Australian Government, 2009‑10 Budget

Statement 5: Revenue

Revenue estimates by revenue head

The revenue estimates for 2008‑09 to 2010‑11 are constructed using the outcomes for 2007‑08, information on revenue collections in the year to date and the revised economic forecasts for 2008‑09 to 2010‑11. This Budget has adopted an extra forecast year to provide a more realistic growth path for an economy emerging from a period of slowdown. Revenue estimates for the projection years — 2011‑12 and 2012‑13 — are based mainly on underlying trends in economic parameters. A detailed explanation for the change in the forecast methodology for the forward estimates can be found in Statement 2.

In 2008‑09, total revenue is expected to decrease by $7.8 billion from 2007‑08, a fall of 2.6 per cent. Driving this decrease is an 11 per cent ($6.8 billion) fall in company tax revenues and 24 per cent ($2.8 billion) fall in superannuation tax revenues.

In 2009‑10 total revenue is expected to fall by a further $5.3 billion before beginning to increase again from 2010‑11 as the economy begins to recover.

Individuals income and other withholding tax revenue

Table 6: Individuals income and other withholding taxation revenue

Table 6: Individuals income and other withholding taxation revenue

Gross income tax withholding

Relative to 2007‑08, estimated revenue from gross income tax withholding (ITW) is expected to increase by $3.0 billion in 2008‑09, growth of 2.6 per cent, principally reflecting growth in both employment and wages partially offset by the effect of the personal income tax cuts. Employers have shown a willingness to minimise redundancies, such as by using leave and reducing working hours.

In 2009‑10, ITW revenue is forecast to increase by $1.3 billion, or 1.1 per cent, with low wage growth offsetting a contraction in employment and the personal income tax cuts. In addition, ITW revenue increases as less salary is sacrificed into superannuation as a result of the reduced concessional contributions caps for superannuation.

In 2010‑11, ITW revenue is expected to grow more quickly (growth of 3.1 per cent or $3.6 billion) as the economy begins to recover, wages continue to grow moderately and employment stabilises.

Over the projection period, ITW revenue grows more strongly as the economy grows above trend. Employment and wages both grow in the projection period.

Gross other individuals

Gross revenue from other individuals is expected to increase by $170 million in 2008‑09 (0.6 per cent), reflecting modest growth in unincorporated business and interest incomes mostly offset by personal income tax cuts and a sharp fall in tax from capital gains realised during 2007‑08.

In 2009‑10 and 2010‑11, revenue from other individuals is expected to decrease by $2.9 billion and $0.7 billion, respectively. Tax from capital gains realised during 2008‑09 is expected to continue to fall before recovering slowly the following year. With nominal GDP remaining weak in 2009‑10, tax instalments from unincorporated businesses income are expected to decline markedly.

In the projection years, other individuals' revenue is expected to recover, with 6.3 per cent and 9.3 per cent growth in 2011‑12 and 2012‑13, supported by most forms of non‑wage income and capital gains.

Income tax refunds for individuals

Refunds for individuals are expected to increase by $3.6 billion in 2008‑09, primarily reflecting personal income tax cuts and the fall in capital gains. The announcement of the tax bonus payment in February has resulted in a small additional increase in refunds as some taxpayers lodge their return earlier to receive the tax bonus.

In 2009‑10 individuals' refunds are expected to increase by $1.4 billion due to continued weakness in incomes in 2008‑09, and then decline by $0.9 billion in 2010‑11 as the economy begins to recover.

Growth over the projections years is expected to be 4.5 per cent in 2011‑12 and 8.0 per cent in 2012‑13, largely following the growth in individuals' income tax payments.

Table 7: Personal income tax rates(a)

Table 7: Personal income tax rates(a)

  1. This table includes legislated changes to tax rates and thresholds. The low income tax offset does not include the additional amount that will be provided under household assistance arrangements for the introduction of the Carbon Pollution Reduction Scheme from 1 July 2011.
Fringe benefits tax

Revenue from fringe benefits tax (FBT) is expected to decline by $330 million in 2008‑09 as weakness in the economy and labour market are reflected in less remuneration being taken as fringe benefits.

FBT is expected to remain virtually unchanged in 2009‑10 before increasing by $130 million in 2010‑11 as employment is expected to stabilise and wages grow more strongly. Additionally, past and future personal tax changes, especially increases in the top threshold, are expected to continue to dampen FBT growth in 2009‑10 and later years.

Growth in FBT is expected to bounce back in 2011‑12 by 5.6 per cent and 6.9 per cent in 2012‑13 as the economy recovers.

Company and other related income taxation revenue

Table 8: Company and other related income taxation revenue

Table 8: Company and other related income taxation revenue

The deterioration in the outlook for the global economy, lower asset prices, weaker forecasts for commodity prices and higher bad debts are expected to reduce company profits. These factors result in expected company tax revenue decreasing in 2008‑09 by $6.8 billion, or 10.6 per cent, from 2007‑08.

Company taxation in 2009‑10 is expected to fall a further 5.1 per cent, or $3 billion, on the back of forecast falls in commodity prices and the flow‑on effects on weaker corporate profits from low business and consumer confidence. In 2010‑11, revenue growth is positive, with an increase of $760 million, as company profits begin to recover in line with the broader economy. The carry‑forward of losses that can be offset against future profits is expected to delay the recovery in company tax revenues.

Company income tax is projected to grow at 11.8 per cent and 7.8 per cent in 2011‑12 and 2012‑13, respectively, reflecting a projected recovery in company profit growth and capital gains, and falling bad debts. Policy measures contribute almost 5 percentage points to growth in 2011‑12.

Superannuation funds

For 2008‑09, taxation revenue from superannuation funds is expected to fall by $2.8 billion, or 23.6 per cent, from a slowdown in contributions, softening employment conditions, and lower earnings with recent falls in domestic and overseas share markets reducing capital gains. Some superannuation funds have made considerable losses on foreign exchange hedge transactions which are also expected to reduce tax revenues in the current year.

These hedge transactions are only half of an overall transaction involving foreign currency denominated assets. The other half of the transaction will have offsetting gains (that may currently be realised or unrealised). These gains will eventually add to superannuation fund tax revenues but the timing of this is highly uncertain.

Taxable contributions need to be constantly assessed in light of uncertainty surrounding the defined benefits scheme top‑up contributions, salary sacrifice behaviour and underlying contributions.

In 2009‑10, superannuation funds tax is expected to decline by $1.2 billion, or 12.8 per cent, predominantly due to the realised foreign exchange hedging losses. In addition, taxable contributions are expected to fall through a combination of low growth in wages, weaker employment and the policy decision to reduce the concessional contributions caps for superannuation.

The recovery in superannuation tax is expected to begin in 2010‑11 with 15.9 per cent growth, as the impact of foreign exchange hedging losses is exhausted and the outlook for the labour market improves. Voluntary contributions are expected to improve as equity markets recover and confidence improves.

In the projection years, superannuation funds tax is expected to continue to bounce back, showing 12.6 per cent growth and 9.5 per cent growth in 2011‑12 and 2012‑13 respectively, based on the assumption of a recovery in employment and corporate profits and as the stock of capital losses runs down.

While the abolition of the superannuation surcharge prevents future liabilities from accruing, a very small allowance has been made in relation to liabilities which accrued prior to 1 July 2005.

Petroleum resource rent tax

PRRT is expected to fall by $270 million in 2008‑09 from $1.9 billion in 2007‑08 largely due to the significant fall in the price of crude oil and falls in the price of other resource commodities. In 2009‑10 PRRT is expected to increase by $120 million from 2008‑09, predominantly reflecting expected increases in crude oil production in some major fields.

In the years from 2010‑11 to 2012‑13, PRRT revenue is expected to average declines of 1.2 per cent each year. This largely reflects downward revisions to commodity prices, higher expected exploration costs, and the natural decline in crude oil reserves.

Sales taxation revenues

Table 9: Sales taxation revenue

Table 9: Sales taxation revenue

Goods and services tax

GST revenue is expected to decrease by $1.3 billion in 2008‑09 driven by weakness in tax collections and a weaker outlook for taxable consumption growth, dwelling investment and ownership transfer costs.

In 2009‑10, GST is expected to increase by $500 million with a rebound in dwelling investment and ownership transfer costs offsetting some further weakness in taxable consumption. GST begins to grow more strongly in 2010‑11 (by $2.3 billion) as consumption recovers in line with developments in the broader economy.

In the projection years, GST revenue is expected to grow by around 6.0 per cent in line with growth for the nominal economy and consumption.

Box 3: GST collection trends

After a long period of strong growth driven by favourable global economic conditions, GST collections have stagnated since early 2008 and fell in early 2009 (Chart A). This weakness mainly reflects the impact of the global financial crisis, which dampened consumer spending and dwelling investment. As the recession deepened globally from late 2008, with inevitable consequences for the Australian economy, negative impacts on consumer spending appear to have intensified.

Chart A: Net GST receipts

Moving annual total

Chart A: Net GST receipts - Moving annual total

Chart B: Composition of household consumption2

Chart B: Composition of household consumption

Source: Treasury estimates.

Consumption has the greatest impact on GST collections as the largest component of the GST base. Taxable consumption is estimated to account for about 80 per cent of the GST base (but represents around 60 per cent of total household consumption).

The recent weakness in taxable household consumption (ie that part of consumption subject to GST) partly reflects it growing more slowly than total household consumption. This is not surprising as consumers are spending a greater proportion on essentials, a significant proportion of which are not taxed (such as rent and fresh food) and less on discretionary goods and services that are almost all taxed (Chart B).

Other sales taxes

Other sales taxes include the luxury car tax, wine equalisation tax and residual liabilities and disputed amounts related to the abolished wholesale sales tax.

Luxury car tax (LCT) revenues are estimated to fall by $74 million in 2008‑09 and a further $20 million in 2009‑10 in line with forecasts of declining new motor vehicle sales. However, LCT revenues are projected to recover in the projection years in line with the economic recovery.

The underlying growth in wine equalisation tax (WET) revenue is expected to move in line with expected total alcohol consumption. WET revenue is expected to grow moderately in 2008‑09 and 2009‑10, reflecting the balance of slight falls in the estimated volume of wine consumption but moderate growth in prices. From 2010‑11, both prices and volumes are expected to grow in line with trends in the broader economy, leading to stronger growth in estimated WET revenue.

Excise and customs duty revenue

Table 10: Excise and customs duty revenue

Table 10: Excise and customs duty revenue

  1. Other excisable beverages are those not exceeding 10 per cent by volume of alcohol.
Excise duty

In 2008‑09, revenue from petrol excise is expected to fall by $350 million relative to 2007‑08, based on weakness in petrol consumption. The 2009‑10 estimate is expected to be lower by $270 million, reflecting the slowdown in energy demand associated with the slowing economy. The trend toward the use of more environmentally friendly fuel sources and the purchase of more fuel efficient vehicles by consumers is anticipated to detract from demand for petrol into the future.

The 2008‑09 estimate for diesel excise is broadly unchanged from 2007‑08 but declines by 2.6 per cent in 2009‑10. This is attributable to the slowdown in the economy, particularly in the mining and manufacturing industries, which are the largest consumers of diesel.

In 2010‑11, diesel excise estimates are expected to increase by 1.2 per cent compared with 2009‑10 while petrol excise is estimated to decline by 2.2 per cent.

Petrol and diesel excise fall in the projection years as excise rates are cut as part of the compensation arrangements for the introduction of the Carbon Pollution Reduction Scheme.

Beer excise is expected to grow by 8.0 per cent in 2008‑09, with higher volumes likely to be reflecting some substitution away from ready‑to‑drink (RTD) beverages. The growth rate slows to 2.0 per cent in 2009‑10 before gradually increasing as the economy recovers.

Tobacco excise is expected to fall in each year from 2008‑09 to 2010‑11 as falling tobacco consumption offsets increases in excise rate indexation.

Revenue from crude oil and condensate excise cannot be published separately without risking the disclosure of sensitive commercial information in relation to the tax affairs of potentially identifiable businesses. To protect this confidentiality, the categories of excisable products have been changed. There is now a category of 'other excisable products' that comprises the previous categories of 'other fuel products', 'crude oil and condensate', 'spirits' and 'other excisable beverages'. In this Budget the 'other excisable beverages' category has still been separately identified given the change in excise rates on these products in 2008.

Within other excisable products, strong growth in demand for ethanol contributes to growth across the estimates period. Ethanol demand has been growing quite strongly in recent years, albeit from a small base and mainly reflects increasing consumer demand for ethanol and blended fuels.

The Government has announced that there will be a new tariff proposal with effect from 14 May 2009 ensuring that the increase in the RTDs excise rate remains in place. The Government will introduce legislation to validate the revenue collected between 27 April 2008 and 13 May 2009 and reintroduce legislation to continue the higher rate. For this reason, the assumed impact of the continued policy has been factored into the estimates for all alcohol products. Box 4 has information on the impact of this measure on alcohol excise collections.

The rates of duty for alcohol and tobacco products are adjusted every August and February in line with half yearly consumer price index (CPI) movements (Table 11). If the change in the CPI is negative, the excise rate is not reduced. Instead the decline is carried forward to be set off against the next positive CPI movement.

Table 11: Excise rates

Table 11: Excise rates

Box 4: Clearances of excisable alcoholic beverages

The excise rate on ready‑to‑drink alcoholic beverages (RTDs) was increased to the same rate as that on excisable full strength spirits from 27 April 2008. The impact of this policy change is examined using clearance data provided by the ATO and the Australian Customs Service. The clearance data measures the volume of taxable alcohol in excisable beverages sold in Australia.

Note that this data does not cover all alcoholic beverages (particularly wine) and that differing economic and other circumstances between years can affect alcohol consumption independently of the excise increase.

Table A compares average weekly clearances from May 2008 to March 2009, the eleven months since the policy change, against the same period in previous years. Between May 2008 and March 2009, consumption of RTDs fell by 35 per cent over the previous year and consumption of total spirit drinks dropped by 8 per cent, significant falls compared with the growth rates in recent years. In the same period, the consumption of full strength spirits rose by 18 per cent and that of beer by 5 per cent, suggesting some substitution from RTDs to other alcoholic beverages. Overall excisable alcoholic beverages consumption declined by 0.5 per cent in contrast to small positive growth rates of recent years.

Table A: Average weekly beer and spirits clearances ('000 litres of alcohol)

Table A: Average weekly beer and spirits clearances ('000 litres of alcohol)

In the 2008‑09 Budget, the gain to revenue from the RTD measure was estimated to be $3.1 billion over the forward estimates period. After allowing for actual clearances since the excise increase, the gain to revenue from the RTD measure over the forward estimates has been revised down to $1.7 billion.

Customs duty

Customs duties are expected to increase by 6.1 per cent in 2008‑09 but decline by around 10 per cent in 2009‑10 in line with the slowdown in household consumption.

In 2008‑09 the passenger motor vehicles estimate is expected to be significantly weaker by $220 million, or a fall of 16 per cent, as demand for imported cars falls (as part of a general decline in the demand for cars).

Revenue from imported spirits are expected to be stronger by $245 million, or nearly 20 per cent growth, in 2008‑09 mainly as a result of consumer substitution from RTDs. However, overall spirits consumption has fallen since the measure to increase excise on RTDs was introduced.

Table 12: Customs duty tariff rates

Table 12: Customs duty tariff rates

  1. This category includes new passenger vehicles, off‑road, second hand cars and parts. Some motor vehicles under this category are currently subject to 5 per cent tariff rate, and used vehicles are subject to an additional impost of $12,000.

Textiles, clothing and footwear estimates are experiencing strong growth with 19 per cent growth in 2008‑09 reflecting strong demand for these products. Despite this, for 2009‑10 and 2010‑11 negative growth is expected in line with declines in general consumption.

While total customs duty growth recovers in the projection years, the impact of tariff rate reductions, scheduled to occur on 1 January 2010, partially offsets this growth.

Carbon Pollution Reduction Scheme revenue

Table 13: Carbon Pollution Reduction Scheme revenue

Table 13: Carbon Pollution Reduction Scheme revenue

Carbon Pollution Reduction Scheme

Revenue from the CPRS is expected to be around $4.5 billion in 2011‑12, with the CPRS commencing on 1 July 2011 with a fixed statutory carbon price of $10 per tonne. In 2012‑13, CPRS revenue is expected to increase to around $13.0 billion, reflecting the move to a flexible market price for carbon.

Box 5: Revenue from the Carbon Pollution Reduction Scheme

The 2009‑10 Budget is the first budget to record revenue from the Carbon Pollution Reduction Scheme (CPRS). The CPRS will be Australia's primary policy tool to tackle climate change, one of the greatest economic, social and environmental challenges of our time.

The CPRS is a 'cap and trade' scheme designed to reduce carbon pollution by placing a cap on aggregate annual emissions. It puts a price on carbon and ensures that the prices of goods and services reflect the costs of pollution. The CPRS will cover around 75 per cent of Australia's emissions, involving mandatory obligations for around 1,000 businesses. The Government will commence the scheme on 1 July 2011, with a fixed carbon price of $10 during 2011‑12, and the carbon price determined by the market from 1 July 2012.

Under the scheme, the Government will issue a number of Australian emissions units to limit domestic emissions in line with the commitment to reduce emissions by between 5 per cent and 25 per cent below 2000 levels by 2020. A 5 per cent reduction represents the unconditional commitment by 2020, irrespective of the actions by other nations. Greater reductions up to 15 per cent will be adopted if there is a global agreement where major economies agree to substantially restrain emissions and advanced economies take on reductions comparable to Australia, but which falls short of stabilisation at 450 parts per million. The Government has committed to reductions of 25 per cent if the world agrees to an ambitious global deal to stabilise levels of carbon dioxide equivalent at 450 parts per million or below.

The majority of Australian emissions units dated 2012‑13 onwards will be sold by the Government through a series of auctions, with the carbon price determined by the market. The Government will use every cent it receives from the sale of Australian emissions units to help households and businesses adjust and move Australia to a low pollution economy. Some emissions units will be freely allocated (instead of being sold through auctions) to assist strongly affected industries and emissions intensive, trade exposed industries during a transitional period.

Emitters of greenhouse gases covered by the scheme will need to acquire and surrender an emissions unit for every tonne of greenhouse gas that they emit.

As yet, comprehensive guidance has not been issued under either Australian Accounting Standards or Government Finance Statistics (GFS) for the treatment of revenue generated by the CPRS. However, some guidance has been issued under the UN System of National Accounts (SNA), the international statistical standard on which the Australian Bureau of Statistics' (ABS) GFS framework is based. Under the 2008 SNA, payments for permits under 'cap and trade' schemes are recorded as taxes and permits constitute assets which are valued at their market price.

It is likely that the GFS framework will adopt the same treatment as the 2008 SNA. Hence, payments for Australian emissions units under the CPRS are treated as taxes in this Budget.

Under this treatment, in cash terms, the payments for emissions units bought at auctions have been recorded as taxation receipts as the cash is received. In the accrual statements, taxation revenue has been recognised in the year that emissions occur. As a result, there is a difference between accrual revenue and cash receipts. The free allocation of emissions units also results in a difference between accrual revenue and cash receipts. For accrual purposes, revenue will be recorded regardless of whether an auctioned or freely allocated unit is acquitted. For cash purposes, only the auctioned units will be recorded as tax receipts.

Further details on the CPRS can be found in the White Paper, Carbon Pollution Reduction Scheme: Australia's Low Pollution Future.

Other taxation revenue

Table 14: Other taxation revenue

Table 14: Other taxation revenue

Other taxation revenue is expected to remain relatively steady over the forward estimates period. Revenue from agricultural levies is expected to decline from 2009‑10 primarily due to the scheduled cessation of the Dairy Industry Restructure Package levy.

Non‑taxation revenue

Table 15: Non‑taxation revenue

Table 15: Non-taxation revenue

Most components of non‑taxation revenue are expected to remain relatively steady through the forward estimates period. Dividends increase substantially in 2009‑10 as a result of the RBA dividend, which is expected to increase primarily as a result of gains realised from its operations in the foreign exchange market. Revenue from sales of goods and services increases in 2009‑10 as a result of increased fee revenue from the Guarantee Scheme for Large Deposits and Wholesale Funding.

2 Essentials comprise food, clothing and footwear, rent and other dwelling services, electricity, gas and other fuel, health, operation of vehicles, transport services, communications, education services, insurance and other financial services. Discretionary comprises cigarettes and tobacco, alcoholic beverages, purchase of vehicles, recreation and culture, hotels, cafes and restaurants, furnishings and household equipment, and other goods and services.

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