Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Federal Financial Relations Bill 2009 appropriates funds to provide financial assistance to the states and territories and implements this government’s reforms to modernise federal financial relations in accordance with the new financial framework agreed by COAG in the Intergovernmental Agreement on Federal Financial Relations.

COAG has agreed to a new architecture of cooperative funding arrangements that will replace the inefficient, complex and dysfunctional system of grants that has plagued areas of joint Commonwealth and state involvement in the delivery of services for decades. The old ways of the past are behind us, and we are now heading in a new direction with modern federalism.

In agreeing the new framework for federal financial relations, the Commonwealth committed to the provision of ongoing financial support for the states’ service delivery efforts through:

• general revenue assistance, including the ongoing provision of GST payments, to be used by the states for any purpose;
• national specific purpose payments (national SPPs) to be spent in the key service delivery sectors; and
• national partnership payments to support the delivery of specified outputs or projects, to facilitate reforms or to reward those jurisdictions that deliver on nationally significant reforms.

The bills provide an appropriation for the Commonwealth to make GST payments to the states equivalent to the revenue received from the GST in respect of financial years starting from 1 July 2009, and for these payments to be distributed in accordance with the principle of horizontal fiscal equalisation. These provisions are equivalent to the current GST payment provisions.

Each state will continue to receive its adjusted population share of the GST revenue. The adjusted population of each state will be calculated by multiplying the state’s population, determined by the Australian Statistician, by a GST revenue-sharing relativity, determined by the Treasurer.

The bills provide for the repeal of parts of A New Tax System (Commonwealth-State Financial Arrangements) Act with effect from 1 July 2009. Once amended, the ongoing provisions of the current act will be limited to the procedures for managing the rate and base of the GST. As such, the bills also provide for the act to be renamed A New Tax System (Managing the Rate and Base of the GST) Act to reflect better its abbreviated content.

The government has a range of revenue sharing and other general purpose payments in place with the states, other than the GST arrangements. Payments under these arrangements will be provided for in this bill in order to bring all payments to the states under one piece of legislation. Monthly payments of general revenue assistance will be determined by the Treasurer and paid through the COAG Reform Fund. These payment arrangements will be set out in the intergovernmental agreement.

The bill provides appropriations for the Commonwealth to make an ongoing financial contribution from 1 July 2009 to support state and territory service delivery in the form of five national SPPs covering the key human service sectors of:

• health care;
• schools;
• skills and workforce development;
• disability services; and
• affordable housing.

The bill also provides a facility for me, as Treasurer, to determine the appropriate amount of national SPPs for this financial year. This transitional arrangement for 2008-09 is necessary to allow the government to reconcile the total amount to be paid for the year, with the amount already paid under the existing arrangements, in order to determine the correct payment for the remainder of the year.

The states are required to spend each national SPP in the sector for which it is provided. This is the only condition imposed on the states in respect of national SPPs. This will give the states the budget flexibility they need to allocate resources where they will produce the best results for the community.

In the past, onerous Commonwealth conditions on funding arrangements have tended to stifle innovation and flexibility, resulting in duplication, overlap, cost shifting and unnecessary administration costs.

In establishing these new national SPPs, the Commonwealth will provide the states with more funding certainty. The bills specify the amount of funding for each national SPP for 2009-10 and provide for the base funding to be indexed annually by a growth factor. There will be no more five-year agreements with take it or leave it offers, as occurred under the previous arrangements. These national SPPs are ongoing payments, with regular funding adequacy reviews.

The Treasurer of the day will determine the annual growth factor and each state’s or territory’s share of the national SPPs in a financial year. These determinations will be in accordance with the principles provided in the intergovernmental agreement and detailed in a methodology paper to be agreed to in March by the ministerial council on federal-state financial relations.

These five national SPPs are associated with six national agreements, which are schedules to the new intergovernmental agreement. While the states have greatly improved budget flexibility in respect of these payments, they are now also subject to substantially improved public performance reporting against clearly specified performance indicators and benchmarks. Roles and responsibilities have also been clarified, and the performance of each jurisdiction—against mutually agreed objectives and outcomes set out in the national agreements—will be independently assessed by the COAG Reform Council.

The Commonwealth will enter into new incentive arrangements with the states—through national partnership payments—to drive economic and social reforms. It has already started this process, with more than 20 national partnerships agreed by COAG already. Continuing payments which conform to the new arrangements will be deemed to be national partnerships.

The bill also provides for the Treasurer to credit amounts to the COAG Reform Fund for the purpose of providing financial assistance to the states in the form of national partnership payments.

These payments will reward those states which best deliver the services and outcomes to their citizens, and not reward those that do not. In so doing, they will drive a new micro-economic reform agenda in this country. Most importantly, they will improve the quality of services available to the Australian community—in particular, for hospitals and schools.

National partnership payments through the COAG Reform Fund may be made to the states as:

• project payments—where they support the delivery of new projects of national importance, including new infrastructure projects;
• facilitation payments—where they may assist a state to lift its standards of service delivery or give recognition to a state which agrees to implement reforms; or
• reward payments—where states are rewarded for their progress in a way that encourages the achievement of ambitious performance benchmarks.

For the first time in a very long time, the complexity of all the Commonwealth’s financial relations with the states and territories will come under the umbrella of just one piece of legislation. That will be a significant achievement for the government, but it will also greatly improve the public transparency of these payments and the ability of the parliament to scrutinize the payment arrangements.

I would like to spend a few moments outlining the ways in which these bills improve parliamentary scrutiny of payments to the states, while at the same time providing more flexible payment arrangements.

The payment arrangements for the new national partnership payments are unashamedly performance oriented. That requires some flexibility, which is provided for by the Treasurer of the day determining the monthly amount to be paid, based on the advice from the COAG Reform Council or the relevant minister. Similar provisions apply to the payment of general revenue assistance other than the GST.

The determination of these amounts, within a global limit provided by the parliament, will be tabled in parliament each month. Consequently, parliament will receive a detailed, consolidated, monthly running tally of payments to the states, including information about which states are performing in respect of particular performance benchmarks.

Parliamentary approval will be required to set the maximum amount that may be credited by the Treasurer to the COAG Reform Fund for the purpose of providing financial assistance to the states in the form of national partnerships or general revenue assistance in a particular financial year. That global limit is provided for in the bill in respect of 2008-09, and must be specified in an annual appropriation act for subsequent financial years.

That means that the parliament will have the opportunity to consider the global limit on these payments, in much the same way that it does at present where these payments are appropriated through the annual appropriation acts. If no global limit is legislated by the parliament, then the Commonwealth will not be able to make partnership payments or grants of general purpose financial assistance to the states.

Parliamentary approval will also be required to increase the amount of national SPPs payable each financial year. Determinations by the Treasurer of the growth factors and distribution of national SPPs will be legislative instruments and therefore disallowable.

Full details of these measures are contained in the explanatory memorandum. These bills provide for a very substantial improvement in the framework for federal-state relations.

I commend the bills to the House.

Debate (on motion by Mr Lindsay) adjourned.