NO.012

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

commence on

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

CANBERRA

 

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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

 

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ATTACHMENT A

 

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ATTACHMENT B

 

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ATTACHMENT C

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.