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FINANCIAL AGREEMENT BILL 1994
NEW SOUTH WALES
EXPLANATORY NOTE
(This Explanatory Note relates to this Bill as introduced into Parliament)
On 25 February 1994 an Agreement with respect to public sector debts was made
between the Commonwealth, States and Territories ("the financial agreement"). The
object of this Bill is to obtain Parliamentary approval of the financial agreement
between the Commonwealth, States and Territories and to provide for the appropriation
of money required for New South Wales to carry out the agreement. The 1994 financial
agreement replaces the original financial agreement between the Commonwealth and the
States made in 1927, as subsequently varied.
Clause 1 specifies the short title of the proposed Act.
Clause 2 provides for the commencement of the proposed Act on a day to be
proclaimed.
Clause 3 defines ``1994 financial agreement".
Clause 4 provides for the approval of the agreement set out in Schedule 1 to the
proposed Act.
Clause 5 provides for the Consolidated Fund to be appropriated to the extent
necessary for the purpose of carrying out the agreement on the part of New South
Wales.
Clause 6 makes consequential amendments to the Public Finance and Audit Act
1983.
Schedule 1 sets out a copy of the agreement. The agreement contains provisions for
the following purposes:
Power of States to conduct public borrowings
The financial agreement formalises certain voluntary arrangements that exist outside
the terms of the original financial agreement. The Commonwealth no longer borrows
on behalf of the States, with the States then meeting interest and sinking fund
obligations in respect of such debts previously raised on their behalf. The States now
conduct borrowings through their own central borrowing authorities. The 1994
financial agreement therefore:
(1) abolishes the explicit power of the Commonwealth to borrow on behalf of the
States;
(2) removes the restriction on States borrowing by the issue of securities in their
own names in both domestic and international markets;
(3) removes the requirement that the Commonwealth and States obtain Loan
Council approval of future borrowings.
Debt Retirement Reserve Trust Account
The 1994 financial agreement establishes obligations and arrangements in respect of
past Commonwealth borrowings on behalf of the States. The States and the Northern
Territory must refinance debt raised on their behalf by the Commonwealth. The
Commonwealth must enact legislation, as required under the 1994 financial
agreement, to replace the old National Debt Sinking Fund and the Northern Territory
Debt Sinking Fund with a new Debt Retirement Reserve Trust Account. The 1994
financial agreement provides for the payment of contributions to the Trust Account
by the States, the Northern Territory and the Commonwealth, calculated in
accordance with the terms of the 1994 financial agreement. The Commonwealth must
compensate the States and the Northern Territory for any additional costs incurred by
them as a result of the change-over.
Role of the Loan Council
The 1994 financial agreement provides for the continued existence of the Loan
Council and the formal membership of the Australian Capital Territory and the
Northern Territory. The Loan Council is to be a monitoring and co-ordinating body,
with the power to make resolutions in relation to the borrowings, fund raisings and
other financial arrangements of public sector entities. The 1994 financial agreement
also prescribes the operating procedures of the Loan Council.