Statement 5: Revenue
Appendix D: Tax expenditures
This appendix contains a brief overview of the cost of tax concessions provided by the concessional tax treatment of specific activities and/or groups.
Tax concessions provide a benefit to a specified activity or class of taxpayer. Tax concessions can be delivered in a variety of ways, for example by a tax exemption, tax deduction, tax rebate, reduced tax rate or by deferring a tax liability. The Government can use tax concessions to allocate resources to different activities in much the same way that it can use direct expenditure programmes. For this reason, and noting their direct impact on the fiscal balance, these tax concessions are generally called tax expenditures.
The data reported in this appendix are consistent with tax expenditure data reported in the 2001 Tax Expenditures Statement published in December 2001. The Tax Expenditures Statement (TES) is an annual statement of Commonwealth tax expenditures.
Table D1 contains estimates of total tax expenditures for the period 1998-99 to 2005-06. There are several major considerations that need to be taken into account when analysing these data.
- These figures may understate the total cost of tax expenditures, as some identified tax expenditures have not been estimated due to a lack of data and the TES does not necessarily provide a comprehensive listing of all tax expenditures.
- Some caution should be exercised when using these tax expenditure estimates to measure the amount of tax revenue forgone. Tax expenditure estimates measure the benefit of the tax concession to the recipient, not the impact on the fiscal balance from the removal of that tax expenditure. The two might differ due to behavioural responses or for other reasons (see chapters 1.4 and 2.4 of the 2001 Tax Expenditures Statement).
- Trends in aggregate tax expenditures over time will reflect both changes to the cost of individual tax expenditures and changes in the coverage of tax expenditures being costed.
- Tax expenditure aggregates are net aggregates as they include the offsetting effects of negative tax expenditures.
- Changes over time in methodology and data used to calculate the value of particular tax expenditures can result in large revisions to tax expenditure estimates. Therefore estimates that were provided in previous editions of the TES or in previous budgets may not be strictly comparable to figures reported here.
Table D1: Aggregate tax expenditures 1998-99 to 2005-06
Measured tax expenditures are projected to decline as a proportion of GDP from 4.4 per cent in 1998-99 to around 3.8 per cent in 2005-06. The largest single contributing factor to the decline in total measured tax expenditures is the removal of accelerated depreciation under The New Business Tax System.
