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Part II: Budget Estimates of Revenue
Table 3 compares revenue estimates for 2000-01 with the estimates for 1999-2000.
Table 3: Commonwealth General Government Revenue Estimates
(a) The Pay As You Go (PAYG) system will be introduced generally from 1 July 2000. The 1999-2000 estimate includes all Pay As You Earn (PAYE) and Prescribed Payments System (PPS) revenue. The 2000-01 estimate includes revenue from taxpayers who are currently subject to PAYE withholding arrangements, or who are currently in the PPS and will be subject to PAYG Withholding arrangements from 1 July 2000.
(b) Amounts withheld for failure to quote a Tax File Number (TFN) or an Australian Business Number (ABN) are included in Other Withholding tax (which replaces the former Withholding tax category).
(c) The 2000-01 estimate includes individuals making PAYG Instalment payments.
(d) Includes the superannuation contributions surcharge.
(e) Excludes surcharge revenue raised by the Commonwealth on an agency basis and paid to the States and Territories as Revenue Replacement Payments (RRPs). RRPs will be abolished in 2000-01 under The New Tax System (see Budget Paper No.3 for more information).
(f) This item includes Wholesale Sales Tax (WST, to be abolished from 1 July 2000), Wine Equalisation Tax (WET) and Luxury Car Tax (LCT).
(g) Excludes Fringe Benefits Tax (FBT) collected from Commonwealth government agencies (around $300 million in 1999-2000 and around $330 million in 2000-01).
In 2000-01, taxation revenue is expected to decrease by 4.6 per cent and total revenue is expected to decrease by 5.5 per cent.
As noted in Part I of this Statement, the reduction in taxation revenue in 2000-01 reflects the introduction of The New Tax System, including personal income tax cuts and the abolition of WST from 1 July 2000. Abstracting from these tax cuts, taxation revenue is expected to continue to grow broadly in line with overall growth in the Australian economy.
The introduction of The New Tax System has a substantial influence on almost all taxation revenue categories. This makes it difficult to directly compare estimates for 2000-01 with the corresponding estimates for 1999-2000. Nevertheless, notable movements in taxation revenue heads include:
- a 10 per cent reduction in the new Gross Pay As You Go (PAYG) Withholding category (which is primarily comprised of current Pay As You Earn (PAYE) revenue). This mainly reflects the impact of personal income tax cuts to the order of $12 billion from 1 July 2000, partially offset by increases in employment and in wages adding to income tax collections;
- a 30 per cent increase in company tax revenue, as a result of strong company income growth and the introduction of the PAYG system, which effectively brings some company tax assessments forward into 2000-01. (Superannuation funds tax also increases significantly as a result of a bring-forward of revenue with the introduction of the new PAYG arrangements.);
- substantial increases in excise and customs revenue, reflecting the Commonwealth's partial retention from 1 July 2000 of taxes equivalent to those previously collected by the Commonwealth for the States and Territories on an agency basis; 4 and
- an 87 per cent reduction in other indirect taxes, reflecting the abolition of the WST from 1 July 2000.
The budget revenue estimates are strongly influenced by the forecast growth and composition of economic activity. The 2000-01 revenue estimates are based on the following major economic parameter assumptions:
- growth in nominal GDP of around 6½ per cent;
- average earnings (national accounts basis, excluding Superannuation Guarantee Charge) growth of around 3¾ per cent;
- growth in wage and salary employment of around 2½ per cent; and
- growth in 1999-2000 company income of around 9¼ per cent.
Individuals Income Tax
Table 4 provides estimates for 1999-2000 and 2000-01 for income tax categories applying to individuals.
Table 4: Individuals Income Tax
(a) The PAYG system will be introduced generally from 1 July 2000. The 1999-2000 estimate includes all PAYE and PPS revenue. The 2000-01 estimate includes revenue from taxpayers who are currently subject to PAYE withholding arrangements, or who are currently in the PPS and will be subject to PAYG Withholding arrangements from 1 July 2000. It does not include amounts withheld for failure to quote a TFN or ABN.
(b) The 2000-01 estimate includes individuals making PAYG Instalment payments.
Gross Pay As You Go Withholding
Gross PAYG Withholding includes all taxes withheld from payments under the PAYG system (other than amounts withheld because no Tax File Number (TFN) or Australian Business Number (ABN) has been quoted). The bulk of Gross PAYG Withholding revenue will arise from the payment of salary and wages to employees.
From 1 July 2000, the current PAYE system will be replaced by PAYG, as will the Prescribed Payments System (PPS) and Reportable Payments System (RPS).
Under the PAYG system, individuals currently in the PPS who qualify for an ABN can choose to enter into voluntary withholding arrangements. Tax withheld from such individuals (estimated to be around $800 million in 2000-01) will be recorded under Gross PAYG Withholding.
The remaining tax that would have been collected under PPS will now be collected through the PAYG Instalment system or as payments on assessment. These payments (estimated to be around $1.9 billion in 2000-01) will generally be recorded under the Gross Other Individuals head of revenue.
Gross PAYG Withholding revenue (excluding the Medicare levy) is expected to fall by 10 per cent in 2000-01, despite ongoing strength in wage and salary employment. This fall reflects the impact of substantial personal income tax cuts associated with the introduction of The New Tax System.
Gross Other Individuals
The Gross Other Individuals category consists of income tax paid by individuals other than that collected through the PAYG Withholding system. It comprises:
- PAYG instalments (from individuals); and
- debit assessments on income tax returns (that is, where tax credits are insufficient to meet the tax assessed on income).
Taxpayers in this category derive their income from salaries and wages, business, primary production, investments and capital gains.
Most `Other Individuals' revenue will be collected through the PAYG Instalment system from 1 July 2000. Individuals who are registered for the GST and individuals with tax liabilities over $8,000 will generally make quarterly payments based on actual income in the most recent quarter. Individuals who are not registered for the GST with liabilities of less than $8,000 have the choice of making quarterly payments or an annual payment in April.
A significant benefit for individuals who currently pay provisional tax is the abolition of the `uplift factor'. Provisional tax instalments are currently based on the previous year's liability plus an uplift factor. Under the PAYG system, individuals will make payments on the basis of actual income or trading conditions in the most recent quarter. Those making an annual payment may also choose to base their payment solely on last year's income, without applying an uplift factor.
The expected fall in Gross Other Individuals revenue of 6 per cent in 2000-01 reflects the substantial personal income tax cuts associated with the introduction of The New Tax System.
Revenue from the Medicare levy in 2000-01 is expected to rise by 5 per cent, mainly reflecting growth in the taxable income base of individuals.
Individuals Income Tax Refunds
A final assessment of the tax liabilities of individual taxpayers is made on the basis of returns lodged after the end of a 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, which is recorded under the Gross Other Individuals income tax category.
Refunds to individuals are expected to grow by only 2 per cent in 2000-01, despite strong growth in income tax collected from individuals during 1999-2000. This relatively weak growth in refunds is largely explained by the abolition of the savings rebate from 1998-99 (which has a lagged effect on refunds). The rebate applied to 1998-99 tax returns and therefore significantly increased refunds in 1999-2000. Its removal will slow refunds growth from 1999-2000 to 2000-01.
Company and Other Income Tax
Table 5 provides estimates for 1999-2000 and 2000-01 for company and other income tax categories.
Table 5: Company and Other Income Tax
(a) Includes the superannuation contributions surcharge.
(b) Includes business-to-business transactions where an ABN is not quoted by the supplier from 1 July 2000.
Company Income Tax
Company tax revenue is recognised as accruing to the Commonwealth when a taxation liability arises, either through assessment by the Australian Taxation Office (ATO) or through self-assessment by the corporate taxpayer.
As part of The New Business Tax System, the general tax rate for companies will fall from 36 per cent to 34 per cent for the 2000-01 income year, with concessional rates applying to certain income of life insurance companies, registered organisations, pooled development funds, small credit unions and offshore banking units. This rate will fall to 30 per cent in the 2001-02 income year.
From the 2000-01 income year, the new company tax payment arrangements under the PAYG system will bring payments of company tax forward relative to the current arrangements.
Under the current system, the first tax payment relating to a year of economic activity for medium and large companies is typically made 8 to 11 months after the year has started. However, under the PAYG system, this lag will be reduced to just 4 months. As a result, there is an overlap of company tax payments in 2000-01 from two consecutive income years.
As a transitional arrangement, some of the liabilities arising from the overlap of the new and existing payment arrangements can be deferred by companies and paid over the following 2½ to 5 years. In accrual terms, the full amount is recorded as revenue in 2000-01. In cash terms, the amount is spread over several years from 2000-01.
In addition to strong forecast company income growth of around 9¼ per cent in 1999-2000, the transitional impact of the new PAYG system explains most of the anticipated 30 per cent growth in company tax revenue in 2000-01.
Superannuation Funds Tax
Superannuation funds are generally taxed at a concessional rate of 15 per cent in relation to investment income and certain contributions received. Superannuation funds tax is recognised as accruing to the Commonwealth on a similar basis to companies, with payments made according to the schedule that applies to company income tax.
Superannuation funds tax revenue is expected to grow by 33 per cent in 2000-01. A large part of this growth is a result of the introduction of the new PAYG system, which (consistent with the arrangements for company tax) effectively brings forward some taxation liabilities from superannuation funds. The scheduled increase in the superannuation guarantee from 7 per cent to 8 per cent in 2000-01 will also boost tax levied on contributions. Furthermore, the addition of fringe benefits to group certificates from 2000-01 is expected to increase revenue from the superannuation surcharge that applies to contributions from higher income earners.
Other Withholding Tax
Other Withholding tax is levied on:
- income payments to residents who, when making an investment, do not supply the investment body with a TFN;
- business-to-business transactions where an ABN is not quoted by the supplier from 1 July 2000;
- certain interest, dividend and royalty payments to non-residents; and
- payments made to Aboriginal groups for the use of Aboriginal land for mineral exploration and mining.
Total Other Withholding tax revenue is expected to decline in 2000-01 by 5 per cent. This decline largely reflects the impact of some large one-off dividend and resident withholding payments in 1999-2000 that are not expected to be repeated in 2000-01.
Petroleum Resource Rent Tax (PRRT)
Under the Commonwealth's Petroleum (Submerged Lands) Act 1967, PRRT applies to offshore areas other than the North West Shelf production licence areas and associated exploration permit areas, which are subject to excise and royalty arrangements. PRRT is levied at the rate of 40 per cent of taxable profit from a petroleum project.
PRRT is expected to increase by 13 per cent in 2000-01. This reflects the impact of recent growth in world oil prices and an anticipated increase in domestic oil production in 2000-01.
Table 6 provides estimates for 1999-2000 and 2000-01 for the various categories of indirect taxation.
Table 6: Indirect Tax(a)
(a) Excludes surcharge revenue raised by the Commonwealth on an agency basis and paid to the States and Territories as RRPs. RRPs will be abolished from 2000-01 as part of The New Tax System. Also excludes GST revenue collected by the Commonwealth from 1 July 2000 and passed in full to the States and Territories. This revenue amounts to $24.1 billion in 2000-01.
(b) Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene, and refunds/drawbacks relating to petroleum products excise.
(c) Customs duty includes duties imposed on imported petroleum products, tobacco, beer and spirits, which is akin to excise duty on these items.
(d) WST is to be abolished from 1 July 2000. The 2000-01 estimate reflects the liability for some transactions occurring in the last months of 1999-2000.
There are several major categories of excise revenue. They include petroleum products excise, crude oil excise, tobacco excise, and excise on certain alcoholic beverages.
Petroleum products excise includes excise on motor spirit (petrol), diesel fuel, aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene. It is imposed at specific rates per litre of product.
Excise revenues from unleaded petrol and diesel are expected to increase by 19 per cent and 13 per cent respectively in 2000-01. In part, this reflects continued growth in demand and continued substitution of unleaded petrol for leaded petrol. Further, these increases reflect the fact that excise revenue currently collected on behalf of the States will, as part of The New Tax System, be retained as Commonwealth revenue from 1 July 2000. At present this excise is classified as a State tax and is not shown as Commonwealth revenue. From 1 July it becomes a Commonwealth tax as part of the changes flowing from the introduction of GST, which constitutes a State revenue base. The growth in revenue from these excises is moderated by a reduction in excise rates from 1 July 2000. This reduction is necessary to ensure that petrol and diesel prices need not rise as a result of the introduction of the GST.
Excise revenue from leaded petrol is expected to decline by 6 per cent in 2000-01. This forecast reduction reflects a continuing decline in the number of vehicles that use leaded petrol exclusively, and a reduction in the excise rate applying from 1 July 2000. The extent of the decline is, however, moderated by the Commonwealth's retention from 1 July 2000 of excise revenue on leaded petrol that is currently collected on behalf of the States.
Crude oil excise includes excise collected from: offshore fields in the North West Shelf production licence areas that are not subject to PRRT; and onshore fields and coastal waters.
- Crude oil excise revenue is anticipated to increase by 21 per cent in 2000-01. This is primarily due to an anticipated increase in domestic production.
Other excise is derived from beer, potable spirits and tobacco products. It is imposed:
- according to the new `per stick' regime applying to cigarettes and tobacco products, based on a combination of per stick and weight-based excise rates;
- on the alcohol content of beer; and
- on the alcohol content of other products such as spirits and certain ready to drink products. Wine is exempt from excise.
Other excise revenue is expected to increase by 145 per cent in 2000-01, largely reflecting the retention by the Commonwealth of tobacco excise currently collected on behalf of the States (an estimated $3.1 billion in 2000-01). This excise is classified as a Commonwealth tax for the same reason as petrol - that is, in return for the States receiving all revenue from GST collected by the Commonwealth on their behalf. In addition, the excise rates on most alcoholic beverages will be increased from 1 July 2000 to offset the removal of WST on beer and spirits (currently 37 per cent).
The rates of duty for excisable commodities (with the exception of 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.
All revenue from the excise duty on aviation gasoline and aviation turbine fuel contributes to the funding of aviation programmes. In addition to the impact of indexation described above, the rates of excise and customs duty applying to aviation fuels are adjusted, as necessary, depending on the funding requirements of those programmes (see Part I of Budget Paper No. 2, Budget Measures 2000-01).
Existing excise rates are shown in Table 7.
Table 7: Excise Rates
(a) These rates refer to the Commonwealth component of excise.
(b) The per-stick arrangements commenced on 1 November 1999.
Customs duties are imposed either as a percentage of the value of imported goods or on a fixed rate basis (for example, dollars per litre). Around 63 per cent of total imports by value enter Australia duty free. Most dutiable goods - excluding passenger motor vehicles and textiles, clothing and footwear - currently attract a general tariff rate of 5 per cent. The Productivity Commission will report on its review of the general tariff rate in July 2000.
The 17 per cent increase in forecast Customs duty revenue in 2000-01 largely reflects an increase, from 1 July 2000, in the customs duty rates applying to imported alcoholic beverages. This increase in customs duty is necessary to offset the removal of WST on beer and spirits (currently 37 per cent). It mirrors an equivalent increase in excise on domestically produced beer and spirits.
Other Indirect Taxes
WST is imposed on a range of goods destined for consumption in Australia and is levied at the last wholesale or import point on the wholesale sales value of taxable goods. From 1 July 2000, WST will be abolished as part of The New Tax System.
Consistent with the tax liability method of revenue recognition, the 2000-01 WST estimate reflects the final liability of WST remitters to the ATO.
In the absence of the two specific indirect tax measures outlined below, the abolition of WST would have meant that the price of certain goods would have fallen more than was intended by general indirect tax reform. Hence from 1 July 2000, grape wine, wine products, fruit and vegetable wine, cider, perry, mead and sake will become subject to a Wine Equalisation Tax (WET), which replaces the difference between the current 41 per cent WST rate on these products and the GST. The WET is to be levied at a rate of 29 per cent, with tax being paid on the value of the goods at the last wholesale sale, or equivalent value.
Similarly, a new Luxury Car Tax (LCT) of 25 per cent will be introduced from 1 July 2000. The LCT will apply to the GST exclusive price of a car above the LCT threshold (the threshold is $55,134 in 1999-2000). This will ensure that, when the higher WST rate of 45 per cent is removed from luxury cars and the GST is introduced, the price of luxury cars will fall by about the same amount as other cars.
Fringe Benefits Tax and Other Taxes
Fringe Benefits Tax
Fringe Benefits Tax (FBT) applies to a range of benefits provided by employers to their employees or associates of their employees. FBT revenue is expected to rise by 9 per cent in 2000-01, partly due to the effect of solid remuneration growth. FBT revenue is also expected to be boosted in 2000-01 by the modification of the FBT gross-up rate (to ensure neutrality of treatment between fringe benefits and cash salary following the introduction of the GST) from 1 July 2000.
Table 8 shows estimates for 1999-2000 and 2000-01 for the various categories of other taxes.
Table 8: Other Taxes
(a) Includes all other tax revenue collected by Commonwealth agencies.
Total revenue from Other Taxes is forecast to decline in 2000-01 by 11 per cent. Agricultural production taxes, non-agricultural levies and broadcasting licence fees are forecast to remain broadly unchanged. Wool tax revenue is estimated to fall in 2000-01 by around 10 per cent.
The remaining category of Other taxes includes the Coalmining Long Service Leave Levy, Child Support fees and fines, passport and consular fees, offshore petroleum royalties and a range of levies administered by the Department of Transport and Regional Services including Aircraft Noise, Stevedoring and Marine Navigation levies.
The forecast reduction of 19 per cent in the `Other' category of Other Taxes is largely due to reduced estimates of offshore petroleum royalties collected by the Department of Industry, Science and Resources. These royalties are collected by the Commonwealth and shared with the Western Australian Government. These estimates are projected to decline in 2000-01, largely due to a projected decrease in production of petroleum products (other than crude oil) from the North-West Shelf.
Table 9 provides estimates for 1999-2000 and 2000-01 of the various categories of non-taxation revenue.
Table 9: Non-taxation Revenue
(a) Includes interest revenue from swaps (around $1.9 billion in 1999-2000 and around $2.3 billion in 2000-01).
(b) Includes all other non-tax revenue collected by Commonwealth agencies.
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 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 the States on Specific Purpose Borrowings will be lower in 2000-01 compared with 1999-2000, reflecting the repayment of debt by the States in 1999-2000.
Interest from Other Sources
This item includes interest income on Commonwealth cash balances and on other financial assets, including swap transactions entered into as a part of the Commonwealth's debt management strategy managed by the Australian Office of Financial Management (AOFM). These are expected to increase in 2000-01, largely due to increases in interest rates and increased swap activity.
The main sources of dividends are the Commonwealth's Government Business Enterprises (GBEs) and the Reserve Bank of Australia (RBA).
Dividends are anticipated to decline by 66 per cent in 2000-01, mainly due to lower dividend payments from some GBEs and a lower dividend from the RBA. Dividend payments from the RBA 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 seigniorage from circulating coin production, royalties from numismatic coin sales and annual dividends from profits the Mint makes as the manufacturer of these products.
Other Sources of Non-tax Revenue
Other non-tax revenue is expected to increase by 40 per cent in 2000-01. This mainly reflects:
- the reimbursement by the United Nations (UN) of some of the costs incurred by the Australian Defence Forces in East Timor as part of the UN deployment;
- increased revenue from outstanding Higher Education Contribution Scheme (HECS) debts owed to the Commonwealth; and
- an increase in net gains from the sale of non-financial assets, primarily as a result of anticipated proceeds from the sale of telecommunications spectrum licences by the Commonwealth in 2000-01.
4 Since August 1997, the Commonwealth has levied, on behalf of the States, excise surcharges on tobacco and petroleum products (these surcharges are levied as customs duties on imported products). The Commonwealth has also levied a surcharge on the WST rate applying to beer and spirits. These surcharges - which are classified as State taxes - were introduced after the High Court held that tobacco business franchise fees imposed by the States were invalid under section 90 of the Constitution. However, following the introduction of The New Tax System, revenue from excises and the WET will be retained by the Commonwealth and will be classified as Commonwealth taxes.