recommended by the CGC should not be interpreted as an endorsement of those relativities by the Commonwealth Treasurer. In accordance with clause B2 of the Intergovernmental Agreement, the final relativity factors for each State and Territory will be determined by the Commonwealth Treasurer after consultation with each State and Territory.
Tables 10 and 11 show MYEFO consistent estimates of specific purpose payments (SPPs) for 2001-02 and 2002-03 on a no-policy-change basis. Detailed estimates of the proposed level of SPPs and their distribution amongst the States in 2001-02 and 2002-03 will be included in the Commonwealth's 2002-03 Budget Papers.
Table 12 provides a summary of the States' total payments for 2001-02 and 2002-03.
Attachment A contains a table which provides details of GST administration costs and estimated revenue increases.
Table 1: Estimates of the Guaranteed Minimum Amount, GST Revenue Entitlement and Budget Balancing Assistance 2001-02 ($m)
Table 2: Estimates of the Guaranteed Minimum Amount, GST Revenue Entitlement and Budget Balancing Assistance 2002-03 ($m)
Table 3: Remaining BBA Instalment Amounts 2001-02 ($m)
Table 4: BBA Instalment Amounts 2002-03 ($m)
Table 5: Calculation of the Guaranteed Minimum Amount 2001-02 ($m)
Table 6: Calculation of the Guaranteed Minimum Amount 2002-03 ($m)
Table 6a: Changes since the Heads of Treasuries Report 2002-03 ($m)
Table 7: GST Entitlement and General Revenue Assistance ($m)
Table 8: Distribution of GST Entitlements 2001-02
Table 9: Distribution of GST Entitlements 2002-03
Table 10: Estimates of Specific Purpose Payments ($m)
(a) This total does not include state splits for FBT transitional grants for public hospitals since indicative estimates of the distribution to each State are not currently available.
Table 11: Estimates of Selected Specific Purpose Payments ($m) (a)
(a) These accrual based estimates provide a guide to the major components of specific purpose payments should not be taken as Commonwealth commitments. There are further Commonwealth budget processes and various parameter changes that could affect program totals and the interstate distributions.
(b) Roads Programme and Road Safety Blackspots Programme
(c) Home and Community Care and Supported Accommodation Assistance Programme.
Table 12: Total Payments
LOAN COUNCIL ALLOCATIONS - 2002-03 NOMINATIONS ($m) (a)(b)
Figures have been rounded. Discrepancies between totals and sums of components reflect rounding.
(a) LCA nominations for 2002-03 reflect current best estimates of non-financial public sector deficits/surpluses. Nominations have been provided on the basis of policies announced up to and included in jurisdictions' mid-year reports. Nominations are based on preliminary estimates of general government finances provided by jurisdictions for purposes of their mid year reports, and projected bottom lines for each jurisdiction's PNFC sector. Updated LCA estimates will be provided through publication by each jurisdiction of its budget time LCA as part of its budget documentation. The 2 per cent (of non financial public sector cash receipts from operating activites in each jurisdiction) tolerance limits around each jurisdiction's 2002-03 LCA are designed, inter alia, to accommodate changes to the LCA resulting from changes in policy.
(b) Tasmania and the Northern Territory's LCAs are not strictly comparable with the other jurisdictions as they continue to report on a cash basis, while other jurisdictions report on an accrual basis. For example, the general government sector cash deficit(+)/surplus(-) which is used in the accrual presentation is not calculated in the same manner as the general government sector underlying deficit(+)/surplus(-) used in the cash presentation. However, the difference is minimal.
(c) The sum of the surpluses of the general government and PNFC sectors may not directly equal the non-financial public sector surplus due to intersectoral transfers.
(d) This comprises net lending by governments with the aim of achieving government policy, as well as net equity sales and net lending to other sectors or jurisdictions. Such transactions involve the transfer or exchange of a financial asset and are not included within the cash deficit. However, the cash flow from investments in financial assets for policy purposes has implications for governments' call on financial markets.
(e) Memorandum items are used to adjust the non-financial public sector deficit/surplus to include in LCAs certain transactions - such as operating leases - that have many of the characteristics of public sector borrowings but do not constitute formal borrowings. They are also used, where appropriate, to deduct from the non-financial public sector deficit/surplus certain transactions that Loan Council has agreed should not be included in LCAs - for example, the funding of more than employers' emerging costs under public sector superannuation schemes, or borrowings by entities such as statutory marketing authorities. Where relevant, memorandum items include an amount for gross new borrowings of government home finance schemes.
NB Governments' contingent exposures under infrastructure projects with private sector involvement are identified in the attachment to this report, rather than included as a component of LCAs. These exposures, which are measured as the Governments' contractual liabilities in the event of termination of projects, are unlikely to be realised and are thus materially different from actual borrowings undertaken to finance the public sector deficit. Government outlays under these projects, such as equity contributions and ongoing commercial payments to the private sector, continue to be included in the annual total public sector deficit, and hence the LCA.