BP1ST2 - Revenue

Revenue

Table 9 provides estimates of budget sector revenues for 1996-97 to 2000-01. [17]

Table 9: Summary of Budget Sector Revenue

Over the period 1997-98 to 2000-01 total revenue is expected:

in real terms, to increase slightly in 1997-98, and pick-up significantly in the outyears; and
as a proportion of GDP, to fall to 24½ per cent in 1997-98 and remain broadly at around that level over the outyears.

Revenue measures since the 1996-97 Budget have a small net impact on revenues in 1997-98 and 1998-99, and, with the full phasing in of the savings rebate, detract strongly from revenues thereafter.

Table 10 reconciles revenue estimates at the time of the 1996-97 Budget, the MYEFO and the 1997-98 Budget in terms of policy decisions and parameter and other variations.

At the time of the MYEFO, the revenue estimates were revised downwards substantially. This primarily reflected downward revisions to company tax revenues as a result of lower than anticipated collections in 1996-97. Some large companies used stock valuation options to take advantage of the lower company tax rate applying to the 1994-95 income year. Company tax revenue in 1997-98 was expected to recover with the end of these one-off tax planning activities. In addition, lower inflation than forecast at budget time and a more favourable outlook for wages reduced revenue. Slightly lower forecast consumption also reduced expected revenue from sales tax and excise.

Table 10: Reconciliation of Budget and Forward Estimates of Revenue in Aggregate

(a) Includes recostings of pre-MYEFO decisions.

In the period since the MYEFO, the outlook for revenue has generally improved. This reflects stronger than expected collections for some revenue items (including other individuals tax and company tax) in 1996-97 and some favourable movements in economic parameters. Overall in 1997-98, however, parameter and other revisions have detracted slightly from revenue. This reflects a lower than expected dividend from the RBA and weaker parameter growth for certain revenue items.

Revenue Measures

In keeping with the Government's commitments, this Budget does not introduce new taxes or increase existing tax rates. The Government's policy emphasis in the 1997-98 Budget has been on protecting the tax base and addressing anomalies in the tax system. The primary purpose of many of the revenue measures is to prevent risks to the revenue estimates and therefore the fiscal outlook that would otherwise emerge.

Revenue policy decisions in the period since the 1996-97 Budget have little impact in 1997-98, increase revenue slightly in 1998-99, but reduce revenue substantially from 1999-2000 with the introduction of the savings rebate. The decision to introduce a savings rebate scheme through the taxation system is expected to decrease revenue by $350 million in 1998-99 rising to $1.4 billion in 1999-2000 (the first full year of implementation).

The Government has taken action in the 1997-98 Budget to remove or wind back some tax incentives, as well as replacing one with a more effective outlays measure. Appendix C discusses in more detail the revenue impacts associated with concessional taxation treatment of specific groups and/or activities.

Table 11 provides a summary of all revenue measures introduced up to and including the 1997-98 Budget. A full list of revenue measures is included in Appendix A of Statement 5 and described in full in Budget Paper No. 2.

The major measures include:

The taxation rebate for savings.
Revenue protection/tax avoidance and minimisation measures, such as:
- changes to the system for taxing foreign source income to reduce the incentive for Australians to locate highly mobile assets and income offshore purely for taxation reasons; and
- other tax base protection measures introduced in relation to: trust losses; taxation of distributions disguised as loans from private companies; dividend streaming; franking credit trading; passive income of life and general insurance companies; and fuel substitution minimisation.
Changes to tax incentives, such as:
- the introduction of a tax rebate to continue Commonwealth support of private sector infrastructure provision: this will replace the Infrastructure Borrowings (IBs) tax concession for which, as previously announced, further certificates cannot be issued (and existing certificates cannot be re-engineered) from 14 February 1997;
- changes to the capital gains tax cost base provisions to prevent double tax deductions that can arise in respect of certain types of capital expenditure; and
- removal of the tax exemption for payments under the Commonwealth Rebate for Apprentice Full-Time Training scheme with the revenue used to fund changes in entry level training incentives delivered through outlays.
Changes to withholding tax arrangements, such as:
- changes to the timing of payment of income tax amounts withheld by business under the Pay-As-You-Earn (PAYE), Prescribed Payments System and Reportable Payments System arrangements.

Table 11: Summary of Revenue Measures Introduced Since the 1996-97 Budget

(a) A minus sign before an estimate indicates a reduction in revenue; no sign before an estimate indicates a gain to revenue.

(b) This measure will reduce outlays compared with forward estimates for matching Government superannuation contributions as described in the 1995-96 Budget. The net fiscal impact of implementing the savings rebate, but not going ahead with matching Government superannuation contributions, will be positive.

(c) Includes superannuation measures regarding: freezing the trustee tax rate for friendly societies; broadening the definition of 'complying' pensions and annuities in the Superannuation Industry (Supervision) Regulations; choice of superannuation fund; opting out of the Superannuation Guarantee system; and some preservation measures.

(d) Includes measures regarding: taxation of trusts; trading in franking credits and dividend streaming; passive income of life and general insurance companies; and the interaction of controlled foreign company measures and capital gains tax provisions.

(e) These measures will protect the revenue base used for the forward estimates by removing opportunities for significant future expansion of tax minimisation practices. In the absence of these measures there generally would be a significant revenue loss compared to the forward estimates. In some cases, there will also be an unquantifiable revenue gain to the extent of any existing tax minimisation.

(f) Includes measures regarding: provisional tax exemption for pensioners and tax deductibility for Constitutional Convention election expenses.

(g) Includes measures amended or rejected by the Senate up to the 1997-98 Budget.

(h) Includes measures regarding: capital gains tax (CGT) rollover relief for small business - removal of like kind test and extension of rollover relief through shares; and CGT exemption on the sale of a small business for retirement.

(i) Includes measures regarding: fringe benefits tax (FBT) car parking and record keeping exemptions; and extension of FBT taxi trips exemption.

(j) Includes measures regarding: preventing future access to the IBs tax concession; taxation of foreign dividends paid on finance shares; life insurance companies' exempt and taxable income; and capital losses - denial of artificially created losses.