F 77/ 141
3AUSTRALIA
FOR PRESS 1 JULY 1977
PREMIERS' CONFERENCE/ LOAN COUNCIL MEETING 1 JULY 1977
Today's Premiers' Conference had before it a long agenda,
including some complex matters relating to the details of the
new tax sharing arrangements.
Under tax sharing, the states and local government authorities
already have access to, and a guaranteed share of, income tax
revenues. In the next stage the states will be able to increase
or decrease their shares of those revenues by increasing or
decreasing the rates of income tax payable by their residents.
It is important for the proper operation of responsible government
that the spending government should carry the responsibility also
for raising the money it spends. The tax sharing arrangements
are directed to ensuring that this is the situation at all levels
of government in Australia.
This Premiers' Conference has not been a haggle over the level
of general revenue funds to the states.
The results of discussion on various aspects of tax sharing
are as follows:
LOCAL GOVERNMENT TAX SHARING
Local government authorities receive each year 1.52% of nett
personal income tax collections in the preceding year. In
1976-77 they have received $ 140 million in this way which
represented a 75% increase over similar funds in 1975-76.
A further substantial increase is expected in 1977-78.
The funds are paid to the states for on-passing to local
authorities and the distribution between the states is
determined on the recommendation of the Commonwealth Grants
Commission. All state Premiers today agreed to accept the recommendations
of the Report of the Grants Commission in respect of new local
government relativities. These new relativities are to apply
from 1977-78. / Amending
-2-
Amending legislation will be given priority in the Budget
sittings and it is not expected to cause any delays in
payments to local government authorities this year.
The total amount of local government's entitlements will be
known shortly when the final figure for nett personal income
tax collections ( excluding the Medibank levy) for 1976-77 are
available. Set out below is a table showing the relativities
agreed by the Premiers. New Previous
Relativities Relativities
New South Wales 36.4977 36.6345
Victoria 25.4513 25.2845
Queensland 16.8606 17.3016
South Australia 8.6010 8.5178
Western Australia 9.3897 9.4015
Tasmania 3.1997 2.8601
100.0000 100.0000
STATES' STAGE 1 TAX SHARING ENTITLEMENTS
There have been problems this year caused by the fluctuations in
the estimates of the tax sharing entitlements. This is largely
because states opted to have their tax sharing entitlements
calculated as a percentage of the current year's personal income
tax collections, which are not finally known until after 30 June.
The Prime Minister suggested that stages might reconsider the
earlier Commonwealth proposal that the previous year's collections
be used as the base.
He offered payment of tax sharing entitlements for 1977-78 to the
states of $ 4,336.1 million if they were to decide on adoption of
that proposal. ( This would be subject to adjustments on account
of over payments in 1976-77 of their entitlements for that year
but would represent an increase in excess of $ 600 million over
the 1976-77 entitlement).
The Premiers agreed that Commonwealth and State officers should
examine and report on arrangements for changing the total tax
sharing entitlements from 33.6% of the current years collections
to an appropriate percentage of the previous year's collections.
This would reduce the uncertainty and the administrative
difficulties. Local government tax sharing entitlements
presently are based on collections in the preceding year.
Officers will also look at consequential matters arising from
such a change in arrangements and at the manner in which changes
in population estimates are taken into account in determining
state relativities from 1977-78. / PRE-BUDGET INFORMATION
-3
PRE-BUDGET INFORMATION
The Prime Minister indicated that the Commonwealth was unable
to provide pre-Budget information to the states other than
that presently available, namely:
A preliminary estimate of each state's Stage 1
entitlement for year ahead on basis of then
current Commonwealth tax legislation;
An estimate of the yield of a 1% surcharge/ cost
of a 1% rebate in that state on basis of then
current Commonwealth tax legislation;
Estimate of entitlement under former financial
assistance grants arrangements ( the guaranteed
entitlement); Relevant wage assumptions underlying the
above estimates; and
Certain other information to the extent this
is practicable and consistent with Budget
security.
The conflict between the requirements of Budget security and
the states' need for information would not arise if the states
were to agree to their tax sharing entitlements being based on
the previous year's collections.
REVIEW OF STATE RELATIVITIES
Some Premiers indicated they were not entirely happy with the
terms of reference for the review as provided in the states
( Personal Income Tax Sharing) Amendment Bill now before the Senate.
The Prime Minister agreed that officers would consult on the
guidelines and would also give consideration to suggested
amendments proposed by some of the Premiers.
In view of previous lack of unanimity about the composition of
the review body the Prime Minister suggested that the states
might like to accept the compromise proposal, a special
division of the Grants Commission supplemented by nominees
from the states.
It was agreed that the body to review the relativities should be
composed of the Chairman of the Grants Commission, two members
of the Commission, plus three additional members, one of whom
would be nominated by N. S. W. and Victoria and two by the four
other states. / INCOME TAX
-4-
INCOME TAX ( ARRANGEMENTS WITH THE STATES) BILL
This Commonwealth legislation, which would permit the stages
if they so chose to impose a surcharge or grant a rebate on
Commonwealth personal income tax in respect of taxpayers in
their states, was discussed briefly.
The Prime Minister welcomed any suggestions or comments on
the draft legislation from the states, and proposed that
such comments be examined by Commonwealth and state officers.