Table 1 compares the revised revenue estimates for 1997-98 with the 1997-98 Budget estimates and provides estimates for 1998-99.

Total revenue in 1997-98 is now estimated to be 1.6 per cent higher than forecast in the 1997-98 Budget. Taxation revenue is stronger from other individuals, companies, superannuation funds, petroleum resource rent tax, fringe benefits tax and customs duty. A higher dividend from the Reserve Bank also contributes to stronger revenue.

In 1998-99 total revenue is expected to increase by 6.5 per cent over estimated revenue in 1997-98, with the ratio of revenue to GDP increasing to 25.0 per cent from 24.9 per cent in 1997-98. Total tax revenue is expected to grow more strongly in 1998-99 at 5.6 per cent, compared with estimated growth of 4.0 per cent in 1997-98. However, as a share of GDP, taxation revenue is expected to fall marginally to 24.0 per cent. Taxation revenue is expected to increase by 2.6 per cent in real terms. The growth in taxation revenue in 1998-99 reflects ongoing expansion of economic activity.

Revenue measures contained in this Budget add $51 million in 1998-99 and reduce revenue by $26 million in 1999-2000, $386 million in 2000-01 and $801 million in 2001-02. A list of revenue measures is included in Appendix A and described in full in Budget Paper No. 2.

The revenue estimates are influenced by the forecast pace and composition of economic activity. The 1998-99 revenue estimates are based on the following major economic parameter forecasts:

• growth in nominal GDP(I) of around 6 per cent;
• average earnings (national accounts basis excluding superannuation and redundancies) growth of around 4 per cent;
• growth in wage and salary employment of 2 per cent;
• an increase in nominal private consumption of 6½ per cent; and
• growth in 1997-98 company income of 8¼ per cent.

The revised estimates for 1997-98 and estimates for 1998-99 for the major categories of individuals income tax are shown in Table 1.

Wage and salary earners pay income tax on a pay-as-you-earn basis through tax instalment deductions made by their employers.

Gross PAYE collections are expected to rise by 8.4 per cent in 1998-99 in response to forecast growth in average earnings and growth in wage and salary employment.

The Gross Other Individuals category includes all collections of income tax paid by individuals, other than those made through the PAYE and Prescribed Payments System (PPS) categories. Tax revenue comprises provisional tax payments and debit assessments on income tax returns (ie where PAYE, PPS or provisional tax credits are insufficient to meet the tax assessed on income). Taxpayers in this category derive their income from salary and wages, business, primary production, property and capital gains.

A taxpayer’s provisional tax liability in a given year is generally determined by increasing the previous year’s assessed income by a provisional tax uplift factor (referenced to the year average growth rate of nominal GDP(I) for the preceding calendar year). Taxpayers who expect their income to grow by less than the uplift factor may elect to lodge a provisional tax variation to reduce provisional tax payments. Current year tax payments for other individuals are made up of provisional tax payments, where necessary, together with any balance on assessment from the previous year’s tax liability.

Gross revenue from this item is expected to fall by around 0.8 per cent in 1998-99 reflecting the net effect of three main factors. The savings rebate, which first becomes available in 1998-99, and the reduction in the provisional tax uplift factor from 6 per cent in 1997-98 to 5 per cent in 1998-99, are expected to lower revenue. Partly offsetting this is stronger projected growth in provisional taxpayers’ incomes in 1997-98.

The PPS is a withholding system for income tax collection which applies to certain payments made under contracts for the performance of work. The PPS operates in certain industries (eg building and construction). A payer who makes a prescribed payment is required to make tax instalment deductions from the payment and remit the amount deducted to the Australian Taxation Office. The payee claims a credit for the amount deducted in his or her tax return. For the PPS to apply, the relationship between the payer and the payee must not be one of common law employment, in which case the PAYE system will operate.

Revenue in 1998-99 is estimated to increase strongly, by 8.0 per cent, mainly reflecting strong growth in the construction industries, viz: forecast growth of 11¾ per cent in the nominal value of both dwelling and non-residential construction. This is partly offset by the introduction of new withholding tax arrangements where a number of businesses under the PPS will be permitted to remit quarterly rather than monthly.

Collections in 1998-99 are expected to rise by 10.6 per cent reflecting growth in the tax liability of individuals, and the imposition of the Medicare levy surcharge.

A final assessment of tax liability for individual taxpayers is made on the basis of returns lodged after the end of a financial year. Refunds are made where tax payments exceed the final assessment. Where tax credits are insufficient to meet the final tax liability, taxpayers make an additional payment, which is collected under the Other Individuals income tax category.

Refunds in 1998-99 are estimated to grow by 10.7 per cent, up from 8.2 per cent growth in 1997-98, largely on account of ongoing growth in income tax collected from individuals during 1997-98.

Table 2 contains revised estimates for 1997-98 and estimates for 1998-99 for company and other income tax items.

(a) Includes tax on realised capital gains.

(b) Includes superannuation contributions surcharge collections.

The general tax rate for companies is 36 per cent, with concessional rates applying to certain income of life assurance companies, registered organisations, pooled development funds and credit unions.

Companies, other than small companies, are required to make one or two quarterly payments (depending on the size of the company’s estimated tax liability) in the year income is earned, with the remainder paid in the following year (or substituted accounting period). Small companies are required to make a single payment in the financial year (or substituted accounting period) following the year income is earned.

Company income tax is forecast to grow by 5.9 per cent in 1998-99, mainly reflecting the estimated growth in company taxable income in 1997-98.

Superannuation funds are generally taxed at the concessional rate of 15 per cent in relation to investment income and certain contributions received. Payments are made according to the same schedule as applies to company income tax.

Superannuation funds tax is expected to fall slightly in 1998-99 reflecting an estimated fall in earnings of superannuation funds in 1997-98 after a period of exceptionally high growth in earnings combined with high realisations of capital gains. This is partly offset by a rise in contributions to superannuation funds from employers.

Withholding tax is levied on:

• income payments to residents who, when making an investment, do not supply the investment body with a tax file number;
• certain interest, dividend and royalty payments to non-residents; and
• payments made to Aboriginal groups for the use of Aboriginal land for mineral exploration and mining.

The estimated increase in withholding tax in 1998-99 of 2.6 per cent is attributable to expected growth in interest and royalties withholding tax, partly offset by a fall in dividend withholding tax due to the receipt of a one-off payment in 1997-98.

Under the Commonwealth’s Petroleum (Submerged Lands) Act 1967, PRRT applies to offshore areas other than the North West Shelf production licence areas and associated exploration permit areas, which are subject to excise and royalty arrangements. PRRT is levied at the rate of 40 per cent of taxable profit from a petroleum project.

PRRT is expected to increase by 5.5 per cent mainly because of higher crude oil production, partly offset by lower oil prices and higher costs of production.

FBT applies to a range of benefits provided by employers to their employees or associates of their employees. FBT is expected to rise by 3.8 per cent, in line with remuneration growth.

Table 3 shows revised estimates for 1997-98 and estimates for 1998-99 of various indirect taxes.

(a) Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene and refunds/drawbacks relating to
petroleum products excise.

WST is imposed on a range of goods destined for consumption in Australia and is levied at the last wholesale or import point on the wholesale sales value of taxable goods. In 1998-99, taxable goods will continue to be variously subject to tax rates of 12, 22, 26, 32 and 45 per cent, depending on the classification of the goods involved. These rates do not include the surcharge rates on alcohol arising from the safety net arrangements implemented following the High Court decision invalidating State and Territory business franchise fees (which are classified as State/Territory taxes).

The estimated increase in WST revenue of around 7.1 per cent in 1998-99 mainly reflects forecast growth in the nominal value of taxable goods. The measure directed at combating sales tax fraud in the computer industry is also expected to contribute to the growth in WST revenue collections.

Petroleum products excise includes excise on motor spirit (petrol), diesel fuel, aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene. It is imposed at specific rates per litre of product. Crude oil and LPG excise includes excise collected from fields in the North West Shelf production license areas not subject to PRRT. The increase in crude oil and LPG excise in 1998-99 reflects the fact that the Wanaea oil field in the North West Shelf became excisable in April 1998.

Excise revenue from petroleum products is expected to increase by 1.7 per cent in 1998-99 reflecting an expected increase in consumption of diesel fuel and unleaded petrol and the indexation of excise rates. The fall in excise collections from leaded petrol reflects a continuing decline in the number of vehicles that exclusively use leaded petrol.

Other excise is derived from beer, potable spirits and tobacco products. It is imposed at a specific rate per kilogram on tobacco products, on the alcoholic content of beer in excess of 1.15 per cent by volume and on the distilled alcohol in other products such as spirits and mixed drinks. Wine, wine products and other fermented alcohol are exempt from duty.

Excise revenue from these products is expected to fall by 1.5 per cent in 1998-99, reflecting continuing falls in tobacco consumption and no growth in alcohol consumption.

The rates of duty for excisable commodities (with the exception of crude oil and LPG) are adjusted each August and February in line with half-yearly CPI movements. If the change in the CPI is negative, the excise rate is not reduced but instead the decline is carried forward to be offset against the next positive CPI movement. Given recent movements in the CPI, excise rates have generally remained unchanged since 1 February 1997 (apart from surcharges applied on behalf of the States and Territories as part of the scheme to replace State and Territory business franchise fee revenue).

All revenue from the excise duty on aviation gasoline and aviation turbine fuel is appropriated to the Civil Aviation Safety Authority (CASA) and Airservices Australia as a contribution to cost recovery. In addition to the changes from indexation described above, the excise rates applying to these fuels are adjusted as necessary according to the funding requirements of those agencies.

Existing excise rates are shown in Table 4.

(a) These rates refer to the Commonwealth component of excise collections.

Ad valorem tariffs are applied to many categories of imports. Customs duty revenue is affected by the Australian dollar value of imports, the level of the statutory tariff rates applied to imports and the composition of imports between high and low tariff rates. Around 60 per cent of total imports by value enter duty free.

The expected increase in customs duty revenue of around 0.8 per cent in 1998-99 reflects the rise in total value of imports, partly offset by continuing tariff rate reductions.

The revised 1997-98 estimates and the 1998-99 estimates of other taxes, fees and fines are shown in Table 5.

(b) Includes Telecommunications Act Carrier Licence Fees, Telecommunications Act Numbering Fees, Telecommunications
Levy, Cost Recovery for Trade Related Services, Coal Mining Industry Levy and the Interstate Road Transport Charge.

The 1998-99 estimate reflects a forecast increase in the number of international passengers together with an increase in the charge from $27 to $30 with effect from 1 January 1999. The level of the Passenger Movement Charge has previously been set to recover the costs of customs, immigration and quarantine border processing of international travellers and the costs of issuing short-term visas. The additional revenue will help meet the additional costs arising from the movement of people and games related equipment across Australia’s borders at the time of the Sydney 2000 Olympic Games. See also the outlays measure entitled ‘Tourism package - Increased funding for tourism promotion and development’ described in Budget Paper No. 2.

The increase in passport fee revenue reflects an increase in passport renewals, ongoing growth in demand and increases in issue fees flowing from decisions in previous budgets.

Revenue from immigration fees is expected to rise in 1998-99 largely as a result of the introduction of a $50 application charge for non-Electronic Travel Authority visitor visas. For further details of this measure refer to entry in Budget Paper No. 2.

The increase in the estimate for Superannuation Guarantee Charge relates to increases in the number of employee notifications expected to be processed by the Australian Taxation Office.

The revised estimates of non-tax revenue for 1997-98 and estimates for 1998-99 are shown in Table 6.

This item comprises interest revenue from the States and Territories on General Purpose and Specific Purpose Borrowings.

The Commonwealth receives interest payments from the States in respect of borrowings made on behalf of the States under the State Governments’ Loan Council Programme and from the Northern Territory in respect of advances made under similar general purpose capital assistance arrangements. Payments relating to these advances are made in turn by the Commonwealth to bondholders.

Interest from the States on General Purpose Borrowings is declining as a result of the June 1990 Loan Council decision that the States make additional payments to the Debt Retirement Reserve Trust Account (with analogous payments from the Territories) each year, to facilitate the redemption of all maturing Commonwealth securities issued on their behalf. The reduction in interest received from the States and Territories is matched by a reduction in public debt interest outlays. Interest will be lower in 1998-99 compared to 1997-98 reflecting repayments of outstanding debt to the Commonwealth in 1997-98.

The Commonwealth also receives interest on advances made under Commonwealth-State Housing Agreements, States (Works and Housing) Assistance Acts, Northern Territory Housing Advances and from the Australian Capital Territory on debts assumed upon self-government. Interest from the States on Specific Purpose Borrowings will be lower in 1998-99 compared to 1997-98 reflecting repayments of advances to the Commonwealth in 1997-98.

The 9.8 per cent fall in interest revenue in 1998-99 reflects the scheduled rollover of Commonwealth advances to the Authority at current interest rates.

This item includes interest income on Commonwealth cash balances and on other financial assets held from time to time as a component of debt management operations; the increase in 1998-99 reflects an assumed increase in these latter holdings.

GBE and RBA dividends are expected to rise by 43.5 per cent in 1998-99. Higher dividend receipts are expected from some GBEs but the increase largely reflects an estimated sizeable increase in receipts from the RBA. The income and hence dividend payments of the RBA are affected by movements in interest rates and the exchange rate over the course of the financial year and hence can be volatile; the RBA dividend in 1997-98 was somewhat below average while that currently estimated for 1998-99 is somewhat above average.

Revenue from the RAM includes seigniorage from circulating coin production, royalties from numismatic coin sales and annual dividends from the profits the Mint makes as the manufacturer of these products. The estimated increase in revenue in 1998-99 mainly reflects anticipated increases in circulating coin sales and higher numismatic royalties and profits associated with growth in the Sydney 2000 Olympic Coin Programme.

The decline in receipts from 1997-98 is based on lower production forecasts beyond 1997-98 by the North West Shelf project operator, and lower Australian Bureau of Agricultural and Resource Economics forecast crude oil prices.

Estimates of the major categories of revenue, for 1998-99 to 2001-02, are shown in Table 7.

The revenue projections have been made on the conventional assumption of no change in current policy. Therefore, the forward estimates of revenue are principally affected by projected growth in economic parameters and policy measures contained in this and previous budgets.

Taxation revenue generally mirrors economic activity during periods of fairly steady economic growth (as depicted by the economic projections in this Budget), but tends to swing more sharply during periods of economic contraction and expansion and more sharply than nominal GDP(I) growth. The forward revenue estimates are also particularly susceptible to changes in the extent of tax minimisation and avoidance action by taxpayers.

The forward estimates include the effect of measures taken in this Budget, which add $51 million in 1998-99 and reduce revenue by $26 million in 1999-2000 and $386 million and $801 million in 2000-01 and 2001-02 respectively. Over the forward estimates, total revenue is estimated to remain just below 25 per cent of GDP.

Taxation reform will assist in maintaining the balance of tax bases as the economy grows and in ensuring that total revenue capacity keeps pace with economic activity. With respect to the indirect tax base in particular, taxation reform will remove the need for continual ad hoc increases in sales tax rates and base broadening measures.

(a) Figures for all past years have been revised for classification changes.

(a) Nominal increases deflated by movements in non-farm GDP deflator.

(a) The totals for these categories include Medicare levy collections.

(a) The totals for these categories include Medicare levy collections.