Statement 5: Revenue

Contents

Part I: Overview 5-3

Total revenue 5-3

Variations in revenue estimates 5-3

Part II: Estimates of revenue 5-9

Detailed revenue estimates 5-9

Taxation revenue 5-10

Non-taxation revenue 5-20

Appendices

Appendix A: Changes in revenue since MYEFO 5-23

Appendix B: Forward estimates of revenue 5-25

Appendix C: Revenue measures 5-27

Appendix D: Tax expenditures 5-31

Appendix E: Cash revenue statistics and history 5-33

Part I: Overview

Relative to the Mid-Year Economic and Fiscal Outlook 2001-02 (MYEFO), total revenue in 2002-03 is expected to be higher, largely as a result of stronger growth in income tax revenue from small unincorporated businesses, primary producers and companies, and higher indirect tax revenue.

Total revenue

Revenue estimates¹ for the period from 2001-02 to 2005-06 are provided in Table 1.

Table 1: Total Commonwealth general government revenue (accrual basis)

Total revenue and total taxation revenue both remain a relatively constant share of GDP over the Budget and forward years. This is broadly consistent with historical outcomes. Further analysis of revenue as a proportion of GDP is provided in Budget Paper No. 5.

Variations in revenue estimates

Table 2 is a reconciliation of this Budget's revenue estimates with those at the 2001-02 Budget and the 2001-02 MYEFO, in terms of both policy decisions and economic parameter and other variations.

Table 2: Reconciliation of total Commonwealth general government revenue estimates from 2001-02 Budget to 2002-03 Budget^(a)
(accrual basis)

(a) The changes in the revenue estimates for 2001-02 and 2002-03 since the 2001-02 MYEFO are summarised by head of revenue at Appendix A.

Total revenue in 2001-02

Since MYEFO, estimated total Commonwealth general government revenue has been revised up in 2001-02 by around $2.5 billion, largely due to growth in income tax revenue from small unincorporated businesses, primary producers and companies, and growth in indirect tax revenues. These increases are expected to be partly offset by lower collections of superannuation contributions, higher than anticipated refunds to individuals and lower income tax on property income.

Abstracting from accounting reclassification and reporting issues for gross income tax withholding (ITW) in this Budget (refer to page 5-11), the gross ITW revenue estimate for 2001-02 is broadly unchanged from MYEFO, reflecting stronger growth in employment and tax collections, offset by weaker than anticipated wages growth.

Notwithstanding the upward revision to total revenue in accrual terms, underlying total cash revenue (abstracting from accounting classification changes) has only been revised up slightly, by $46 million. Underlying cash taxation revenue has been revised downwards by $442 million since MYEFO. This represents the difference between when a liability is recognised (for example, by the issue of an assessment) and when it is paid. Non-taxation receipts are estimated to be $488 million higher in 2001-02.

Total revenue in 2002-03 and the forward years

Since MYEFO, estimated total revenue has been revised up in 2002-03 by around $3.4 billion, and the forward years have also been revised up. As for 2001-02, growth is expected in income tax revenue from small unincorporated businesses, primary producers, and companies, and growth in indirect tax revenue. In addition, higher expected employment is anticipated to result in stronger gross ITW revenue. The estimate for non-taxation revenue has also been revised up since MYEFO.

Policy decisions

Policy decisions taken since MYEFO (a description of these decisions is provided in Budget Paper No. 2) are expected to increase revenue by around $500 million in 2002-03 and $800 million in 2003-04. The major policy decisions that increase revenue over the four year period 2002-03 to 2005-06 include:

• additional funding for the Australian Taxation Office, as agreed by an independent pricing review, which will improve its tax administration functions and is expected to result in increased taxation revenue of $1.5 billion; and
• an updated timetable for the next phase of business tax reform, resulting in a net increase in revenue of $540 million - this includes the deferral of several measures, including the provision of franking credits for foreign dividend withholding tax and foreign income accounts, and a revised timetable for the remaining reforms to the taxation of financial arrangements and the introduction of the Tax Value Method.

These additional revenues are partially offset by²:

• a national excise scheme for low alcohol beer, at a cost to revenue of $276 million, to replace a range of existing State subsidies with a nationally uniform and administratively efficient concession in the rate of excise on low alcohol beer;
• an increase in the Medicare levy low income threshold to $14,539 for individuals and $24,534 for families, with an associated increase in the additional threshold for each dependant child or student to $2,253, at a cost to revenue of $107 million; and
• implementation of the Government's superannuation election commitment, A Better Superannuation System, at a cost to revenue of $34 million, incorporating several measures, including the introduction of a generous Government co-contribution to replace the existing rebate, and a reduction in the superannuation and termination payment surcharge rates by one tenth of their current levels in each of the next three income years.

Parameter and other variations

The revenue estimate for 2001-02 has been revised up by around $2.5 billion since MYEFO due to revisions to economic parameters and other variations. The main variations that increase the revenue estimates are:

• an increase in total individuals and other withholding tax revenue of around $0.6 billion, as a result of a change in the accounting treatment of the Family Tax Benefit and Private Health Insurance Rebate (refer to page 5-11) - this increase in revenue is offset by an increase in expenses, and therefore has no impact on the fiscal balance;
• higher than expected growth in income tax revenue from small unincorporated businesses and primary producers, partially offset by weaker property income, of around $1.2 billion;
• an upward revision to company tax of around $400 million, due to an increase in the expected level of company tax liabilities (Box 1); and
• higher than anticipated indirect tax collections, including increases in revenue from tobacco ($225 million), alcohol ($55 million), diesel ($130 million) and customs duty ($120 million).

These upward variations in the estimates are partially offset by:

• lower than anticipated collections of superannuation contributions of around $280 million; and
• higher than anticipated refunds to individuals of around $180 million (abstracting from the change in the accounting treatment of the Family Tax Benefit and Private Health Insurance Rebate).

The higher tobacco revenue may reflect, in part, increased enforcement activity, together with significantly increased penalties introduced in 2000-01, which have limited the size of illicit sales of tobacco, thereby tending to strengthen tobacco excise revenue.

In 2002-03, economic parameter and other variations have revised revenue estimates upwards by around $2.9 billion since MYEFO. This is driven by higher estimates of:

• gross other individuals revenue, reflecting expectations of continued strong growth in small unincorporated business and primary producer incomes in 2002-03, partly offset by continuing weaker growth in property income;
• gross income tax withholding revenue, reflecting stronger expected employment growth;
• company tax revenue, reflecting stronger expected company profits; and
• indirect taxes, reflecting stronger expected diesel consumption.

These upward revisions to revenue are partly offset by a lower estimate for superannuation contributions and earnings in 2002-03, following lower collections in 2001-02.

Box 1: Accrual and cash taxation revenue estimates A comparison of taxation revenue on both an accrual and a cash basis is provided in the table below. Total taxation revenue on an accrual and cash basis Accrual estimates are prepared using the Tax Liability Method (TLM) of revenue recognition. Under TLM, taxation revenue is recognised at the time a taxpayer makes a self-assessment or when an assessment of a tax liability is raised by the Australian Tax Office or the Australian Customs Service. This method retains some elements of cash revenue recognition, for example, when a cash payment occurs prior to an assessment being raised. Compared with the MYEFO estimates, taxation revenue in 2001-02 has increased in accrual terms, but cash taxation receipts have fallen in underlying terms. Accrual taxation revenue typically grows faster than cash taxation revenue when nominal economic growth is accelerating. This is because the liability is usually recognised earlier than the payment. Underlying growth in taxation revenue recognised, but not received, leads to accrual revenue being $2.5 billion more than cash taxation revenue in 2001-02, and $1.6 billion in 2002-03. Other major drivers of the difference between the accrual and cash taxation revenue estimates are discussed below. PAYG deferrals The new PAYG arrangements for companies and superannuation funds seek to better align tax payments with the period in which income is earned. However, this created an overlap of tax payments, because payments of tax obligations for 1999-2000, under the previous payment arrangements, and PAYG instalments for 2000-01, under the new payment arrangements, both arose during 2000-01. For a medium-sized company, for example, there would have been six payments due, instead of the usual four. The Government implemented transitional arrangements to assist these taxpayers move to the new PAYG system, by allowing them to spread some of their tax payments in interest free instalments over the following 2½ to 5 years. While the full amount of the tax obligations was reflected in the accrual revenues for 2000-01, reflecting the year in which the liabilities were assessed, the cash estimates will continue to be affected for the 5 year period, reflecting when the deferred tax payments will be received. The impact of these PAYG deferrals has been to increase the cash taxation revenue estimates by around $1.0 billion in 2001-02 and $1.2 billion in 2002-03, while the deferrals have no impact on the accrual estimates in any year. Automotive Competitiveness and Investment Scheme (ACIS) ACIS will operate from 2001 to 2005, providing customs duty credits for the automotive industry in two separate packages for car assemblers and component firms, toolmakers, and design and engineering firms. An increase in the level of ACIS credits recognised has resulted in an increase in the difference between the accrual and cash estimates for customs duty revenue. ACIS credits now account for around $400 million of the difference in both 2001-02 and 2002-03.

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1 All revenue estimates in this Statement are reported on an accrual basis unless otherwise specified. (Revenue estimates on a cash basis can be found in Box 1 and Appendix E.) The revenue estimates exclude GST revenue, which is collected by the Commonwealth and provided in full to the States and Territories. A discussion of GST revenue can be found in Budget Paper No. 3.

2 Costings are provided for the four year period 2002-03 to 2005-06.