STATEMENT 5 - REVENUE

PART I: BUDGET ESTIMATES

Table 1 compares the revised revenue estimates for 1996-97 with the 1996-97 Budget estimates and provides estimates for 1997-98.

Table 1: Revenue Estimates

(a) Includes tax on realised capital gains.

(b) Includes Child Support Trust Account receipts ($426 million in 1996-97 and $454 million in 1997-98).

(c) Includes Reportable Payments System payments by individuals ($1 million in 1996-97 and $1 million in 1997-98).

(d) Includes refunds of Child Support Trust Account receipts ($10 million in 1996-97 and $10 million in 1997-98).

(e) Includes impact of classification changes except for the 1996-97 Budget estimate.

Total revenue in 1996-97 is now estimated to be a little lower than forecast in the 1996-97 Budget with a significant downward movement in company tax partly offset by strength in a number of other tax categories.

In 1997-98 total revenue is expected to increase by 2.9 per cent over estimated revenue in 1996-97, with the ratio of revenue to GDP falling to 24.5 per cent. Total tax revenue is expected to grow more slowly in 1997-98 at 4.1 per cent, compared with estimated growth of 6.9 per cent in 1996-97. As a share of GDP, taxation revenue is expected to fall to 23.8 per cent. Taxation revenue is expected to increase by 2.0 per cent in real terms.

The continued growth in taxation revenue in 1997-98 reflects ongoing expansion of economic activity as well as the net contribution to revenue from measures announced in this and previous Budgets. The decline in non-tax revenue mainly reflects a lower dividend from the Reserve Bank of Australia.

Revenue measures contained in this Budget add $71 million in 1997-98; measures have substantially greater effects in later years. A list of revenue measures is included in Appendix A and described in full in Budget Paper No. 2.

The revenue estimates are influenced by the rate of income growth (growth in nominal GDP(I) of around 6 per cent) and the following forecasts:

Taxation Revenue

Individuals Income Tax

The revised estimates for 1996-97 and estimates for 1997-98 for the major categories of individuals income tax are shown in Table 2.

Table 2: Individuals Income Tax

(a) Includes tax on realised capital gains.

(b) Includes Child Support Trust Account receipts ($426 million in 1996-97 and $454 million in 1997-98).

(c) Includes Reportable Payments System payments by individuals ($1 million in 1996-97 and $1 million in 1997-98).

(d) The base Medicare levy reverts to 1.5 per cent in 1997-98 with the cessation of the 0.2 per cent surcharge imposed in 1996-97 for the purpose of buying back certain firearms from the public.

(e) Includes refunds of Child Support Trust Account receipts ($10 million in 1996-97 and $10 million in 1997-98).

Pay-As-You-Earn (PAYE) Instalment Deductions
Wage and salary earners pay income tax on a pay as you earn basis through tax instalment deductions made by their employers.

Gross PAYE collections (net of the Medicare levy) are expected to rise by 8.0 per cent in 1997-98 in response to forecast growth in average earnings and in wage and salary employment.

Other Individuals
The 'other individuals' category includes all collections of income tax paid by individuals, other than those made through the PAYE and Prescribed Payments System (PPS) categories. Tax revenue comprises provisional tax payments and debit assessments on income tax returns (ie where tax credits are insufficient to meet the tax assessed on income). Taxpayers in this category derive their income from salary and wages, business and property income and capital gains, and may also make concurrent payments under the PAYE and PPS categories.

Provisional tax liability in a given year is generally determined by increasing the previous year's assessed income by a provisional tax uplift factor (currently 6 per cent). Taxpayers who expect their income to grow by less than the uplift factor may elect to lodge a provisional tax variation to reduce provisional tax payments. Current year tax payments for other individuals are made up of provisional tax payments together with any balance on assessment from the previous year's tax liability.

Revenue from this item is expected to fall by around 0.9 per cent in 1997-98 largely due to lower expected collections from debits on assessments. Debits on assessments in 1996-97 have been exceptionally strong because of robust growth in incomes in 1995-96, which is expected to moderate.

Prescribed Payments System (PPS)
PPS collections represent the withholding, at source, of taxation on payments for prescribed labour and services in specific industries (eg building and construction and road transport). PPS collections generally cover industries where the PAYE form of collections is either infeasible or costly to administer.

Revenue in 1997-98 is estimated to increase strongly mainly reflecting strong growth in the construction industries, viz:

Medicare Levy
Collections in 1997-98 are expected to fall by 9.4 per cent owing to:
Individuals Income Tax Refunds
A final assessment of tax liability for individual taxpayers is made on the basis of returns lodged after the end of a financial year. Refunds are made where tax payments exceed the final assessment. Where tax credits are insufficient to meet the final tax liability, taxpayers make an additional payment, which is collected under the other individuals income tax category.

Refunds in 1997-98 are estimated to grow by 8.3 per cent largely on account of:

Company and Other Income Tax

Table 3 contains revised estimates for 1996-97 and estimates for 1997-98 for company and other income tax items.

Table 3: Company and Other Income Tax

(a) Includes tax on realised capital gains.

Company Income Tax
A company's tax liability is assessed as a flat percentage of its taxable income. The general tax rate is 36 per cent, with concessional rates applying to certain income of life assurance companies, registered organisations, pooled development funds and credit unions.

The significant reduction in estimated company tax collections in 1996-97 relative to the 1996-97 Budget estimate (see Table 1) is mainly due to some large companies using stock valuation options to shift forward their income to take advantage of the lower company tax rate applying to the 1994-95 income year.

Estimated company tax collections in 1996-97 are higher than estimated in the MYEFO partly reflecting more information on the extent and implications of corporate tax planning activities associated with the change in the company tax rate.

Company income tax is forecast to grow by 1.5 per cent in 1997-98 owing to:

partly offset by:
Superannuation Funds Tax and Surcharge
Superannuation funds are generally taxed at the concessional rate of 15 per cent in relation to investment income and certain contributions received. Payments are made according to the same schedule as applies to company income tax.

Tax collections under this category have generally been volatile: the strong increase in collections in 1996-97 has followed negative growth in 1995-96. Although the reasons for the large surge in superannuation funds tax collections in 1996-97 are not fully clear, strong growth in contributions, high realisations of capital gains and strong growth in interest income have been contributing factors.

The estimated increase in collections in 1997-98 of 1.6 per cent is attributable to:

partly offset by: Because the reasons behind the strong growth in 1996-97 collections are not fully known, the estimate for 1997-98 is subject to more than the usual degree of uncertainty.
Withholding Tax
Withholding tax is levied on: The estimated increase in withholding tax in 1997-98 of 9.8 per cent is attributable to strong growth in expected collections of interest withholding tax and continued growth in dividend withholding tax.
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.

The strong increase in PRRT collections in 1996-97 represents a large one-off payment related to the settlement of the dispute between the Victorian gas utilities and their gas suppliers. The gain in tax revenue is largely offset by the payment of $556 million to the Victorian Government under the Deed for the Return of Tax Payments between Victoria and the Commonwealth.

In 1997-98, PRRT revenue is expected to return to more normal levels.

Fringe Benefits Tax (FBT)
FBT applies to a range of benefits provided by employers to their employees or associates of their employees.

FBT collections are estimated to remain broadly unchanged under the offsetting influences of remuneration growth and a reduction in the statutory interest rate used to determine the value of fringe benefits flowing from low interest loans.

Indirect Tax

A summary of the revised 1996-97 estimates and estimated revenue for 1997-98 for components of indirect tax is contained in Table 4.

Table 4: Indirect Tax

(a) Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene and refunds/drawbacks relating to petroleum products excise.
Wholesale Sales Tax (WST)
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. In 1997-98, taxable goods will continue to be subject to tax rates of either 12, 22, 26, 32 or 45 per cent, depending on the classification of the goods involved.

The estimated increase in WST revenue of 5.7 per cent mainly reflects forecast growth in nominal demand for taxable goods.

Excise Duty
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. Crude oil and LPG excise includes excise collected from fields in the North West Shelf production license areas not subject to PRRT.

Excise revenue from total petroleum products is expected to increase by 2.6 per cent in 1997-98 reflecting an expected increase in consumption of diesel fuel and unleaded petrol and the indexation of excise rates. The fall in excise collections from leaded petrol reflects a continuing decline in the number of vehicles which exclusively use leaded petrol. The increase in excise collections from crude oil and LPG production reflects the expectation that the Wanaea field will become excisable in late 1997 (a delay of seven months on the forecast in the 1996-97 Budget).

Other excise is derived from beer, potable spirits and tobacco products. It is imposed at a specific rate per kilogram on tobacco products, on the alcoholic content of beer in excess of 1.15 per cent and on the distilled alcohol in other products such as spirits and mixed drinks. Beer with an alcoholic content below 1.15 per cent is subject to an excise rate of zero. Wine, wine products and other fermented alcohol are exempt from duty.

Excise revenue from these products is expected to remain broadly unchanged in 1997-98 reflecting indexation of excise rates offset by falling or static product volumes. Tobacco product and brandy volumes are expected to continue to decline, while other volumes are expected to remain around 1996-97 levels.

Excise Indexation
The rates of duty for excisable commodities (with the exception of crude oil and LPG) 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 be offset against the next positive CPI movement.

All revenue from the excise duty on aviation gasoline and aviation turbine fuel is appropriated to the Civil Aviation Safety Authority (CASA) and Airservices Australia as a contribution to cost recovery. In addition to the changes from indexation described above, the excise rates applying to these fuels are adjusted as necessary according to the funding requirements of those agencies.

Existing excise rates are shown in Table 5.

Table 5: Excise Rates

(a) The excise rates applying to aviation gasoline and aviation turbine fuel were reduced by $0.0075 per litre on 1 September 1996 to $0.17931 per litre and $0.01778 per litre respectively to reduce over-recovery of revenue necessary to fund CASA and Airservices Australia.
Customs Duty on Imports
Ad valorem tariffs are applied to many categories of imports. Customs duty revenue is affected by the $A value of imports, the level of the statutory tariff rates applied to imports and the composition of imports between high and low tariff rates. Around 70 per cent of total imports by value enter duty free.

The expected increase in customs duty revenue of 4.0 per cent in 1997-98 reflects the rise in the total value of imports, partly offset by continuing tariff rate reductions.

Other Taxes, Fees and Fines

The revised 1996-97 and 1997-98 estimates of other taxes, fees and fines are shown in Table 6.

Table 6: Other Taxes, Fees and Fines

(a) Includes Telecommunications Act Carrier Licence Fees, Coal Mining Industry Levy and the Interstate Road Services Charge.

Primary Industry Charges
The fall in industry charges reflects reforms to the Australian Quarantine and Inspection Service's export meat inspection programme and implementation of a company based inspection system focussing on quality assurance.
Primary Industry Levies
The reduction in Primary Industry levies is due mainly to a reduction in the Wheat Industry Fund Levy. This reflects an expectation of lower world prices and reduced production levels in the 1997-98 financial year.
Broadcasting and Television Station Licence Fees
The increase in broadcasting and television licence fees reflects the expected growth of commercial broadcasters' gross advertising revenue, on which the fees are based, as well as a reduction in the equalisation rebates due to commercial television broadcasters participating in the equalisation scheme.
Radiocommunications Licence Fees
Revenue from Radiocommunications Licence Fees has been reduced primarily to reflect the Government's announcement in October 1996 confirming its intention to proceed with analogue mobile phone (AMPS) phase out by January 2000 and the detailed arrangements and time-table for the phase out. The phase out will reduce the fees paid by the telecommunications carriers for the use of AMPS spectrum.
International Passenger Movement Charge
The expected revenue increase reflects a forecast increase in the number of international passengers of 10 per cent with the charge remaining at $27. Revenue from this item seeks to recover the costs of Customs, Immigration and Quarantine processing of international travellers at Australian airports and seaports as well as the costs of processing short-term visitor visas.
Immigration Fees and Charges
Revenue from immigration fees is expected to rise in 1997-98 largely as a result of the full year effect of increases introduced in the 1996-97 Budget which include: Measures announced in this Budget include the rationalisation of temporary business entry visa sub-classes, cost recovery for health assessments, health undertakings and medical reviews, and increased cost recovery for citizenship processing. A fall in the number of applications for 1997-98 is expected to be offset by the higher level of fees.

Non-Taxation Revenue

The revised estimates of non-tax revenue for 1996-97 and estimates for 1997-98 are shown in Table 7.

Table 7: Non-Taxation Revenue

(a) Comprises Telstra Corporation and Australian Postal Corporation.

(b) Comprises the Federal Airports Corporation and Airservices Australia.

(c) Comprises the Export Finance and Insurance Corporation, Commonwealth Funds Management Ltd, Housing Loans Insurance Corporation, the Australian Industry Development Corporation, Australian Defence Industries Ltd, Defence Housing Authority, the Pipeline Authority and other non-tax revenue.

Interest Revenue

Interest Revenue from the States, NT and ACT
This item comprises interest 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 bondholders.

Interest from the States on General Purpose Borrowings is declining as a result of the June 1990 Loan Council decision that the States make additional payments to the Debt Retirement Reserve Trust Account (with analogous payments from the Territories) each year, to facilitate the redemption of all maturing Commonwealth securities issued on their behalf. The reduction in interest received from the States and Territories is matched by a reduction in public debt interest outlays.

Interest will be lower in 1997-98 compared to 1996-97 reflecting repayments of outstanding debt to the Commonwealth in 1996-97.

The Commonwealth receives interest on advances made under Commonwealth-State Housing Agreements, States (Works and Housing) Assistance Acts, Northern Territory Housing Advances and from the Australian Capital Territory on debts assumed upon self-government.

Interest from the States on Specific Purpose Borrowings will be lower in 1997-98 compared to 1996-97 reflecting repayments of advances to the Commonwealth in 1996-97.

Dividends and Other

Communications Government Business Enterprises (GBEs) Dividends
Total dividends from communications GBEs are expected to fall by around 16 per cent as a result of a reduction in the Commonwealth's entitlement to Telstra's dividend following the sale of one-third of the Commonwealth's equity in Telstra, partially offset by a special dividend payment by Australia Post.
Transport Government Business Enterprises (GBEs) Dividends
Total dividends from transport GBEs are estimated to increase by around 25 per cent. This is principally due to an expectation of an increased Federal Airports Corporation dividend for 1997-98, as a result of higher traffic growth leading to greater operating profits for the 1996-97 financial year.
Reserve Bank of Australia (RBA)
The Reserve Bank Act 1959 requires the RBA to pay its net earnings to the Commonwealth after contingencies and appropriations to reserves.

The lower dividend estimate in 1997-98 reflects the effect on the RBA's 1996-97 earnings of expected asset valuation adjustments arising mainly from changes in exchange rates during 1996-97. The stronger the Australian dollar, the lower is the value of the RBA's foreign exchange assets in Australian dollar terms. Changes in the structure of domestic and international interest rates are also expected to reduce the RBA's underlying earnings.

Royal Australian Mint (RAM)
Revenue from the RAM includes seigniorage from circulating coin production, royalties from numismatic coin sales and annual dividends from the profits the Mint makes as the manufacturer of these products. The estimated increase in revenue in 1997-98 mainly reflects increases in numismatic royalties and profits associated with the Olympics coin numismatic programme.