Bills Digest No 72 2003-04
A New Tax System (Commonwealth–State Financial
Arrangements) Amendment Bill 2003
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 & Copyright Details
Passage History
A
New Tax System (Commonwealth–State Financial Arrangements) Amendment Bill
2003
Date Introduced:
4 December 2003
House:
House of Representatives
Portfolio:
Treasury
Commencement:
Royal Assent
The purpose of the Bill is to authorise the Commissioner
of Taxation to make necessary accounting adjustments to the amount of
goods and services tax (GST) revenue collected by the Commonwealth and
provided to the States and Territories. The proposed method for revenue
adjustments has been agreed to by the States and Territories.(1)
Background
Arrangements for Commonwealth general purpose payments
to the States (including the Territories) entered a new phase with the
introduction of the goods and services tax (GST) on 1 July 2000.
The A New Tax System (Commonwealth-State Financial
Arrangements) Act 1999 (the Act) is the legislative authority for
general purpose payments. The Act builds on and incorporates, as a Schedule,
the Intergovernmental Agreement on the Reform of Commonwealth-State Financial
Relations (IGA). The IGA sets out the terms under which GST revenue is
paid to the States. It was endorsed by the Commonwealth, State and Territory
heads of government in June 1999.
The main features of the IGA are:
-
the Commonwealth must pass all GST revenue (net of administrative
costs) to the States
-
the States may spend the GST as they wish
-
the Commonwealth has guaranteed that in each of the transitional
years following the introduction of tax reform, no State will be worse
off than had the reform not been implemented. To fulfil this commitment,
each State is entitled to receive a Guaranteed Minimum Amount (GMA)
-
the
Commonwealth meets the difference between each State's GMA and GST
entitlement in the form of budget balancing assistance (BBA)
-
the inter-State allocation of the GST revenue is based on the relativities
calculated by the Commonwealth Grants Commission based on the fiscal
equalisation principle(2)
-
the States undertook to abolish a number of taxes, reduce gambling
taxes and administer a new uniform First Home Owners Scheme, and
-
the
establishment of the Ministerial Council to oversee the implementation
and operation of the IGA.(3)
One technical and practical problem with the current
Act is that it operates in a way that excludes GST refunds made by the
Commonwealth under the Tourist Refund Scheme (TRS). This means that marginally
more GST revenue is provided to the States than is actually collected.
TRS allows travellers going overseas to recover GST (or Wine Equalisation
Tax) paid on eligible goods purchased in Australia
and then taken overseas in their hand luggage. The Bill rectifies this
matter (and some other technical anomalies) by allowing the Commissioner
of Taxation to account for all GST refunds when making a determination
of GST revenue.
The basis for the legislative policy that underpins this
Bill is to ensure that the GST arrangements with the States operate in
the way originally intended. As noted above, the States and the Territories
have agreed with the measures proposed by the Bill.(4)
The current subsection 5(4) of the Act allows adjustments
to the amount of GST to be provided to the States and Territories to take
into account certain refunds. The current subsection 5(6) of the Act
provides an interpretive definition applicable under section 5. Items
1 and 2 in Schedule 1 of this Bill broaden the category of
refunds that may be taken into account by the Commissioner of Taxation
e.g. TRS.
It is also noted that the proposed new definition in
Item 2 of a GST refund provision contains a reminder
of the effect of the current section 11 in the Act (i.e. section 11 requires
the agreement of the States to any changes to the GST base). These new
provisions do not affect the existing limitation on the creation of new
GST refund provisions found in section 11 of the Act, in particular, the
requirement for agreement of the States. Section 11 includes the following
restrictions:
11 (1) The rate of the GST, and the GST base,
are not to be changed unless each State agrees to the change. Such changes
to the GST base should be consistent with:
(a) maintaining the integrity of
the GST base; and
(b) administrative simplicity; and
(c) minimising compliance costs for
taxpayers.
(2) In particular, but without limiting
subsection (1), a Minister may only make a determination under the GST
Act, or the A New Tax System (Goods and Services Tax Transition) Act
1999, that affects the GST base if the determination is made in accordance
with a procedure to which all of the States have agreed.
Item 3 is necessary since the amount of GST revenue
is determined in June each year, based on an estimate of revenue for that
particular month. The determination for the subsequent year makes an
adjustment to take into account the amount actually received at the end
of the previous June.
Paragraph 1 ensures that the proposed amendment is not
taken into account when adjusting for the estimate made in June the previous
year, when the Bill had not commenced.
Paragraph 2 recognises that processing the effects of
the increase in GST refunds on GST revenue will take time. If the Bill
commences in June, the month in which the GS revenue is determined, it
may delay the Commissioner's determination beyond the mandatory deadline.
Hence, Item 3 ensures that, if the Bill commences on or after 1
June, the new refunds will only be taken into account in the following
and later years.
Items 4 to 9 adjust timelines for the dates
that apply to the filing of relevant determinations that calculate such
matters as hospital grants and each State's population. In turn, the data
is then used for the preparation of the determination of GST revenue.
Unfortunately, some of the current statutory deadlines in the scheme technically
coincide. This problem has been overcome by informal agreement for the
'input' data determinations, used to prepare the determination of GST
revenue, to be brought forward. The Bill amends the statutory deadlines
to ensure that the existing working arrangements are formalised.
Item 10 has the same effect as Item 3 above.
Schedule 1 to the current Act contains transitional arrangements
for the first 3 GST years and other GST years that are prescribed. Under
the current Act, the Treasurer makes a determination each year of the
Guaranteed Minimum Amount (GMA) for a State. The Commissioner of Taxation
makes a determination of GST revenue. As noted above, these determinations
are made in June and then adjusted the following June for under or overestimate
once the actual outcomes for a particular year are known.
The difference between GMA and GST is referred to as
Budget Balancing Assistance (BBA). A State's BBA may need to be adjusted
in some cases.
Item 12 inserts a new Clause 7 in Schedule
1 to the current Act. The new Clause 7 will allow 'residual adjustments'
to be made to amount paid to a State or Territory for a GST year, as a
technical refinement to the existing arrangements. These amounts will
be known as Residual Adjustment Amounts (RAAs).
The proposed amendments made by this Bill
are technical refinements to the existing GST scheme.
-
Explanatory Memorandum, A New Tax System (Commonwealth–State
Financial Arrangements) Amendment Bill 2003, p. 1.
-
This principle is that all State governments should be able to provide
services at the same standard if they make the same effort to raise
revenue from their own sources and operate at the same level of efficiency.
-
The summary has been drawn from Richard Webb, 'GST Revenue and Budget
Balancing Assistance to the States', Research Note No. 33,
2001–02, Department of the Parliamentary Library, 19 March 2002, at:
http://www.aph.gov.au/library/pubs/rn/2001-02/02rn33.htm
.
-
See Note 1, above.
Brendan Bailey
12 January 2004
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and
Members of the Australian Parliament. While great care is taken to ensure
that the paper is accurate and balanced, the paper is written using information
publicly available at the time of production. The views expressed are
those of the author and should not be attributed to the Information and
Research Services (IRS). Advice on legislation or legal policy issues
contained in this paper is provided for use in parliamentary debate and
for related parliamentary purposes. This paper is not professional legal
opinion. Readers are reminded that the paper is not an official parliamentary
or Australian government document.
IRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of the
public.
ISSN 1328-8091
© Commonwealth of Australia 2004
Except to the extent of the uses permitted under the Copyright Act
1968, no part of this publication may be reproduced or transmitted
in any form or by any means, including information storage and retrieval
systems, without the prior written consent of the Parliamentary Library,
other than by Members of the Australian Parliament in the course of their
official duties.
Published by the Department of the Parliamentary Library, 2004.
|
