Statement 5: Revenue

Part II: Estimates of revenue

Detailed revenue estimates

A comparison of revenue estimates, by head of revenue for 2001-02 and 2002-03, is provided in Table 3.

Table 3: Commonwealth general government revenue (accrual basis)

(a) Includes Medicare levy revenue.

(b) Previously reported as Pay As You Go (Withholding) and other withholding. Other withholding was previously reported under company and other income tax, and includes amounts withheld for failure to quote a Tax File Number or an Australian Business Number, interest, dividends and royalty payments to non-residents, and payments to aboriginal groups for the use of land for mineral exploration and mining.

(c) Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.

(d) Consistent with GFS reporting standards, excludes fringe benefits tax collected from Commonwealth government agencies (estimated at $280 million in 2001-02 and $290 million in 2002-03).

In 2002-03, total revenue is expected to increase by $6.5 billion, of which taxation revenue is expected to increase by $7.7 billion and non-tax revenue is expected to decrease by $1.2 billion. The major contributors to the increase in taxation revenue are a $6.0 billion increase in gross income tax withholding revenue, a $0.9 billion increase in company tax revenue, a $0.5 billion increase in indirect tax revenue and a $0.4 billion increase in superannuation funds tax revenue.

The Budget revenue estimates are strongly influenced by forecast growth and the expected composition of economic activity. The 2002-03 revenue estimates are based on the following major economic assumptions:

• growth in nominal GDP of around 5¾ per cent (revenue tends to be more sensitive to growth in nominal GDP than to growth in real GDP);
• average earnings growth of around 3¾ per cent, excluding the impact of a higher Superannuation Guarantee Charge;
• growth in wage and salary related employment of around 1¾ per cent; and
• growth in company income of around 7¾ per cent.

An analysis of the sensitivity of the revenue estimates to changes in the major economic parameters is provided in Budget Statement 9.

Taxation revenue

Individuals and other withholding tax

Revenue estimates for 2001-02 and 2002-03 are provided in Table 4 for the various categories of individuals and other withholding tax.

Table 4: Individuals and other withholding tax (accrual basis)

(a) Previously reported as Pay As You Go (Withholding) and other withholding. Other withholding was previously reported under company and other income tax, and includes amounts withheld for failure to quote a Tax File Number or an Australian Business Number, interest, dividends and royalty payments to non-residents, and payments to aboriginal groups for the use of land for mineral exploration and mining.

The accounting treatment of the Family Tax Benefit and Private Health Insurance Rebate has been revised in this Budget. These programmes previously consisted of expense and tax components. From this Budget, the tax components have been reclassified as expenses, consistent with payments made under the same programme through other delivery mechanisms. This results in an increase of around $0.6 billion in both revenues and expenses, with no net consequence for the fiscal balance. These revenue effects are included in the estimates for each of the revenue heads.

Gross income tax withholding

Gross income tax withholding (ITW) includes all taxes withheld from payments made under the Pay As You Go (PAYG) withholding system and applicable Medicare levy revenue. The bulk of gross ITW revenue arises from tax withheld from wage and salary income.

From 1 July 2000, several income withholding arrangements were replaced by the ITW system as part of The New Tax System. These included the former Pay As You Earn (PAYE) system, Prescribed Payments System (PPS) and Reportable Payments System (RPS).

Gross ITW also includes all other withholding taxes levied on natural resource payments, dividends, interest and royalties paid to non-residents and amounts withheld because no Tax File Number or Australian Business Number was quoted. These taxes are not separately identified from other PAYG revenues. Previously, some of these other withholding taxes were separately estimated under company and other income tax. Consequently, the gross ITW estimates from 2001-02 include around $2.0 billion in revenue which would previously have been reported in company and other related income taxes.

The obligation to withhold taxes arises when an individual or an entity makes a payment from which an amount must be withheld. This is usually in the form of wages or salaries, but also includes alienated personal services payments and non-cash benefits where a cash benefit would have given rise to a withholding obligation.

Gross ITW revenue is expected to increase by $6.0 billion (more than 7 per cent) in 2002-03. This is broadly consistent with the combined effect of growth in wages and employment.

Gross other individuals

Gross other individuals revenue consists of income tax paid by individuals other than that collected through the PAYG withholding system and includes applicable Medicare levy revenue. It comprises:

• PAYG instalments paid directly by individuals (that is, not withheld by employers); and
• debit assessments on income tax returns (that is, where tax credits are insufficient to meet the tax liability on assessment).

Taxpayers in this category derive their income from many sources, including:

• profits from small unincorporated businesses, primary production and investments;
• salaries and wages (when PAYG withholding credits are insufficient to meet the tax liability on assessment); and
• capital gains.

Most gross other individuals revenue is collected directly from the taxpayer through the PAYG instalment system. Individuals who are registered for the goods and services tax (GST) and individuals with tax liabilities of $8,000 or more will generally make quarterly payments. Individuals who are not registered for the GST and have liabilities of less than $8,000 have the choice of making quarterly payments or an annual payment.

Most tax payments formerly made under the PPS or RPS are now reported under gross other individuals revenue, with the remainder reported under gross ITW.

Gross other individuals revenue is expected to decrease slightly in 2002-03, by around $75 million, because under The New Tax System the payment date for annual instalments is deferred from April 2003 to October 2003. Accordingly, taxpayers in this category will not make a tax instalment payment in 2002-03, affecting tax payments which would otherwise contribute around $1.0 billion to gross other individuals revenue.

Abstracting from this instalment timing issue, revenue is expected to grow as a result of continuing growth in income for small unincorporated businesses and primary producers, partly offset by slightly weaker growth in property income.

Individual income tax refunds

A final assessment of the tax liabilities of individual taxpayers is made on the basis of returns lodged after the end of each financial year. Refunds are made where tax credits exceed the final assessment. Where tax credits are insufficient to meet the final tax liability, taxpayers make an additional payment (debit assessments), which is recorded under the gross other individuals income tax category.

Individual income tax refunds paid to taxpayers in any year will generally relate to earning activity in the prior year because assessment is only made after the conclusion of the year to which it relates.

Refunds to individuals are expected to increase by only 2 per cent in 2002-03 to around $10.6 billion, compared with growth of about 6.5 per cent in total individuals and other withholding tax. This is mostly as a result of the change in accounting classification of the Family Tax Benefit and Private Health Insurance Rebate, but also due in part to continuing flow on effects from the substantial personal income tax cuts implemented on 1 July 2000.

Medicare levy

Revenue from the Medicare levy is expected to increase by about 4 per cent to around $5.2 billion in 2002-03. This reflects higher growth in the wages and employment of individuals, partially offset by increases in the low income thresholds (more details are provided in Budget Paper No. 2). These increases in the thresholds reflect movement in the CPI, and are expected to reduce revenue by approximately $40 million. In Table 4, Medicare levy revenue is included in the estimates of gross ITW, gross other individuals and refunds.

Company and other related income tax

Revenue estimates for 2001-02 and 2002-03 are provided in Table 5 for company and other related income tax categories.

Table 5: Company and other related income tax (accrual basis)

Company income tax

Company income tax includes all income taxes paid by companies, where companies include incorporated and unincorporated associations, limited partnerships and some public unit trusts. Company tax has been collected through the Pay As You Go (PAYG) instalment system since the financial year beginning 1 July 2000. This system replaced the provisional tax and company tax instalment systems. Under the PAYG instalment system, most company taxpayers pay tax through four quarterly instalment payments and a balancing payment, although some small companies are able to pay an annual instalment.

The introduction of the PAYG instalment system resulted in a bring forward of company tax payments, better aligning tax payments with the period in which the taxable income was earned. As a transitional measure, the Government allowed companies to defer some liabilities from the old company tax instalment system for up to five years (Box 1). The cash estimates for the forward years reflect the expected receipt of these deferred payments (Appendix E).

In the 2001-02 income year, the company tax rate was reduced to 30 per cent from 34 per cent. Concessional rates also apply to certain income of life insurance companies, registered organisations, pooled development funds, small credit unions and offshore banking units.

Company tax revenue is expected to increase in 2002-03 by around $0.9 billion, or about 3 per cent. This is largely attributable to expected growth in company income, resulting from a stronger outlook for the domestic and world economies.

Superannuation funds tax

Like companies, superannuation funds are taxed through the PAYG instalment system, but at a concessional rate of 15 per cent in relation to taxable contributions received and investment income, and 10 per cent on capital gains. Superannuation funds were also allowed to defer some liabilities from the old company tax instalment system for up to five years (Box 1).

Superannuation tax on contributions and investment income is expected to increase by around $0.4 billion in 2002-03, or about 11 per cent. This is driven by strong expected growth in both contributions and earnings.

Superannuation surcharge is also collected from superannuation funds. A surcharge of up to 15 per cent is levied on the surchargable contributions of members with high incomes. Revenue from the superannuation surcharge is expected to remain unchanged in 2002-03, due to earlier payments of surcharge tax in 2001-02.

From 2002-03, the Government will reduce the rate of surcharge in three annual steps to a maximum of 10.5 per cent by 2004-05. This is expected to reduce the estimate in 2003-04 by $50 million (more details are provided in Budget Paper No. 2).

Petroleum resource rent tax

Petroleum resource rent tax (PRRT)³ is levied on taxable profits in respect of offshore petroleum projects other than the North West Shelf production and associated exploration areas which are subject to excise (included in excise on crude oil) and petroleum royalties (included in non-tax revenue). PRRT is levied at a rate of 40 per cent of taxable profit and the amount paid is deductible from a company's total profit when determining company tax liability.

PRRT revenue is expected to increase by $160 million or 12 per cent in 2002-03. This is primarily due to the expectation that fewer exploration related deductions will be claimed. In addition, the increase reflects the effect of a higher world oil price, partially offset by a stronger exchange rate and an expected decrease in oil production. The world price of crude oil is assumed to be US$21.29 per barrel in 2001-02 and US$23.00 per barrel in 2002-03.

Indirect tax

Revenue estimates for 2001-02 and 2002-03 are provided in Table 6 for the various categories of indirect taxation.

Table 6: Indirect tax (accrual basis)

(a) Includes unleaded petrol and lead replacement petrol.

(b) Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene.

(c) Includes duties imposed on imported petroleum products, tobacco, beer and spirits, which are analogous to excise duty on these items.

(d) Estimates include the offsetting revenue effects of the WET rebate for cellar door and other sales.

(e) WST was abolished on 1 July 2000; however, final liabilities, net of refunds, were recognised in 2001-02.

Excise

The major categories of excise duty revenue include petroleum products, crude oil, tobacco, and certain alcoholic beverages.

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.

• Petrol includes unleaded petrol and lead replacement petrol, which replaces leaded petrol but is taxed at the unleaded petrol rate.
• All revenue from excise duty on aviation gasoline and aviation turbine fuel contributes to the funding of aviation programmes. The rates of excise (and customs duty) applying to aviation fuels are adjusted, as necessary, depending on the funding requirements of those programmes.

The estimate for excise from petroleum products in 2001-02 has increased since MYEFO by around $100 million, largely reflecting stronger diesel excise collections. This is partially explained by more taxpayers, who are otherwise entitled to duty-free diesel for use overseas, choosing to pay full excise on all diesel purchased and subsequently claiming their rebate through the Diesel Fuel Rebate Scheme.

In 2002-03, revenue from excise on petroleum products is estimated to grow by $240 million, reflecting higher estimated levels of petrol and diesel consumption. Growth in consumption of petrol and diesel in 2002-03 is expected to be 1.8 per cent and 2.0 per cent, respectively.

There are two sources of excise on crude oil⁴: production from offshore fields in the North West Shelf production licence areas which are not subject to PRRT; and production from onshore fields and fields in coastal waters. Excise on crude oil is levied on the sale price of the crude oil, and is the only excise not to be levied on a volumetric basis (where excise is applied per unit of quantity). Revenue is expected to be lower in 2002-03 by $90 million due to lower anticipated levels of production.

Other excise is derived from beer, potable spirits and tobacco products. Excise is imposed:

• on a per stick basis for cigarettes and a per kilogram basis for other tobacco products;
• on the alcohol content of draught and packaged beer; and
• on the alcohol content of other products such as spirits, brandy and certain ready to drink beverages (RTDs).

Wine is exempt from excise, but is subject to the wine equalisation tax.

Other excise revenue is estimated to grow by $100 million in 2002-03, reflecting the full year impact of the reclassification of RTDs, partially offset by the introduction of the national excise scheme for low alcohol beer.

• Revenue from RTDs manufactured using imported spirits have been reported under excise duty rather than customs duty since February 2002. This results in an increase in excise revenue from 2001-02, fully offset by reductions in customs duty.
• The national excise scheme for low alcohol beer replaces a range of existing State subsidy schemes with a nationally uniform and administratively efficient concession in the rate of excise on low alcohol beer. It is costed at about $70 million per year. The States and Territories have agreed to contribute to the cost of the scheme for as long as they receive Budget Balancing Assistance.

Excise indexation

The rates of duty for excisable commodities (with the exception of crude oil) have been 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 offset the next positive CPI movement.

Excise indexation for all petroleum products was removed in March 2001. Beer, spirits and tobacco excise rates continue to be indexed to half yearly CPI movements. Excise rates since 2 March 2001 are shown in Table 7.

Table 7: Excise rates

Customs duty

Customs duty is imposed either as a percentage of the value of the imported good or on a volumetric basis for excisable-like products (for example, dollars per litre).

Tariffs on passenger motor vehicles and textile, clothing and footwear account for around one-third of the total duty collected. A further one-third of customs duty revenue is duty imposed on imports of petroleum products, tobacco, beer and spirits, which is akin to excise duty on these items. The other dutiable goods currently attract a general tariff rate of 5 per cent.

Customs duty revenue in 2002-03 is forecast to grow by $90 million, or around 2 per cent. This largely reflects higher demand for imports, partially offset by the change in reporting arrangements for ready to drink beverages.

Other indirect taxes

All grape wine, wine products, fruit and vegetable wine, cider, perry, mead and sake are subject to wine equalisation tax (WET). WET is levied at a rate of 29 per cent, with tax being paid on the wholesale value of the goods.

A luxury car tax (LCT) of 25 per cent applies to the GST exclusive price of a car above the LCT threshold ($55,134).

Fringe benefits tax and other taxes

Fringe benefits tax

Fringe benefits tax (FBT) is paid on those fringe benefits which are provided in place of, or in addition to, the salary and wages of employees. The term `benefit' is broadly defined and includes any right (including property right), privilege, service or facility. FBT is payable by employers and is assessed on the value of the fringe benefits provided to employees or their associates. FBT is levied at 48.5 per cent on the grossed-up taxable value of benefits as calculated under the FBT rules. FBT instalments are paid by employers each quarter of the FBT year from April to March (on the Business Activity Statement), with a final balancing payment due in May together with lodgement of the FBT return.

FBT revenue is expected to increase modestly by $10 million in 2002-03 (Table 3).

Agricultural levies and other taxes

Revenue estimates for 2001-02 and 2002-03 are provided in Table 8 for agricultural levies and other taxes.

Table 8: Agricultural levies and other taxes (accrual basis)

(a) Includes all other tax revenue collected by Commonwealth agencies.

Total agricultural levies and other tax revenue is estimated to increase by around 6 per cent in 2002-03. Of this, agricultural levies, non-agricultural levies and broadcasting licence fees are estimated to remain broadly unchanged.

The estimated increase of around 13 per cent in total other taxes is largely due to an increase in collections of the range of levies administered by the Department of Transport and Regional Services, including the air passenger ticket levy and aircraft noise, stevedoring and marine navigation levies. This category also includes the Coalmining Long Service Leave Levy and Child Support fees and fines.

Non-taxation revenue

Revenue estimates for 2001-02 and 2002-03 are provided in Table 9 for the various categories of non-taxation revenue.

Table 9: Non-taxation revenue (accrual basis)

(a) Includes all other non-tax revenue collected by Commonwealth agencies.

Sales of goods and services

This category consists of revenue from the direct provision of goods and services by the Commonwealth general government sector.

The increase of around 3 per cent for sales of goods and services in 2002-03 is largely due to expected increases in revenue from immigration fees, passenger movement charges and import entry charges, and increased revenue received from the States and Territories to meet the cost of administering the GST (more detail is provided in Budget Paper No. 2).

Interest

Interest from other Governments

This category mainly consists of revenue from the States and Territories on General Purpose and Specific Purpose borrowings.

The Commonwealth receives interest payments from the States in respect of General Purpose 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 bond holders.

Interest from the States on General Purpose borrowings is declining as a result of the June 1990 Loan Council decision that the States and Territories make additional payments to the Commonwealth each year to facilitate the redemption of all maturing Commonwealth securities issued on their behalf. The reduction in interest revenue from the States and Territories is matched by a reduction in public debt interest expenses.

The Commonwealth also receives interest on Specific Purpose borrowings to the States, including on advances made under the Commonwealth-State Housing Agreements, States (Works and Housing) Assistance Acts, Northern Territory Housing Advances, and by the Australian Capital Territory on debts assumed upon self-government. Interest from the States on Specific Purpose borrowings will be lower in 2002-03 compared with 2001-02, reflecting the repayment of debt by the States in 2001-02.

Interest from other governments is expected to decrease in 2002-03, due to a reduction in the remaining stock of debt issued by the Commonwealth on behalf of the State and Territory governments.

Interest from other sources

This item includes interest income on Commonwealth cash balances and on other financial assets. It excludes swap transactions entered into as part of the Commonwealth's debt management strategy, as they are classified as financing transactions under Government Finance Statistics (GFS) standards. The Australian Office of Financial Management (AOFM) is responsible for the management and reporting of the Commonwealth's net debt portfolio.

Dividends

The main sources of dividends are from the Commonwealth's Government Business Enterprises and the Reserve Bank of Australia (RBA). Dividend payments from the RBA can be volatile, as they are sensitive to movements in interest rates and the exchange rate.

Total dividends are projected to decrease by around 25 per cent in 2002-03, mainly due to lower dividends from the RBA.

Petroleum royalties

Petroleum royalties are paid by producers operating in the North-West Shelf oil and gas fields off Western Australia.

These royalties are expected to decrease by around 17 per cent in 2002-03, due to lower levels of petroleum production partially offset by a forecast increase in world oil prices. A substantial proportion of these royalties is paid to the Government of Western Australia.

Other sources of non-tax revenue

Other non-tax revenue includes Child Support Trust Revenue (collected by the Child Support Agency) and revenue from Higher Education Contribution Scheme (HECS) student loans and seigniorage from circulation coin production.

Other non-tax revenue is expected to decline by around 2 per cent in 2002-03, mainly reflecting reductions in seigniorage and revenue from outstanding HECS debts owed to the Commonwealth.

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3 PRRT is levied under the Commonwealth's Resource Rent Tax Assessment Act 1987.

4 Crude oil excise is levied under the Commonwealth's Petroleum Excise (Prices) Act 1987.