Revenue
Total accrual revenue in 2007‑08 is expected to be $5.1 billion higher than forecast at the 2007‑08 Budget, comprising an increase of $4.8 billion in tax revenue and additional non‑tax revenue of $322 million.
Estimates for taxes from individuals and companies have been increased, reflecting stronger growth in employment, profits and realised capital gains. It is forecast that there will be 100,000 more people employed in 2007‑08 than forecast at Budget. Superannuation funds taxation estimates have also been revised upwards owing to stronger than expected contributions and fund earnings, especially realised capital gains on equities. In addition, the 2007‑08 revenue estimates have been increased owing to the flow on effects of the higher than expected revenue outcome in 2006‑07, especially for company tax and superannuation funds tax. Box 1 provides information on the revisions to the parameters underpinning the revenue estimates since the 2007‑08 Budget.
Box 1: Parameter revisions to revenue estimates since Budget Since the 2007‑08 Budget, substantial parameter and other variations have led to upward revisions to revenue. These revisions mainly reflect revised forecasts of national income and realised gains on assets. They primarily affect tax revenue from individuals, companies and superannuation funds. Tax revenue estimates are sensitive to the economic forecasts, especially the amount of national income generated in the economy. Upward revisions to the level of national income, which includes labour income and company profits, increase the expected tax base and hence revenue collections. If the rise in the level of national income persists, revenue will remain higher on an ongoing basis. Changes in economic activity generally affect company and other tax revenue with some lag. The Australian economy grew strongly in the first half of 2007, and surpassed the Budget GDP forecast for 2006‑07. The momentum within the economy is expected to continue. Nominal GDP grew 1¼ percentage points faster in 2006‑07 than anticipated at the 2007‑08 Budget and is now expected to grow by an additional ¾ percentage points in 2007‑08. This upward revision reflects stronger than expected demand in both the private and public sectors. Strong private demand has been driven by robust business investment, which is associated with higher than anticipated company profits. The strong demand arising from the private and public sectors has also led to stronger than anticipated employment growth and labour income. As a result, estimated income tax revenue in 2007‑08 from individuals, companies and superannuation funds has been revised up. In addition, the MYEFO revenue estimates for 2008‑09 are based on forecasts of the economy rather than projections as used at Budget. At Budget, 2008‑09 (then the first projection year) incorporated the first stage of a technical assumption that key commodity prices decline to their long‑run average level over the first two projection years. Commodity prices are now forecast to rise modestly in 2008‑09 reflecting an assessment of the continuing tight demand and supply conditions in global commodity markets. The higher than projected commodity prices, and the increased momentum in the economy, are expected to provide a substantial boost to company profits and other incomes in 2008‑09. Overall, growth in nominal GDP in 2008‑09 is forecast to be 2½ percentage points higher than the Budget projection. The timing and extent of any adjustment to commodity prices, as well as its effect on the broader economy, remains uncertain. In response to this uncertainty, the MYEFO estimates retain the technical assumption that key commodity prices return to their long‑run average level over the first two projection years (now updated to 2009‑10 and 2010‑11). As well as upward revisions to GDP, and consistent with the stronger economic outcomes and outlook, asset prices have risen more strongly than estimated at Budget and are assumed to remain at higher levels. As a result, estimated capital gains tax revenue (collected from individuals, companies and superannuation funds) has been revised up across the estimates period, given higher expected growth in realised gains from shares and investment property. |
Policy decisions taken since the 2007‑08 Budget (up to and including 9 October 2007) have reduced revenue by $225 million in 2007‑08. Major policy decisions affecting revenue over the four year forward estimates period 2007‑08 to 2010‑11 include:
- personal income tax cuts, with effect from 1 July 2008, reducing revenue by $34 billion over the forward estimates period;
- an increase in Australian Taxation Office funding to allow it to deploy additional staff and enhance compliance activity, increasing revenue by $2 billion over the forward estimates period; and
- the requirement for all future superannuation contributions and balances for temporary residents to be paid to the Australian Government, with effect from 1 July 2008, increasing revenue by $925 million over the forward estimates period.
A full list of revenue measures announced since the 2007‑08 Budget is provided at Appendix A.
Detailed Australian Government general government sector revenue estimates for 2007‑08, compared with the estimates published in the 2007‑08 Budget, are provided in Table 8. Detailed cash estimates are in Table 13.
Table 8: Australian Government general government sector revenue
- The MYEFO estimate includes Medicare levy revenue of $7,820 million in 2007‑08.
The revenue estimates for 2007‑08 are constructed using the revenue outcomes for 2006‑07, information on revenue collections in the year to date and revised economic forecasts for 2007‑08. As explained in Box 1, the estimates for 2008‑09 are now based mainly on economic forecasts for that year whereas they were based on projections at the 2007‑08 Budget. Revenue estimates for the current projection years — 2009‑10 and 2010‑11 — are based mainly on the level of economic activity at the end of the forecast period and underlying trends in economic activity (including the assumption of key commodity prices returning to their long run average level, in two equal steps over the two projection years).
Total taxation revenue for 2007‑08 is expected to be $4.8 billion higher than forecast at the 2007‑08 Budget. The upward revision primarily stems from stronger growth in individuals' incomes, particularly from stronger employment, as well as higher company profits and earnings from superannuation funds.
Estimated total individuals and other withholding tax revenue has been increased by $2.1 billion since the 2007‑08 Budget.
Estimated gross income tax withholding revenue for 2007‑08 has increased by $2.0 billion since the 2007‑08 Budget, in line with higher forecasts of labour income, particularly as a result of stronger employment growth. Estimated gross other individuals' tax has been revised up by $550 million in 2007‑08, primarily from upward revisions to forecast growth in property (rental and interest) income and higher realised capital gains. Individual refunds have been revised up by $430 million, slightly offsetting the increase in tax paid by individuals. The increase in refunds reflects higher tax deductions (such as for personal superannuation contributions made by the self‑employed) and the flow on effects of the stronger labour market outcomes in 2006‑07 (which increase gross income tax withholding in 2006‑07 and refunds in 2007‑08).
Estimated superannuation tax revenue has been revised up by $1.8 billion in 2007‑08. This revision stems from the stronger than expected outcome in 2006‑07, stronger growth in earnings expected by superannuation funds (especially realised capital gains) and higher contributions (including from the increased strength in the labour market and in response to the Better Super package).
Company tax revenue in 2007‑08 is expected to be $670 million higher than the 2007‑08 Budget estimate, in line with higher company profit forecasts, higher expected realised capital gains from equities and the stronger than anticipated 2006‑07 outcome.
The combined revenue from excise and customs duty in 2007‑08 has been revised up by $190 million in 2007‑08, reflecting stronger expected consumption, including of imports, as well as higher CPI outcomes, which increase excise rates for alcohol and tobacco products.
Fringe benefits tax (FBT) revenue has been revised down by $140 million in 2007‑08 owing to lower than anticipated levels of salary packaging of items subject to FBT.
Expected revenue from other taxation in 2007‑08 is estimated to be slightly higher than at the 2007‑08 Budget.
Non‑taxation revenue variations have increased revenue by $322 million in 2007‑08. This largely reflects an increase in interest received by the Australian Office of Financial Management on term deposits.