Commonwealth Numbered Regulations - Explanatory Statements

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COMMONWEALTH BORROWING LEVY REGULATIONS (AMENDMENT) 1997 NO. 337

Statutory Rules 1997 No. 337

Issued by the authority of the Treasurer

Commonwealth Borrowing Levy Act 1987

Commonwealth Borrowing Levy Regulations (Amendment)

Section 8 of the Commonwealth Borrowing Levy Act 1987 (the Act) provides that the Governor-General may make regulations for the purposes of the Act.

Commonwealth authorities and companies listed in the Schedule to the Act are subject to the Commonwealth borrowing levy on their outstanding borrowings from financial markets.

Section 6 of the Act provides that the rate of the levy is such annual rate as is prescribed by regulation, being an annual rate not exceeding 0.5 per cent. Since the Act took effect, the rate has been set at 0.125 per cent per annum (Statutory Rules 1987 No. 280).

The purpose of the proposed regulation is to reduce the annual rate of the levy to zero, from the current 0.125 per cent, with effect from 16 December 1997 - the day following the balance date for the next six monthly levy instalment.

The levy was introduced to promote the Commonwealth's competitive neutrality objectives. Its purpose was to offset the borrowing cost advantages conferred by financial markets on government owned entities as a result of explicit government guarantees and perceptions of implicit government support. The levy currently applies to the outstanding borrowings of six authorities: Australian National Line, Australian National Railways Commission, Australia Post, Airservices Australia, Snowy Mountains Hydro-electric Authority and Telstra. Six other authorities are listed in the Schedule to the Act but do not pay the levy as they do not have outstanding financial market borrowings.

As part of the Commonwealth's implementation of competitive neutrality under the Competition Principles Agreement, the Commonwealth borrowing levy will be replaced by debt neutrality charges set and administered by portfolio Ministers for corporatised businesses within their portfolios. The new arrangements for debt neutrality will cover a larger group of businesses than currently listed in the Schedule to the Act and would be implemented under policy relating to the corporate governance of Commonwealth authorities rather than by legislation. It is intended that debt neutrality charges be put in place over the period to July 1998.

This will first require on-going obligations of authorities and companies under the Act to be terminated, the effect of the proposed regulation.

The Act would be repealed, together with the related Commonwealth Borrowing Levy Collection Act 1987, after all levy obligations due in December 1997 have been received.

The regulation commences on 16 December 1997.