A comparison of revenue estimates, by head of revenue for 2002-03 and 2003-04, is provided in Table 3.
Table 3: Commonwealth general government revenue (accrual basis)
- Includes Medicare levy revenue.
- 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.
- Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.
- Consistent with GFS reporting standards, excludes FBT collected from Commonwealth government agencies (estimated at $380 million in 2002-03 and $400 million in 2003-04).
In 2003-04, total revenue is expected to increase by $6.5 billion, with taxation revenue expected to increase by $6.7 billion and non-tax revenue anticipated to decrease by $141 million. The major contributors to the increase in taxation revenue are a $4.1 billion increase in ITW revenue, a $1.8 billion increase in revenue from other individuals, a $1.1 billion increase in company tax revenue, a $440 million increase in superannuation funds tax revenue and a $375 million increase in Commonwealth indirect tax revenue.
The Budget revenue estimates are strongly influenced by forecast economic growth and the expected composition of economic activity. The 2003-04 revenue estimates are based on the following major economic assumptions:
- growth in nominal GDP of around 5½ per cent;
- average earnings growth of around 4 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 4½ per cent.
An analysis of the sensitivity of the revenue estimates to changes in the major economic parameters is provided in Statement 2.
Individuals and other withholding tax
Revenue estimates for 2002-03 and 2003-04 are provided in Table 4 for the various categories of individuals and other withholding tax.
Table 4: Individuals and other withholding tax (accrual basis)
- 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.
ITW includes all taxes withheld from payments made under the Pay As You Go (PAYG) withholding system and amounts withheld because no Tax File Number or Australian Business Number was quoted. It also includes applicable Medicare levy revenue. The bulk of ITW revenue arises from taxes withheld from wage and salary income.
From 1 July 2000, several income tax withholding arrangements were replaced by the PAYG withholding system as part of The New Tax System. These included the former Pay As You Earn (PAYE) system, prescribed payments system and reportable payments system. Most tax payments formerly made under the prescribed payment system or reportable payments system are now reported as revenue from other individuals, with the remainder reported under ITW.
ITW also includes all other withholding taxes levied on natural resource payments, dividends, interest and royalties paid to non-residents. These taxes are not separately identified from other PAYG revenues.
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.
ITW revenue is expected to increase by $4.1 billion (4.8 per cent) in 2003-04. This is broadly consistent with the combined effect of expected growth in wages and employment, partly offset by the effect of the Government's announcement of reductions in personal income tax from 1 July 2003.
Gross other individuals
Revenue from other individuals 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 revenue from other individuals is collected directly from the taxpayer through the PAYG instalment system. Individuals who are registered for the goods and services tax and individuals with tax liabilities of $8,000 or more will generally make quarterly payments. Individuals who are not registered for the goods and services tax 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 prescribed payment system or reportable payments system are now reported as revenue from other individuals, with the remainder reported under ITW.
Revenue from other individuals is expected to increase by $1.8 billion (10.6 per cent) in 2003-04. Under The New Tax System, the payment date for annual instalments for 2002-03 was deferred from April 2003 to October 2003 - boosting revenue in 2003-04 relative to 2002-03.
Individual income tax refunds
A final assessment of the income 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 head of revenue.
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 $660 million (5.7 per cent) in 2003-04. This reflects growth in revenue from ITW and other individuals in 2002-03.
Revenue from the Medicare levy is expected to increase by $400 million (8.0 per cent) in 2003-04. This reflects growth in wages and employment, partly offset by the Government's decision to increase 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 $34 million in 2003-04. Medicare levy revenue is included in the estimates of ITW, gross other individuals and refunds in Table 4.
Company and other related income taxes
Revenue estimates for 2002-03 and 2003-04 are provided in Table 5 for company and other related income tax categories.
Table 5: Companies and other related income tax (accrual basis)
Company income tax
Company income tax includes all income taxes paid by companies, including 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 now pay their liability through four quarterly instalment payments and a balancing payment (five months after the final instalment), although some small companies are still able to pay an annual instalment.
As noted in Appendix D, under the transitional PAYG arrangements, the Government allowed companies to defer some of their liabilities from the old company tax instalment system for up to five years. The cash estimates reflect the expected receipt of these deferred payments ($1.1 billion in 2002-03 and $350 million in 2003-04).
Company tax revenue is expected to increase by around $1.1 billion (3.6 per cent) in 2003-04. This increase reflects the expectation that the current strength in company profits will continue into 2003-04.
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 of their liabilities from the old company tax instalment system for up to five years. The cash estimates reflect the expected receipt of these deferred payments ($175 million in 2002-03 and $25 million in 2003-04).
Superannuation tax on contributions and investment income is expected to increase by around $470 million (13.1 per cent) in 2003-04, reflecting expected growth in both contributions and earnings.
A superannuation surcharge is also collected from superannuation funds. A surcharge of up to 15 per cent is currently levied on the surchargable contributions of high income earners.
Revenue from the superannuation surcharge is expected to fall by $30 million (3.1 per cent) in 2003-04 reflecting the Government's decision to reduce the surcharge rate in three annual steps from 2002-03 to a maximum of 10½ per cent by 2004-05.4
Petroleum resource rent tax
Petroleum resource rent tax (PRRT) 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 petroleum and other fuel products). 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 its company tax liability.
PRRT revenue is expected to decrease by $440 million (25.6 per cent) in 2003-04. This is primarily due to an expected decline in production levels. In addition, the decrease reflects the effect of a higher estimated exchange rate reinforced by lower expected oil prices. The world price of crude oil is assumed to be US$23.30 per barrel in 2003-04.
Revenue estimates for 2002-03 and 2003-04 are provided in Table 6 for the various categories of indirect taxation.
Table 6: Indirect tax (accrual basis)
- Includes unleaded petrol and lead replacement petrol.
- Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene.
- Includes duties imposed on imported petroleum products, tobacco, beer and spirits, which are analogous to excise duty on these items.
- Estimates include the offsetting revenue effects of the WET rebate for cellar door and other sales.
- WST was abolished on 1 July 2000; however, final liabilities, net of refunds, continue to be recognised.
The major categories of excise duty revenue include petroleum and other fuel products, crude oil, tobacco and certain alcoholic beverages.
Petroleum and other fuel excise includes excise on petrol, diesel fuel, biodiesel, aviation gasoline, aviation turbine fuel, fuel ethanol, 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 replaced 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.
In 2003-04, revenue from excise on petroleum and other fuel products is estimated to increase by $275 million (2.1 per cent), reflecting expected increased sales of petrol and diesel. Growth in the consumption of petrol and diesel in 2003-04 is expected to be 1.7 per cent and 2.2 per cent respectively.
There are two sources of excise on crude oil: 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 2003-04 by $245 million (54.4 per cent), due to lower 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; and
- on the alcohol content of draught and packaged beer, spirits, brandy and certain ready to drink beverages.
Wine is exempt from excise, but is subject to the wine equalisation tax.
Other excise revenue is estimated to grow by $30 million (0.4 per cent) in 2003-04, mainly reflecting an expected increase in the consumption of ready to drink beverages and higher revenue from indexation of the excise rates.
The rates of duty for excisable commodities (with the exception of petroleum products and crude oil) 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 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 on low alcohol beer were reduced on 1 July 2002 as part of the national excise scheme for low alcohol beer, announced in the 2002-03 Budget.
Table 7: Excise rates
Customs duty is imposed either as a percentage of the value of the imported good or on a volumetric basis (where duty is applied per unit of quantity) for excise equivalent products.
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 derived from 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 2003-04 is forecast to grow by $285 million (5.1 per cent), largely reflecting expected growth in imports.
All fruit and vegetable wine, wine products, mead and sake are subject to the wine equalisation tax. These products are not subject to excise. Wine equalisation tax is levied at a rate of 29 per cent, with tax being paid on the wholesale value of the goods.
A luxury car tax of 25 per cent applies to the GST exclusive price of a car above the luxury car tax threshold ($57,009).
Other indirect taxes are expected to increase by $30 million (3.3 per cent) in 2003-04. This largely reflects increased consumption of wine and higher sales of luxury motor vehicles.
Fringe benefits tax and other taxes
Fringe benefits tax
FBT is paid on non-salary benefits provided by employers to employees, 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 (refer to Table 3) is expected to decrease in 2003-04 by $30 million (0.9 per cent), reflecting a continuing reduction in the use of fringe benefits since the introduction of The New Tax System.
Agricultural and other taxes
Revenue estimates for 2002-03 and 2003-04 are provided in Table 8 for agricultural and other taxes.
Table 8: Agricultural and other taxes (accrual basis)
- Includes all other tax revenue collected by Commonwealth agencies.
Total agricultural and other tax revenue is estimated to decrease by $20 million (1.3 per cent) in 2003-04. This reflects lower expected revenue from other taxes, partially offset by higher expected revenue from agricultural taxes and broadcasting licence fees.
Revenue estimates for 2002-03 and 2003-04 are provided in Table 9 for the various categories of non-taxation revenue.
Table 9: Non-taxation revenue (accrual basis)
- Includes all other non-tax revenue collected by Commonwealth agencies.
Non-taxation revenue is expected to decrease by $141 million (1.2 per cent) in 2003-04. This largely reflects lower income from interest and petroleum royalties, partly offset by higher income from sales of goods and services.
Sales of goods and services
This category consists of revenue from the direct provision of goods and services by the Commonwealth general government sector. Sales of goods and services are expected to increase by $188 million (4.7 per cent) in 2003-04, mainly due to an increase in revenue from immigration fees, particularly as a result of the introduction of a new category of parent immigration visas and the growth in overseas student visas associated with the provision of international education.
Interest income is expected to decrease by $308 million (25.5 per cent) in 2003-04.
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 other governments is expected to decrease by $17 million (7.3 per cent) in 2003-04, due to a continuing 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 standards. The Australian Office of Financial Management is responsible for the management and reporting of the Commonwealth's net debt portfolio.
Interest income from other sources is expected to decrease by $292 million (29.9 per cent) in 2003-04.
The main sources of dividends are the Commonwealth's Government Business Enterprises and the Reserve Bank of Australia. Dividend payments from the Reserve Bank of Australia can be volatile, as they are sensitive to movements in interest rates and the exchange rate.
The Royal Australian Mint also provides dividend revenue to the Commonwealth. This includes royalties from numismatic coin sales and annual dividends from profits the Mint makes as the manufacturer of these products.
Total dividends are expected to increase by $15 million (0.4 per cent) in 2003-04.
Petroleum royalties are paid by producers operating in the North-West Shelf oil and gas fields off Western Australia.
Petroleum royalties are expected to decrease by $181 million (24.1 per cent) in 2003-04, reflecting expected falls in production and world oil prices.
Other sources of non-tax revenue
Other non-tax revenue includes Child Support Trust Revenue (collected by the Child Support Agency), revenue from Higher Education Contribution Scheme student loans and seigniorage from circulation coin production.
Other non-tax revenue is expected to increase by $146 million (7.1 per cent) in 2003-04.