General revenue assistance
Budget Balancing Assistance
The Australian Government has guaranteed that in each of the transitional years following the introduction of tax reform, each State’s budgetary position will be no worse off than had the reforms not been implemented. This is given effect to by the payment of transitional assistance in the form of Budget Balancing Assistance.
No State required Budget Balancing Assistance in 2005-06 as each State’s share of GST revenue has exceeded its Guaranteed Minimum Amount. In 2005-06, total GST revenue payments to the States exceeded their combined Guaranteed Minimum Amounts by $1,520.2 million.
Consistent with the terms of the Intergovernmental Agreement, the Australian Government provided a $74.6 million advance of Budget Balancing Assistance to New South Wales during 2005-06, based on estimates at the time. However, the Commissioner’s subsequently higher GST determination resulted in no Budget Balancing Assistance entitlement for New South Wales.
Under the Act, this $74.6 million advance of Budget Balancing Assistance to New South Wales in 2005-06 will be deducted from payments made in 2006-07.
The calculation of State Guaranteed Minimum Amounts and Budget Balancing Assistance entitlements for 2005-06 is shown in Table 32.
Table 32: Guaranteed Minimum Amount components, GST revenue provision and Budget Balancing Assistance to the States and Territories
- Where the difference between the Guaranteed Minimum Amount and GST revenue is less than zero, the amount is zero.
Residual adjustments
The Australian Government introduced residual adjustments in 2004 to ensure that all States receive their appropriate payments under the Act as they move off or onto Budget Balancing Assistance. The Act stipulates the Australian Government and the States must agree on the methodology for calculation of the adjustments before payments can be made. This was agreed; consequently residual adjustments totalling $95.2 million were provided to the States in 2005-06. Residual adjustment amounts paid to the States are set out in Table 33.
Table 33: Residual adjustment amounts, from 2002-03 to 2005-06
In Budget Paper No. 3, Federal Financial Relations 2006-07, New South Wales was estimated to require a negative 2005-06 residual adjustment amount of $48.3 million to enable the 2004-05 GST overpayment to be recovered.
However, final GST and BBA amounts for 2005-06 resulted in the overpayment being effectively recovered using other mechanisms under the Act and a negative residual adjustment was not required.
National Competition Policy Payments
National Competition Policy Payments are distributed between the States on an equal per capita basis. Payment is subject to each State satisfactorily meeting conditions specified in the Agreement to Implement the National Competition Policy and Related Reforms.
Previously, prior to the scheduled payment of National Competition Policy Payments in each year, the National Competition Council assessed whether each State had met the specified conditions and provided recommendations for consideration by the Australian Government.
However, in 2005-06, for the first time, the Australian Government also considered recommendations from the National Water Commission in relation to States’ progress on water reform.
Out of a maximum level of payments in 2005-06 of $799.9 million, the Australian Government, on the basis of recommendations from the National Competition Council and National Water Commission, applied permanent deductions of $40.7 million, suspensions of $43.2 million and reimbursements of $100.5 million. The payments made to the States in 2005-06, are set out in Table 34.
Table 34: National Competition Policy Payments
Compensation payments for GST revenue deferred
The Australian Government is compensating the States for the deferral of GST revenue as a result of the Australian Government’s decision to allow certain small businesses and non-profit organisations to pay GST annually. As part of these arrangements, $127 million has been paid to the States in 2005-06.
Table 35: Compensation for GST deferral
Consistent with the Act, the $219.4 million in compensation paid to the States in 2004-05 as an advance from their 2005-06 GST entitlement was deducted from GST payments to the States in 2005-06. This amount was repaid to the States in 2005-06 in addition to the $127 million paid to compensate the States for the estimated 2005-06 impact of the decision.