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Mid-Year Economic and Fiscal Outlook 2000-01
Part IV: Revenue
Compared with the 2000-01 Budget, the MYEFO estimates of total revenue are higher in all years. The revised outlook for total revenue primarily reflects stronger forecast growth in the economy and the effect of a stronger than anticipated revenue outcome in 1999-2000. Table 10 provides estimates of Commonwealth general government tax, non-tax and total revenue from 2000-01 to 2003-041.
Table 10: Estimates of Commonwealth general government revenue
Table 11 provides a reconciliation of the MYEFO revenue estimates with those published at the 2000-01 Budget. The revised estimates incorporate policy decisions taken since the Budget, an updated assessment of the economic outlook and revenue outcomes up to end-October 2000.
Table 11: Reconciliation of Commonwealth general government revenue estimates
The most important influence on the stronger revenue outlook is the expectation that the economy is more buoyant than anticipated at Budget. Upward revisions to forecast nominal GDP growth and employment growth in 2000-01 have boosted revenue in all years, but the effect is concentrated in 2000-01.
The base effect from a stronger than expected revenue outcome in 1999-2000 has also boosted the revenue estimates. This effect is predominantly felt in 2000-01, although a positive effect does persist through the forward years.
Policy decisions taken since the 2000-01 Budget are estimated to increase revenue slightly in 2000-01, with revenue reductions in the forward years. The most significant measures announced since the 2000-01 Budget include:
- a greater reduction in excise on 1 July 2000 to ensure petrol and diesel prices need not rise as a result of the introduction of the GST (with an estimated cost to revenue of around $100 million per annum);
- the removal of capital gains tax changes for life insurers and superannuation funds (with an estimated cost to revenue of around $30 million in 2000-01, rising to $90 million in 2003-04); and
- additional revenue from the States and Territories for the administration of the GST (with a revenue gain of $183 million to the Commonwealth in 2000-01); this amount is fully offset by an equivalent increase in Commonwealth expenses incurred by the Australian Taxation Office.
All revenue policy decisions announced since the 2000-01 Budget are listed in Table 15 and described in detail in Appendix A.
Table 12 presents a breakdown of Commonwealth general government revenue estimates into individual revenue heads for the 2000-01 MYEFO and compares these with those published at the 2000-01 Budget.
Table 12: Revised 2000-01 general government revenue estimates
Relative to Budget, total revenue is expected to increase by $4.2 billion in 2000-01. This is primarily driven by stronger income tax revenue in 2000-01.
Expected taxation revenue from individuals in 2000-01 has increased by $1.2 billion since Budget. This largely reflects:
- a $759 million upward revision to other individuals taxation revenue, reflecting a stronger than expected outcome for 1999-2000, and a stronger outlook for small business income growth; and
- a $522 million increase in estimated PAYG Withholding tax revenue, primarily as a result of stronger forecast employment growth and the flow-on effect of a stronger than expected PAYE outcome for 1999-2000.
Forecast company tax revenue for 2000-01 has increased by $2.3 billion. This mainly reflects the effect on the base of a stronger than expected revenue outcome for 1999-2000, upward revisions to expected company profits growth and some one-off factors.
- The final company tax outcome for 1999-2000 was around $1.1 billion higher than forecast in the 2000-01 Budget. However, a significant proportion of this stronger than expected outcome was accounted for by one-off factors. Nevertheless, it is estimated that the outcome reflected an ongoing increase in the company tax base, with a revenue impact of around $½ billion per annum.
- In addition, stronger forecast company profit growth, relative to Budget expectations, is anticipated to add around $1¼ billion to company tax revenue in 2000-01.
- The remaining $½ billion increase in estimated company tax is accounted for by taxpayer specific effects.
Estimates of Petroleum Resource Rent Tax (PRRT) are higher in all years, as a result of continued strength in oil prices and a lower $A/$US exchange rate. As outlined in Part II, world oil prices are assumed to average US$27½ per barrel in 2000, US$24¼ per barrel in 2001 and US$22 per barrel in 2002. Oil prices are expected to decline over the forecast period, as world oil production increases in response to higher prices and the rate of growth of world industrial activity moderates somewhat. PRRT is therefore forecast to decline over the forward years.
Estimated total indirect taxation and FBT revenue in 2000-01 has fallen by $532 million since Budget. The major factors contributing to this overall net variation include:
- downward revisions to petroleum excise estimates, as a result of a reduction in expected demand for diesel and petrol relative to Budget, partly offset by an increase in crude oil excise. This reduction in petrol and diesel excise revenue includes the effects of lower consumption growth as a result of higher world oil prices;
- lower other excise estimates, reflecting lower than anticipated tobacco volumes since Budget. Tobacco volumes have remained weak since the introduction of per-stick taxation in November 1999, and have weakened further in recent months;
- downward revisions to FBT estimates reflecting higher than expected late lodgements for refunds in 1999-2000, and a consequential reduction in expected FBT instalments in 2000-01; partly offset by a $128 million upward revision to estimated customs duty revenue.
Non-tax revenue has been revised up since Budget by $574 million, largely due to:
- increased petroleum royalties, as a result of higher world oil prices and increased production from improved North-West Shelf facilities (around $256 million in 2000-01); and
- an increase in revenue from the States to fund the administration of the GST by the Australian Taxation Office ($183 million in 2000-01).
Table 13 provides an outline of the changes to the forward estimates of Commonwealth general government revenue.
Table 13: Forward estimates of general government revenue
Tax expenditures
Individuals and businesses derive financial benefits from various tax concessions. These concessions can be delivered in a variety of ways: by a tax exemption, tax deduction, tax rebate, reduced tax rate or by deferring a tax liability. Tax concessions can either reduce or delay the collection of tax revenue.
The benefits of most tax concessions could be delivered equally by direct expenditures. Hence tax concessions are an alternative to direct expenditure as a method of delivering government assistance or meeting government objectives. Accordingly, tax expenditures have an impact on the budget surplus or deficit, as do direct expenditures.
Table 14 provides aggregate tax expenditure estimates for the period from 1996-97 to 2003-04.
Table 14: Aggregate tax expenditures 1996-97 to 2003-04(a)
Between 1996-97 and 2003-04, the underlying growth in aggregate tax expenditures is relatively modest. Total tax expenditures are estimated to decline as a proportion of GDP from 4.5 per cent in 1996-97 to 3.9 per cent in 2003-04.
Revenue measures since the 2000-01 Budget
Table 15: Revenue measures since the 2000-01 Budget(a)
Table 15: Revenue measures since the 2000-01 Budget (continued)
1 Unless otherwise stated, all estimates in this Part are on a Government Finance Statistics (GFS) consistent basis.