Total receipts have been revised down by $9.5 billion in 2010‑11, almost entirely reflecting parameter and other variations. The $5.8 billion downward revision in 2011‑12 reflects a contribution of $0.4 billion in policy decisions and $5.4 billion in parameter and other variations.
Table 4 reconciles this Budget's receipts estimates with those at the 2010‑11 Budget and the 2010‑11 MYEFO.
Table 4: Reconciliation of Australian Government general government
receipts estimates from the 2010‑11 Budget
Variations to total receipts in the estimates years since MYEFO
Total tax receipts for 2010‑11 have been revised down by $9.8 billion since the 2010‑11 MYEFO.
Income tax receipts account for most of this revision in 2010‑11 with total downward revisions of $8.7 billion. Company tax receipts alone account for $5.3 billion of the revision to income tax receipts. This reflects more subdued economic conditions associated with natural disasters, a strong dollar and lower consumption. In addition, larger than anticipated losses incurred during the global financial crisis are weighing down on company tax receipts. Similar factors account for downward revisions of $2.7 billion in individuals' income tax receipts in 2010‑11. Indirect taxes have been revised down by a total of $1.1 billion, largely reflecting a $1.5 billion decline to GST receipts associated with subdued household consumption.
Total tax receipts for 2011‑12 have been revised down by $6.6 billion since the 2010‑11 MYEFO. Once again, revisions to income taxes — particularly company tax and individuals' income taxes — account for the majority of these movements, though GST has also been revised down. Given timing lags, many of the factors contributing to receipts downgrades in 2010‑11 also affect receipts in 2011‑12, including the impacts of the natural disasters, weaker aggregate wages and ongoing utilisation of capital losses accrued during the global financial crisis.
Chart 2 shows the revisions to forecast tax receipts since MYEFO.
Chart 2: Revisions to tax receipts forecasts since the 2010‑11 MYEFO
Source: Treasury estimates.
Non‑tax receipts are expected to increase by $780 million in 2011‑12, largely reflecting increases in offshore petroleum royalties resulting from higher prices and increased production. This receipt is partly offset by a corresponding payment to Western Australia and the Northern Territory through the General Revenue Assistance mechanism.
Effect of policy decisions
Policy decisions since the 2010‑11 MYEFO are expected to decrease receipts by $406 million in 2011‑12. Policy decisions increase receipts by $2.0 billion and $1.9 billion in 2012‑13 and 2013‑14 respectively, and an additional $2.6 billion in 2014‑15. The revenue savings measures include decisions removing certain inefficient tax expenditures, as well as a package of compliance measures aimed at improving fairness in the tax system. The key revenue savings measures include the following:
- The introduction of a temporary flood and cyclone reconstruction levy from 1 July 2011, expected to raise $1.725 billion over the forward estimates.
- Reform of the current statutory formula for valuing car fringe benefits replacing progressive rates with a single 20 per cent statutory rate. This is expected to increase the underlying cash balance by $970 million over the forward estimates.
- Phasing out the dependent spouse tax offset (DSTO) for taxpayers with a dependent spouse born on or after 1 July 1971, estimated to save $755 million over the forward estimates period.
- Removing the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their unearned income with effect from 1 July 2011, with an estimated gain to receipts of $740 million over the forward estimates period.
- The removal of the Entrepreneurs' Tax Offset (ETO), with effect from the 2012‑13 income year, estimated to save $365 million over the forward estimates.
- A number of tax compliance measures aimed at improving fairness in the tax system increase the underlying cash balance by an estimated $1.1 billion over the forward estimates.
This Budget also includes a few revenue spending measures, including the following:
- Allowing low and middle income earners to receive 70 per cent of the LITO through a reduction in tax payable on their regular pay, rather than only half as provided under existing arrangements. This is estimated to reduce receipts by $1.25 billion over the forward estimates.
- A delay in the introduction, until 1 December 2011, and other arrangements for excise and excise‑equivalent customs duty on alternative fuels. This is expected to reduce receipts over the forward estimates period by $641 million. The revenue impact of this is almost entirely offset by a reduction in related expenses.
- Allowing small businesses to claim up to $5,000 as an immediate deduction for motor vehicles, with effect for vehicles acquired from the 2012‑13 income year. This measure is estimated to have a cost to receipts of $350 million over the forward estimates.
Table 5: Revenue policy decisions since the 2010‑11 MYEFO (receipts basis)
Effect of parameter and other variations
In addition to new policy decisions, revisions to expected receipts are driven by recent economic conditions and tax collections, and the updated economic outlook. The receipts variations discussed in this section stem from these parameter and other variations, explicitly excluding the impact of new policy decisions on receipts.
The revenue forecasts are based on the economic outlook presented in Statement 2, with changes in nominal incomes and spending, including changes in their composition, having consequent impacts on expected tax receipts. The key economic parameters that influence revenue are shown in Table 6. Analysis of the sensitivity of the taxation receipts estimates to changes in the economic outlook is provided in Statement 3.
Table 6: Key revenue parameters(a)
- Current prices, per cent change on previous years. Changes since MYEFO are percentage points.
- Compensation of employees measures total remuneration earned by employees.
- Corporate GOS is an Australian National Accounts measure of company profits.
- Property income measures income derived from rent, dividends and interest.
na not applicable.
Parameter and other variations have led to downward revisions to receipts of $9.6 billion in 2010‑11 and $5.4 billion in 2011‑12 since MYEFO. These revisions largely reflect more subdued economic conditions in 2010‑11 than earlier anticipated — owing, at least in part, to the recent natural disasters. The revisions also reflect the influence of the global financial crisis, most notably through its impact on lower than anticipated capital gains. The latter is attributable to prior year losses and the slow recovery in wealth. Continued caution shown by households, another legacy of the global financial crisis, is also weighing down on consumption based tax receipts in these years.
Revisions relative to the 2010‑11 MYEFO to each revenue head in 2010‑11 and 2011‑12 are described below.
Gross income tax withholding receipts are expected to be around $800 million lower in 2010‑11 and $700 million lower in 2011‑12. While employment has strengthened marginally in 2010‑11 relative to MYEFO expectations, this is outweighed by softer than anticipated average wages.
Gross other individuals' receipts are expected to be $1.4 billion lower in 2010‑11 and $1.5 billion lower in 2011‑12. This has been driven by lower property income and unincorporated business income (two of the principal components of individuals' earnings outside of wages and salaries), and downward revisions to expected capital gains tax receipts.
Individuals' refunds are expected to be $500 million higher in 2010‑11 and $300 million higher in 2011‑12, in part reflecting more subdued capital gains.
Fringe benefits tax receipts are largely unchanged in both 2010‑11 and 2011‑12.
Superannuation funds' receipts are expected to be $200 million lower in 2010‑11, owing to lower than expected taxable contributions. Superannuation funds' receipts are expected to be $200 million higher in 2011‑12.
Company tax receipts are expected to be $5.3 billion lower in 2010‑11. This reflects the subdued economic conditions that have seen a downward revision to corporate gross operating surplus (GOS), owing in part to the recent natural disasters but also due to the strong dollar and more subdued consumption. The larger than anticipated losses accumulated during the global financial crisis are also affecting company taxes, as are softness in capital gains. These losses are a key factor in the observed weakness in company tax payments in respect of the 2009‑10 year. Given the lags in the tax system, these factors continue to hamper company taxes in 2011‑12, notwithstanding a stronger outlook for GOS in that year. As a result, company taxes are expected to be $2.4 billion lower in 2011‑12.
Capital gains tax, which is a component of individuals, companies and superannuation funds income taxes, is expected to be lower by $3.2 billion and $3.0 billion in 2010‑11 and 2011‑12 respectively. This reflects the larger than anticipated losses suffered during the global financial crisis and the sluggishness in asset prices.
Petroleum resource rent tax receipts are estimated to be lower by $510 million in 2010‑11 and $20 million in 2011‑12, reflecting substantially greater investment costs (which lower tax payable) associated with some fields and the high exchange rate, offset in part by higher oil prices.
GST receipts have been revised down by $1.5 billion in 2010‑11 and $1.6 billion in 2011‑12, reflecting a weaker outlook for consumption, dwelling investment and ownership transfer costs.
Luxury car tax receipts have been revised down by $40 million in 2010‑11 and $70 million in 2011‑12, reflecting the impact of slower demand for new motor vehicles.
Wine equalisation tax receipts are expected to be $60 million lower in 2010‑11 and $70 million lower in 2011‑12, reflecting weaker than expected growth in both prices and consumption volumes.
Excise duties have been revised up in 2010‑11 by $820 million and by $800 million in 2011‑12, following stronger than expected growth in the production of diesel and tobacco. These increases are partly offset by lower demand for petrol, other fuel products, beer and ready to drink alcoholic beverages.
Customs duty estimates have been revised down by $470 million in 2010‑11 and by $330 million in 2011‑12, primarily reflecting lower than expected household demand, which in turn reduces imports of goods that attract customs duties.
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