F76/ 120 13
Jj AUS fr AL! A o
PR] NJE MNSTER
FOR PRESS JUNE 10, 1976
JUNE PREMIERS' CONFERENCE
The tax sharing arrangements settled today represent
perhaps the most important advance in financial relations
between Governments. in Australia since Federation.
A completely new approach in financial relations between
the Commonwealth, the States and Local Government has been
set.
The key factor in the revenue sharing arrangements is
that the States and Local Government will receive their
financial entitlements automatically. Major elements in
their finances should no longer be subject to haggling.
The revenue sharing arrangements implemented today are the
foundation for the future development of Federalism, including
. the basic issue of defining clearer and more efficient roles
and responsibilities for all three spheres of Government.
Under the new ta-sharing arrangements States will receive
much more in the current. financial year as untied general
revenue assistaze than they would have under the Whitlam
formula. This a result the States have been seeking
for years.
As set out in more detail below the increase in 1976-77
in funds to be available to the States and their authorities
as tax sharing. en-itlements, local government assistance,
Loan Counc-i. 1-programs and welfare housing advances is
estimated at 16.4 per cent.
Tax Sharin
The meeting had before-it a comr~ h -orctersdecided
in relation to the tax sharing scheme following
discussion at the February and April Premiers' Conferences.
This list is reproduced as Attachment A. It covers the
essential features of the tax sharing scheme.
At today's meeting there was further discussion on some
outstanding subsidiary aspects. A summary of the additional
points agreed at today's meeting is set out in Attachment B.
Arrangements for Stage 1 of the tax sharing scheme have now
been largely settled, and that Stage will commence in 1976-77.
Legislation to implement these arrangements, which will
replace the existing States Grants Act, will be introduced
as early as possible in the Budget session of Parliament. / 2
The Prime Minister paid tribute to the co-operative spirit in
which the States had discussed the new scheme over the period
beginning with the February Conference and to the detailed
work which had been carried out jointly by the Commonwealth
and State Treasury officers.
Present estimates which it is emphasised are very preliminary
put the States' tax sharing entitlement for 1976-77 at
$ 3,711 million and increase of no less than $ 638 million or
20.8 Per cent compared with the level of the financial
assistance grants in 1975-76. The State by State figures are
set out in Attachment C.
On present estimates this-is $ 55 million more than the present
forumla-would have yielded-a forumla which is, the Prime
Minister noted, itself by no means-. an ungenerous one, particularly
given the-provision in it for an increase in the " betterment"
factor to 3 per cent from 1 July next. Particulars on a State
by State basis of the estimated entitlements and of the estimated
amounts that would have been yielded under the financial assistance
grants formula are given in Attachment D.
The Prime Minister said that, to avoid any possible misunderstanding,
it should be made quite clear that the figures quoted are no more
than present estimates. Nevertheless, it is a fair conclusion
to say that the new tax sharing scheme will, on present estimates
result, from the States' point of view, in an improvement on an
* already favourable situation.
The Prime Minister notei that work on Stage 2 of the tax sharing
scheme is continuing a officer level. The firm target is to have
legislative and other necessary arrangements made so that the States
will be able, if they to apply personal income tax surcharges
or rebates in their S-ces from the beginning of 1977-78.
I 3.
STATE GOVERNMENT LOAN COUNCIL PROGRAMS FOR 1976-77
The Loan Council approved a total State Government Loan Council
program for 1976-77 of $ 1,356 million. This represents an
increase of 5.0 per cent over the 1975-76 program. Of this
total, one third will be provided to the States by way of interest
free, non repayable capital grants. The capital grants will thus total
$ 452 million and borrowings for the States will total $ 904 million.
Further details are set out in Attachments E and F.
SBORROWING PROGRAMS FOR " LARGER" STATE AUTHORITIES IN 1976-77
For the States' " larger" authorities ( those borrowing individually
more than $ 800,000 in a year) the Loan Council approved a total
program of $ 960 million, which represents an increase of $ 150.3 million,
* or 18.6 per cent over* the-1975-76 programs.
Details-are set out in Attachment G.
." SMALLER" AUTHORITIES'BORROWINGS
The Loan Council has fr sc: e years placed no overall limit on
the borrowings by " saller" State authorities ( those whose borrowings
individually do not exeed $ 800,000 in a year increased from the
figure of $ 700,00C0 1975-76). The Loan Council agreed that this
arrangement should be :: ncinued in 1976-77.
ADVANCES FOR WELFARE :-i-SITNG
SThe Commonwealth E-vwialnlc e a total of $ 375 million to the States
in 1976-77 under -e Housing Agreement. Any State would be free
Sto supplement these amounts by providing additional funds for
housing from genera i-purpose capital funds available to it as
Loan Council programs.
The State by State distribution of the figure of $ 375 million is
shown in Attachment H.
OVERALL SUMMARY
The following table represents an overall summary of the amounts
referred to above.
Financial Assistance
Grants/ Tax Sharing
Entitlements Local Government
Assistance Loan Council Programs
State Governments
State Authorities ( e)
Welfare Housing ( 1)
Level of
Funds 1975-76
million
3, 072.8 ( a)
79.9
1,291.0 809.7 364-. 6 ( 2)
Estimated/ Proposed Level in
1976-77
T3,711.( bon
3,711.1( b)
140. 0( c)
1,356.0( d)
960. 0( d)
375.0( d) ( 3)
Increase
million
638.320.8 60.175.2 0
65.0
150.3 10.4 18.6 2.9
5,618.0 6,542.1924.1 16.4
ATTACHMENT A
PERSONAL INCOME TA\ X SHARING ISSUES DECIDED
FOLLOWING THE FEBRUARY AND APRIL 1976 PREMIERS' CONFERENCES
The scheme will be related to personal income taxnot
company tax and not including withholding taxes
on interest and dividends.
The scheme will be introduced in two Stages.
Stage 1 Stage 1 will be introduced as from the beginning of'
1976/ 77.
The-States' entitlements under Stage 1 will represent
a specified percentage of Commonwealth imposed
personal income tax and State legislation will thus
not be required in regard to Stage 1.
The " base" to which the percentage will be applied
each year will be personal income tax collected in
the year. The percentage figure will be determined
by reference to the relationship between the financial
assistance grants in 1975-76 and personal income
tax collections in that year.
Personal income tax collections in the Territories
will be included in the base figure but with this
subject to review in the light of developments in
public finances in the Territories.
The yield or costs of special surcharges or rebates
applied, in appropriate circumstances, by the
Commonwealth will not be included in the base figure
from which the States' entitlements will be calculated.
In regard to the possible effects on the Statest Stage
1 entitlements of changes by the Commonwealth in its
personal income tax legislation, the Commonwealth
Government has given a firm assurance to the States
that:-it will ensure that the States are fully informed
of relevant tax changes made by the Commonwealth
and of their estimated effects on the States
entitlements; it will participate in a review of the arrangemnents
when there are changes in Commonwealth tax
legislation which have effects on the States'
entitlements of such significance as to warrant
such a review; and
longer-terra trends in regard to such matters
as changes in the relative importance of
personal income tax vis-a--vis other taxes
will be kept under notice between the
Commonwealth and State Governments.
However, it is agreed that it would not be practicable
to devise in advance an automatic formula for defining
how changes in Commonwealth tax laws should be
reflected in the Stage 1 arrangements.
There will be a " guarantee" arrangement to ensure
that the States' Stage 1 entitlements in any year
are not less, in absolute terms, than in the previous
year. This arrangement will be supplemented in the
first three years of the new scheme 1976-77,
1977-78 and 1978-79) by a further undertaking that
the entitlements will not be less in a year than the
amount which would have been yielded in that year
by the financial assistance grants formula as laid
down in the States Grants Act 1973-75.
( 11) A total entitlement for all States will first be
determined, to be then divided between the States.
( 12) The initial per capita relativities between the
States in their Stage 1 entitlements will be the
relativities in the financial assistance grants
in 1975-76.
( 13) Subject to ( 17) below, and to any absorption of
specific purpose payments, these relativities will
be carried for-ward into subsequent years in such
a way as to maintain the proportionate relationships 0
between the per capita entitlements of the States.
( 14) The four less populous States will continue to be
free to apply for grants on the recommendation of
the Grants Commission in addition to their basic
entitlements as yielded under the arrangements summarised
above.
The matter of the relationship between the special grant
which Queensland is at present receiving on the
recommendation of the Grants Commission and the tax
sharing arrangements is regarded as essentially one
between the Commonwealth and Queensland Governments
and will be considered by those Governments as
necessary*
( 16) The States will be paid their Stage 1 entitlements on
a monthly pro-rata basis, with adjustments during the
financial year as necessary as estimates of personal
income tax collections in the year are varied ( this
is similar to z: ie arrangements under which the
financial ass2._=.; zance grants are paid).
( 17) There will be a :,-_! iodic review of relativities between
all States.
( 18) There will be full and precise documentation to
record the understandings between Governments in
relation to Stage 1 but this will not take the form
of a formal Agreement.
Stage 2
( 19) Under Stage 2 each State will be able to legislate
to impose a surcharge on personal income tax in the
State, ( but not company taxation or withholding tax
on dividends and interest) additional to that
imposed by the Commonwealth, or to give ( at cost
to the State) a rebate on personal income tax
payable under Commonwealth law and to authorise
the Commonwealth to collect the surcharge or grant
rebate a~ s its agent.
Any State surcharges or rebates will be expressed
in percentage terms.
( 21) Assessment provisions, and the basic income tax
rate structure, will continue to be uniform
throughout Australia, these being matters for the
Commonwealth to determine.
( 22) The Commonwealth will at all times remain the sole
collecting and administrative agency in the income
tax field.
( 23) The level of any State surcharges or rebates will
be a matter for consideration by each State; relevant
decisions will be taken within an appropriate
framework of consultation with the Commonwealth and
other States, but ultimately the level of surcharge
or rebate will be a decision for each individual
State. In exercising these powers the States will
accept responsibility to work in parallel with and
not in negation of the overall economic management
policies of the Commonwealth.
( 24) Equalisation arrangements will be made so that less
populous States will be enabled to obtain the same
relative advantage from a surcharge as the States
with a broader tax base.
The Grants Commission will be responsible for
assessing amounts payable under the arrangements
referred to under ( 24).
( 26) The basis . for assessment of equalisation assistance to
the-less populous States in regard to the yield of
State surcharges levied under Stage 2 ( see points ( 24)
and ( 25) above) will be that supplementary assistance,
will be provided to a less populous State levying a
surcharge to bring the per capita yield from the
surcharge up to the average per capita amount which
would be yielded if New South Wales and Victoria levied
a surcharge on the same basis. The assessment will
be independent of any examination of the overall
financial position of the State concerned vis-a-vis
other States.
( 27) An officers' working party is to formulate detailed
proposals to implement State 2. The firm target
is to have an appropriate framework established,
relevant matters agreed and necessary legislation
prepared in time for Stage 2 to commence from the*
beginning of 1977-78.
( 28) At an appropriate time the Commonwealth will consider
what implications Stage 2 might have in relation to
the Territories.
Local Government Assistance
( 29) There will be a new scheme of local government
assistance, beginning in 1976-77, under which such
assistance, to be distributed through the States,
will be related to the yield of Commonwealth personal
income tax.
In regard to assistance for local government, an
amount of such assistance in 1976-77 having been
determined by the Commonwealth Government having
regard to its overall budget considerations, a
percentage figure will be calculated by relating.
this amount to personal income tax collections in
1975-76. In 1977-78 and each subsequent year the
amounts of assistance will be determined by applying
that percentage to Commonwealth personal income tax
collections in the previous year excluding the
effects of any special surcharges or rebates. The
percentage figure could be subject to any absorption
of specific purpose payments.
Implications for Tax Forms and Assessment Notices
( 31) In relation to tax forms, changes will be minimal
apart from necessary changes to take account of
surcharges or rebates.
( 32) Assessment notices will b e changed only to accommodate
State surcharges or rebates ( any Commonwealth
surcharge or rebate would, of course, also be shown),
with information on disposition of Commonwealth tax
to States. and local government provided to taxpayers
separately but in conjunction with assessment notices.
Review of Total Tax Sharing Arrangements
( 33) There will be a review of' the ta x sharing arrangements
as a whole pe= zicodically. The first review will be..
made at some 7Lme before the end of 1980-81 with
any revisions a~ plying as from the beginning of the
next financial. -ea= after the review.
ATTACIDNT B
TAX SHARING ADDITIONAL POINTS AGREED
FOLLOWING DISCUSSION AT PREMIERS'
CONFERENCE, JUNE 1976
The Commonwealth Government undertakes that, when
post-budget changes in personal income tax legislation
with substantial effects on the States' entitlements
are made, it will consider, in consultation with
the States, appropriate adjustments in the
arrangements to offset the effects on the States
entitlements ii that particular financial year
having regard to other relevant factors impinging
on the States' budgetary positions. Any
necessary consultations with the Stat'es on ths
matter will be arranged at the earliest practicable
stage. In relation to the review 6f the tax sharing
arrangements as a whole which'will take place
b. efore the end of 1980-8j. there will be arrangements
made for the Commonwealth and State Governments to
agree, well in advance of the review, on the
procedures which are to be followed in connection
with it.
-6-
Advice in relation to the review-, of relati~ ities
between the States in their Stage 1 entitlements will
be sought from an independent review body; aspects of
this matter are to be further considered between the
Commonwealth and the States at a meeting to be arranged
as soon as practical.
Interest on future issues of Commonwealth securities will
be subject to State income tax surcharges under Stage 2
of the tax sharing scheme; this change will not apply
retrospectively to interest on securities already issued.
The precise timing of this change will be the subject of
an announcement by the Treasurer~ at a later date.
The arrangement under which the States will be guaranteed
to receive not less than the amount yielded by the present
grants formula ( see Item ( 10) in Attachment A) will be
extended for a further year from 3 to 4 years i. e. to
include -1979-80. ATTACM-ThENT C
ESTIATED AMOUNTS PAYABLE TO THE STATES IN 1.976-7 7 UINDER THE NEW
TAX, SHARINC * ARRANGEMENTS COMPARED WITH FINANCIAL ASSISTANCE
GRANTS FORMUFLA YIELD FOR 1975-76
Financial Assistance Grants
1.975-76 million 946.7 706.4 536.8 363.1 363.0 156.8
3,072.8 ( 2)
Estimated Entitlements Under Tax Shar-i-n
Scheme 1976-77
million
1,141.6 850.9 648.7 437.6 443.7 188.6
3,711.1 ( 3)
Increase in
over ( 1)
million 194.9 144. 5
111.9 74.5 80.7 31.8
638.3 Per Cent
20.6 20.5 20.8 20.5 22.2 20.3 20.8
N S . W.
VIC. QLD. S . A.
W. A.
TAS TOTA L
ATTACHMENT D
COMPARISON BETIWEEN ESTIMATED AMOUNT PAYABLE TO THE STATES
IN 1976-77 UNDER THE NEW TAX SHARING ARRANGEMENTS WITH
AMOUNT THAT WOULD HAVE BEEN PAID UNDER THE EXISTING FOMfULA
FINANCIAL ASSISTANCE GRANTS
NOTE:-The very preliminary nature of the following
estimates, which are based on assumptions about
movements in the year ahead in average wages and
other variables, is to be emphasised; the final
results could well be significantly different;
see text of the press release.
Estimated yield of
Present Formula in
1976-77
million S( 2)
Estimated Entitlements
under Tax
Sharing Scheme million Excess of
Over ( 1)
million
1,124.6 838.2 638.9
431.0 437.1 185.8 1,141.6 850. 9
648.7 437.6 443.7 188.6
3,655.6 3,711.1
NSW Vic QLD.-SA WA TAS TUBAL 17.0 12.7 9.8 6.6 6.6 2.8
55.5
-7-
ATTACHMENT E
State Government Loan Council Proerams 1975-76 And1976-77
1975-76
Total ( a)
$' 000 1976-77
Total $' 000 Percentage Increase
New South Wales
Victoria Queensland South Australia
Western Australia
Tasmania 411,171 326,615 172,378 169,425 120,296 91,115 431,873 343,060 181,057 177,955 126,353 95,702
TOTAL 1,291,000 1,356,000
Includes permanent additions agreed at June 1975 Loan Council meeting.
00
T ir i J I H J r iM I r ir
Proposed State Government Loan Council Programs in 1976-77
Division between Borrowingsand Capital Grants
Borrowing Programs 000
287.915 228,706 120,705 118,637 84,235
63,802
TOTAL 904,000 452,000 ATTACHMENT G
LARGER AUTHORITIES' PROGRAMS 1975-76 AND 1976-77
1975-76 Program
Total $' 000
303,720 ( a)
256,693 149,769 ( a)
38,122 38,264 23,107 1,356,000
1976-77 Program ( b)
Total Percentage Increase
$' 000
360,108 18.6
304,351 18.6
177,575 18.6
45,200 18.6
45,369 18.6
27,397 18.6
809,675 960,000 18.6
Includes permane: z addition of $ 10 million to New South
Wales and $ 7.1 mirllion to Queensland.
The distribution : f -he basic program between the States
is based on the d-is: ribution of the 1975-76 program.
N. S. W.
VIC QLD S. A.
W. A.
TAS Capital Grants $' 000
143,958 114,354 60,352 59,318
42,117 31,901 Total $' 000
431,873 343,060 181057 177,955 126,352 95,703
NSW VIC QLD SA
WA TAS TOTAL I I I
.4
A TT ACH EEN T Hi
WELFARE HOUSING ADVANCES
1975-7 6
$ 1000
123,411 98,1 5.9
31,010
56,360 33,440 22,9220
364,000 1976-77
00
123,411 87,159 37,410 56,3-00
35, 440
24, 220
37 5,000
NSW Vic QLD SA
WA TAS TOTAL 0