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5517.0 - Information Paper: Accruals-based Government Finance Statistics, 2000  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 13/03/2000   
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Contents >> Appendix 1. Treatment of goods and services tax revenues in government finance statistics

1. This appendix details the treatment of the goods and services tax (GST) revenues as a tax of the Commonwealth in government finance statistics (GFS).

BACKGROUND

Goods and services tax

2. As part of the Intergovernmental Agreement on Principles for the Reform of Commonwealth-State Financial Relations (IGA) of June 1999 endorsed by the Prime Minister, all Premiers and Chief Ministers, the Commonwealth Government has enacted legislation to impose the GST from 1 July 2000 and provide for all of the GST revenue to be granted to the States and Territories.

3. The GST is imposed by three Acts:

      • A New Tax System (Goods and Services Tax Imposition—General) Act 1999;
      • A New Tax System (Goods and Services Tax Imposition—Customs) Act 1999;
      • A New Tax System (Goods and Services Tax Imposition—Excise) Act 1999.
The rules relating to when and how the GST arises and who is liable to pay it, when and how input tax credits (and who is entitled to them) arise, how to calculate payments and refunds of GST and how they are to be made, and exemptions from GST are set down in A New Tax System (Goods and Services Tax) Act 1999. GST legislation also provides for the maintenance of the GST rate and base in accordance with the IGA of June 1999.

4. Under the IGA, the Commonwealth Government will permanently cease the Commonwealth wholesale sales tax and the so-called safety net tax arrangements from 1 July 2000. State and Territory governments will also permanently cease bed taxes, financial institutions duties, and stamp duties on marketable securities at the same time and adjust their gambling taxes to take account of the impact of the GST on gambling operators. State debit taxes will cease on 1 July 2005 and the need to continue a number of State stamp duties on financial instruments and leases will also be reviewed in 2005. Note that, as part of the tax reform, the Commonwealth will retain income tax revenues for its own purposes.

5. The GST will be collected by the Commonwealth through the Australian Taxation Office. State and Territory governments will pay an administrative fee to the Australian Taxation Office to cover the administration of the GST. These fees will not be deducted from GST revenues passed to the States and Territories.

6. GST revenues replace the Commonwealth Financial Assistance Grants currently paid to the States and Territories by the Commonwealth (however, the Commonwealth will continue to provide Special Purpose Payments to the States and Territories). The Commonwealth will make revenue grants to the States and Territories equivalent to the GST revenue. There will be no restrictions on the use a State or Territory makes of these revenue grants.

7. The share of GST revenue each State or Territory will receive (see Appendix B of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations) will be based on its population share adjusted by a relativity factor embodying per capita financial needs recommended by the Commonwealth Grants Commission. That is, horizontal fiscal equalisation principles will be applied in the distribution of GST revenue. The relativity factor for a State or Territory will be determined by the Commonwealth Treasurer after consultation with each State or Territory.

8. The Commonwealth has guaranteed that, in the transition period following the introduction of the GST, it will provide interest free loans and grants to the States and Territories to ensure that no State or Territory government will be financially worse off in budgetary terms. The guarantee period will be not less than three years from the imposition of the GST. Any payments or repayments made under this guarantee will be exempt from assessments of per capita relativities recommended by the Commonwealth Grants Commission.

9. The GST rate has initially been set at 10 per cent (s4, A New Tax System (Goods and Services Tax Imposition—General) Act 1999). This rate was originally proposed by the Commonwealth Government and was accepted by the State and Territory governments at the Special Premiers’ Conference of November 1998. The initial rate can be varied after the first year of the operation of the GST if the variation has both the unanimous support of the State and Territory governments and the endorsement of the Commonwealth Government. During the first year of the operation of the GST, the Commonwealth will have the discretion to make unilateral changes to the GST base where such changes are of an administrative nature, are necessary to make minor adjustments to the GST, and are needed to protect the revenues going to States and Territories. A Ministerial Council will act as a consultative mechanism for decisions on proposed administrative base changes.

10. Under the original IGA of November 1998, the States and Territories were to have made general purpose assistance payments to local government in place of the Commonwealth and assist first home owners through funding and administering a new uniform first home owners scheme. However, the State responsibility for making general purpose assistance payments to local government does not form part of the new IGA.

11. Constitutionally, the GST is a Commonwealth tax because the GST is imposed and administered under Commonwealth legislation. The Commonwealth is the collecting government, but it will be distributing all GST revenues to the States and Territories.

International Monetary Fund tax revenue attribution guidelines

12. Government finance statistics are compiled to facilitate the analysis (particularly fiscal analysis) of government operations and their impact on the economy. The economic impact of government is identified through the application of a system of common definitions and classifications which allows meaningful comparisons to be made across jurisdictions and between countries. To this end, the ABS adopts the relevant guidelines of the International Monetary Fund’s A Manual on Government Finance Statistics (1986).

13. In relation to the attribution of tax revenues to collecting or beneficiary governments (a beneficiary government is one which receives some or all of the proceeds from taxes collected by another government), Chapter II.G of the IMF GFS Manual states that when a government ‘… collects taxes and pays them over in whole or in part to other governments, it is necessary to determine whether the revenues should be considered to be those of the collecting government which it distributes to others or those of the beneficiary governments which the collecting government receives and passes on only as their agent …’. The IMF Manual then goes on to point out that because constitutional provisions vary widely among countries, it is not possible to formulate a single rule for the attribution of tax revenues to collecting or beneficiary governments.

14. However, Chapter II.G does offer a general guide for the attribution of tax revenues to non-collecting beneficiary governments. Tax revenues may be attributed to non-collecting beneficiary governments:

        ‘(1) when they have exercised some influence or discretion over the setting of the tax or distribution of its proceeds; or

        (2) when under provisions of the tax law they automatically receive a given percentage of the tax collected or arising in their territory; or

        (3) when they receive tax revenue under a tax law leaving no discretion to the collecting government.’

15. This general guide is followed by five specific rules for use in the attribution of tax revenues among collecting and beneficiary governments. These rules are:
        ‘(1) Tax revenues not distributed to any government other than the government collecting them should be shown as revenue of the collecting government.
        (2) Tax revenues which a government collects and unilaterally earmarks at its discretion for distribution to another government should be shown as revenue of the collecting government and an intergovernmental transfer to the beneficiary government.
        (3) Tax revenues that a government collects on behalf of another government, with the beneficiary government unilaterally determining the amount of the taxes and distribution of their proceeds, should be shown as revenue of the beneficiary government. They may be shown by the collecting government only as a memorandum item for agency transactions.
        (4) Tax revenues collected by one government and transferred to another with the amount or distribution decided upon jointly by both governments, or on the basis of the tax collected or arising in the territory of the beneficiary government, are to be shown as revenues of the ultimate beneficiary government and by the collecting government only as a memorandum item for agency transactions.
        (5) If a regional or central government authorizes or requires local collection of a particular tax and permits local retention of part or all of the proceeds, the local shares are not classified as intergovernmental revenue or expenditure, but as tax revenue of the local governments ultimately receiving the proceeds.’

TREATMENT OF GST REVENUES IN GFS

Broad statistical treatments

16. The ABS must decide which of two broad statistical treatments should be applied to GST revenues in GFS. These treatments reflect either a ‘constitutional’ approach or an ‘agency’ approach. (These approaches are the same as those considered in deciding in 1997 on the classification of the so-called safety net taxes (s90 taxes) which, incidentally, cease when the GST is imposed.)

17. Under a ‘constitutional’ approach, the GST would be considered to be a Commonwealth tax and GST revenues would be classified as Commonwealth tax receipts. The GST-funded payments made by the Commonwealth to the States and Territories would be classified as current grants.

18. Under an ‘agency’ approach, the Commonwealth would be considered to be acting in an agency capacity on behalf of each State and Territory government in the collection of individual State or Territory tax revenues. On the Commonwealth side, GST receipts would be treated as taxes received and the payment of GST revenues to the States would be treated as negative taxes received. This would net out the GST for the Commonwealth. Receipts of GST revenues by the States and Territories would be treated as taxes received.

Attribution of GST revenues

19. The following discussion relates the circumstances of the GST arrangements to the IMF’s five specific rules for attribution as set out in paragraph 14 above.

        Rule 1: Tax revenues not distributed to any government other than the government collecting them should be shown as revenue of the collecting government.
        This rule is inapplicable.
        Rule 2: Tax revenues which a government collects and unilaterally earmarks at its discretion for distribution to another government should be shown as revenue of the collecting government and an intergovernmental transfer to the beneficiary government.
        This rule is applicable because the Commonwealth has the ultimate role in the determination and distribution of GST revenue.
        Rule 3: Tax revenues that a government collects on behalf of another government, with the beneficiary government unilaterally determining the amount of the taxes and distribution of their proceeds, should be shown as revenue of the beneficiary government. They may be shown by the collecting government only as a memorandum item for agency transactions.
        This rule is inapplicable due to the following:
        • the GST is imposed and collected by the Commonwealth under the following legislation: A New Tax System (Goods and Services Tax Imposition—General) Act 1999, A New Tax System (Goods and Services Tax Imposition—Customs) Act 1999, A New Tax System (Goods and Services Tax Imposition—Excise) Act 1999;
        • the Commonwealth Government must endorse any changes to the GST rate put forward unanimously by the States and Territories and the rate change must be enacted into law by the Commonwealth Parliament (June 1999 IGA, clause 31 and A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, Section 10); and
        • the relativity factor for each State or Territory will be determined by the Commonwealth Treasurer after considering the recommendations of the Commonwealth Grants Commission and after consultation with each State or Territory (June 1999 IGA, Appendix B, clause B2 and A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, Section 9).
        Rule 4: Tax revenues collected by one government and transferred to another with the amount or distribution decided upon jointly by both governments, or on the basis of the tax collected or arising in the territory of the beneficiary government, are to be shown as revenues of the ultimate beneficiary government and by the collecting government only as a memorandum item for agency transactions.
        This rule is inapplicable because the distribution of GST revenue:
        • is not decided jointly by both the Commonwealth Government and the State and Territory governments because the Commonwealth has the ultimate role in the determination and distribution of GST revenue; and
        • is not distributed on the basis of tax collected or arising in the territory of beneficiary governments; the distribution of GST revenues will be based on the population share of each State and Territory adjusted by a relativity factor embodying per capita financial needs (June 1999 IGA, clauses 7–8 and Appendix B), thus there is no direct connection between the tax arising in a jurisdiction and the tax revenue returned to it.
        Rule 5: If a regional or central government authorizes or requires local collection of a particular tax and permits local retention of part or all of the proceeds, the local shares are not classified as intergovernmental revenue or expenditure, but as tax revenue of the local governments ultimately receiving the proceeds.
        This rule is inapplicable.

20. The above discussion highlights that the Commonwealth exercises considerable influence and discretion over the setting of the GST and the distribution of its proceeds. It also suggests that, individually, the States and Territories do not have sufficient influence or discretion over the setting of the GST and the distribution of its proceeds. GST revenues will be distributed in accordance with Commonwealth Grants Commission fiscal equalisation principles in a similar manner to that already applied in the distribution of income taxes. This situation does not fit the IMF guidelines relating to the attribution of tax revenues to beneficiary governments, which means that GST revenues should not be treated as individual State or Territory tax revenue. Thus, the GST should be treated as a Commonwealth tax for government finance statistics purposes.

s90 taxes versus the GST

21. On 5 August 1997, the High Court ruled that State and Territory business franchise fees on tobacco were constitutionally invalid. The Commonwealth Government legislated for and collected replacement excise taxes (s90 taxes) on a uniform basis and returned this revenue to the States and Territories after allowing for administration costs. Constitutionally, the Commonwealth had to apply a single excise tax rate in the place of the various business franchise tax rates which had been applied in each of the States and Territories. To ensure that no State or Territory was worse off financially and to ensure existing consumer price levels were maintained, a set of administrative arrangements was put in place. In addition, the Premiers and Chief Ministers had agreed in writing that s90 taxes were to be regarded as State/Territory taxes. The ABS therefore took the view that there should be no resultant impact on the statistics and decided to treat the s90 taxes as State/Territory taxes for the purposes of GFS. The s90 taxes will cease on 1 July 2000 when the GST is introduced.

22. The economic circumstances of the GST arrangements differ in material ways to those applying to s90 taxes because the arrangements for the distribution of GST revenues do not have the same aspect as the s90 arrangements do of returning tax revenues arising in the territory of each jurisdiction.

ABS treatment of GST revenues in GFS

23. In the light of the above, the ABS will adopt the constitutional treatment for GST revenue and classify GST revenues as Commonwealth taxes in GFS. The distribution of GST revenues to State and Territory governments will be treated as grants. Additional amounts of funding from the Commonwealth to offset any shortfall under the transitional arrangements will be classified either as loans or grants depending on how they are provided. These transactions will be separately identified in government finance statistics. The ABS will also publish an alternative view, as a memorandum table in the analytical section of its GFS publication, showing the GST values against individual States and Territories.





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