Part 4: Federal Financial Relations
This part provides information concerning goods and services tax (GST) revenue, general revenue assistance, general purpose assistance to local government and Specific Purpose Payments to the States in 2005-06. The information supplements material provided in Budget Paper No. 3, Federal Financial Relations 2006-07.
The New Tax System, which came into effect on 1 July 2000, substantially reformed Commonwealth-State financial relations. All GST revenue collected is paid to the States. This provides the States with access to a secure, growing and broad-based revenue source. Subject to the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, the States can spend the GST revenue according to their own budget priorities.
The implementation of The New Tax System has also enabled the abolition of a range of narrow and inefficient state taxes. This includes accommodation (bed) taxes, which were abolished on 1 July 2000, financial institutions duty and stamp duty on quoted marketable securities, which were abolished on 1 July 2001, and bank account debits tax, which ceased to be levied in any State on 1 July 2005.
The Australian Government has now reached agreement with all States on a schedule for the abolition of all but one of the taxes listed for review in the Intergovernmental Agreement. Inefficient state taxes such as stamp duty on mortgages, leases, and credit and rental arrangements will be abolished, as was originally intended under the Intergovernmental Agreement. The abolition of these taxes is expected to save taxpayers approximately $4.4 billion over the four years from 1 July 2006.
The Australian Government will extend the transitional period from 30 June 2006 to 30 June 2009. This is a guarantee by the Australian Government that each individual State will be no worse off than had the reforms not been implemented. Given current estimates, this is a sufficient timeframe to ensure the States will no longer require transitional assistance even after the abolition of these Intergovernmental Agreement taxes.
To meet this guarantee, the Australian Government will pay to the States Budget Balancing Assistance to cover any shortfall of GST revenue below the Guaranteed Minimum Amount, which is a calculation of the amount of funding each State would have had available to it under the previous system of financial relations. For 2005-06, each State received more revenue from the GST than the amount of revenue it would have received under the previous system of financial arrangements. Hence, the payment of Budget Balancing Assistance was not required.
The new system of Commonwealth-State financial relations has also provided for the introduction of the First Home Owners Scheme.