CHAPTER I: RECENT DEVELOPMENTS

This chapter provides a summary of the decisions taken at the 1997 Premiers' Conference and Loan Council Meeting on 21 March 1997. The chapter also summarises the National Fiscal Outlook and provides a brief discussion of fiscal developments in the States.

THE 1997 PREMIERS' CONFERENCE

At the 1997 Premiers' Conference it was agreed that the level of financial assistance grants (FAGs) to the States will be maintained in real per capita terms in 1997-98. The Commonwealth also extended the real per capita guarantee for FAGs to 1999-2000, conditional on the States complying with their obligations under the Agreement to Implement the National Competition Policy and Related Reforms. On the basis of current estimates, Commonwealth general revenue assistance to the States is expected to be $16,829.9 million in 1997-98, an increase of $531.0 million or 3.3 per cent on the previous year, as shown in Table 2.

The States and Territories will make fiscal contribution payments of $627 million in 1997-98. These payments will be made in accordance with the schedule agreed at the 1996 Premiers' Conference except for Tasmania and the Australian Capital Territory. In recognition of the difficult economic circumstances facing Tasmania and the Australian Capital Territory, it was agreed that they will defer the payment of half of their scheduled fiscal contributions of $16.3 million and $10.7 million, respectively, until 1998-99. The need for the revised fiscal contribution of $313 million in 1998-99 will be reviewed at the 1998 Premiers' Conference in the light of developments in the Commonwealth's fiscal position.

The Commonwealth reaffirmed its commitment to make National Competition Payments (NCPs) to the States as specified in the National Competition Policy Agreement. Competition Payments of up to $215.1 million will be made in 1997-98 and will be determined after the National Competition Council reports in June 1997. These payments, like the per capita component of the guarantee for FAGs, are conditional on the States achieving satisfactory progress in the implementation of National Competition Policy reforms.

The Commonwealth also indicated that the likely reduction in the aggregate level of specific purpose payments (SPPs) to the States, that was currently being contemplated as part of the budget process, would be a maximum of 1.3 per cent against the forward estimates in 1997-98. (The actual reduction will be around 0.5 per cent.)

Other key outcomes from the 1997 Premiers' Conference were as follows:

The per capita relativities recommended by the Commonwealth Grants Commission (CGC) in its Report on General Revenue Grant Relativities - Update 1997 (the 1997 Update report) were adopted to distribute the pool of FAGs and unquarantined hospital funding grants (HFGs).
Medicare guarantee payments of $191.8 million and $244.4 million will be paid to New South Wales and Victoria, respectively, in 1997-98. In accordance with the arrangements established at the 1995 Premiers' Conference, the Commonwealth will directly contribute $62.3 million to these guarantee payments with the remainder funded by the States from the FAGs pool.
The Commonwealth will provide the Australian Capital Territory with special revenue assistance (SRA) of $20.7 million in the form of transitional allowances and $13.8 million as special fiscal needs, in 1997-98. These amounts are in accordance with the CGC's recommendations and will be funded directly by the Commonwealth. Consistent with the CGC's assessment, the recommended additional payments of transitional assistance for the health and education sectors of $10 million in 1997-98 and $5 million in 1998-99 will be the final payments to place the Australian Capital Territory on an equal footing with the States in all areas other than policing.

Details of these funding decisions and related issues considered at the 1997 Premiers' Conference are contained in Chapter III.

Estimates of general revenue assistance to be provided to the States in 1996-97 and 1997-98 are shown in Table 2.

Table 2: General Revenue Assistance to the States, 1996-97 and 1997-98 (estimated)

(a) These FAGs estimates do not include offsets for State fiscal contributions - see last column.

(b) Medicare guarantee payments (MCG).

(c) For 1996-97, these consist of the additional payments agreed at the 1996 Premiers' Conference. The $9.9 million to the NT is funded from the FAGs pool. The $42.2 million to the ACT is for transitional allowances and special fiscal needs, which are funded by the Commonwealth. In 1997-98, the ACT will receive $34.5 million in transitional allowances and special fiscal needs, funded by the Commonwealth.

(d) Identified road grants are to be absorbed into the FAGs pool in 1997-98.

(e) The Agreement to Implement the National Competition Policy and Related Reforms specifies that $200 million in 1994-95 prices is to be distributed between the States on an equal per capita basis in 1997-98. The receipt of the payment is conditional on a State meeting the obligations of the Agreement.

(f) Estimated distribution based on arrangements agreed at the 1996 and 1997 Premiers' Conferences involving equal per capita contributions but with the deferral of half of Tasmania's and the ACT's 1997-98 contribution to 1998-99.