Agreement on Reform of Commonwealth-State Financial Relations

The Prime Minister, John Howard, has signed an agreement with State and Territory leaders to reform Commonwealth-State financial relations.

This is the text of a statement released by John Howard:

I am pleased to announce that Commonwealth, State and Territory leaders have today signed a landmark Agreement that will transform Commonwealth-State financial relations, as promised in the Commonwealth Government’s Tax Reform: not a new tax, a new tax system.

The Commonwealth has introduced legislation to provide all of the revenue from the GST to the States and Territories and to protect the rate and base of the GST in accordance with this Agreement. The Agreement will commence on 1 July 1999. As a further sign of the Commonwealth’s good faith, the Commonwealth will attach the signed Intergovernmental Agreement to the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 and similarly the States and Territories will attach the Agreement to their legislation.

The new arrangements will provide the States and Territories with a stable and growing source of revenue to fund important community services. The States have committed to abolish nine inefficient taxes, removing their reliance on these distortionary and growth-reducing taxes and charges. The Agreement will also remove the States and Territories’ current reliance on Financial Assistance Grants.

In each of the transitional years following the GST’s introduction, the Commonwealth will compensate any State whose budgetary position is temporarily worse off. It has also agreed to more generous transitional arrangements from the third year. As GST revenue increases, all States will receive large financial gains, even after abolishing stamp duty on non-residential conveyances.

The Commonwealth has also agreed to provide further assistance to the States and Territories in relation to the effects on State and Territory budgets of the abolition of wholesale sales tax equivalent payments by Government business enterprises and to ensure that local government benefits fully from the removal of wholesale sales tax and excises on their purchases. It has also agreed to provide funding to meet increased public housing costs as a result of tax reform, subject to the resolution of the new Commonwealth-State Housing Agreement.

A Ministerial Council, chaired by the Commonwealth Treasurer, will oversee the operation of the Agreement. It will meet at least once a year. It is also envisaged that the Council of Australian Governments will meet at least once a year for Heads of Government discussions.

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