Document Index Budget Paper 1 Budget Statement 6

Part I: Budget Estimates

• Taxation Revenue
  • Individuals Income Tax
    • Gross Pay-As-You-Earn (PAYE) Instalment Deductions
    • Gross Other Individuals
    • Gross Prescribed Payments System (PPS)
    • Medicare Levy
    • Individuals Income Tax Refunds
  • Company and Other Income Tax
    • Company Income Tax
    • Superannuation Funds Tax
    • Withholding Tax
    • Petroleum Resource Rent Tax (PRRT)
  • Indirect Tax
    • Wholesale Sales Tax (WST)
    • Excise Duty
    • Excise Indexation
    • Customs Duty
  • Other Taxes, Fees and Fines
    • Fringe Benefits Tax (FBT)
    • Primary Industry Charges and Levies
• Non-Taxation Revenue
  • Interest
    • Interest from Other Governments
    • Interest from Other Sources
  • Dividends
  • Other Sources of Non-Tax Revenue

Table 1 compares revenue estimates for 1998-99 with estimates for 1999-2000.[1]

Table 1: Revenue Estimates

1. Includes tax on realised capital gains.
   
2. PPS denotes Prescribed Payments System which includes Reportable Payments System payments by individuals (around $2 million in both 1998-99 and 1999-2000).
   
3. Includes superannuation contributions surcharge.
   
4. Excludes revenue raised by the Commonwealth on an agency basis for the States and Territories (eg Revenue Replacement Payments).
   
5. Estimates for Petroleum Products Excise are net of the Diesel Fuel Rebate Scheme.
   
6. Customs duty includes customs duty imposed on imported petroleum products, tobacco, beer and spirits, which is akin to excise duty on these items (around $870 million in 1998-99 and around $890 million in 1999-2000).
   
7. Consistent with GFS reporting standards, excludes Fringe Benefits Tax collected from Commonwealth Government agencies (estimated at $245 million in 1998-99 and $274 million in 1999-2000).

In 1999-2000, taxation revenue is expected to grow by 4.9 per cent over estimated revenue in 1998-99. As a share of GDP, tax revenue is expected to remain unchanged at 23.8 per cent in 1999-2000. Total revenue is expected to increase by 6.2 per cent, with the ratio of revenue to GDP increasing slightly to 26.3 per cent from 25.9 per cent in 1998-99.

The growth in taxation revenue in 1999-2000 reflects ongoing expansion of economic activity, with growth expected in all revenue heads except for other taxes, fees and fines. Particularly strong growth is expected in: company tax, reflecting income growth through 1998-99; petroleum resource rent tax, as a result of the resumption of production in Victoria; and other excise, due to reform of tobacco taxation announced in A New Tax System (see Part I of Budget Paper No. 2).

Non-taxation revenue is expected to grow by 20.4 per cent in 1999-2000. This largely reflects expectations of higher dividend payments from Government Business Enterprises and the Reserve Bank of Australia.

Revenue measures contained in this Budget add $27.7 million to revenue in 1999-2000, $21.9 million in 2000-01, $16.6 million in 2001-02 and $25.9 million in 2002-03. Further details of revenue measures introduced since the 1998-99 Budget are included in Appendix A, and all measures introduced in the 1999-2000 Budget are described in full in Budget Paper No. 2.

The revenue estimates are influenced by the forecast pace and composition of economic activity. The 1999-2000 revenue estimates are based on the following major economic parameter forecasts:

• growth in nominal GDP of around 4¾ per cent;
• average earnings (national accounts basis, excluding Superannuation Guarantee Charge) growth of around 3¾ per cent;
• growth in wage and salary employment of 1½ per cent;
• an increase in nominal private consumption of around 5¾ per cent; and
• growth in 1998-99 company income of around 4½ per cent.

Taxation Revenue

Individuals Income Tax

Estimates for 1998-99 and 1999-2000 for the major categories of individuals income tax are shown in Table 1.

Gross Pay-As-You-Earn (PAYE) Instalment Deductions

Wage and salary earners pay income tax on a PAYE basis through tax instalment deductions made by their employers.

Gross PAYE collections are expected to rise by 6.9 per cent in 1999-2000 in response to forecast growth in average earnings and growth in wage and salary employment.

Gross Other Individuals

The Gross Other Individuals category includes all 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 PAYE, PPS or provisional 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, property and capital gains.

A taxpayer's provisional tax liability in a given year is generally determined by increasing the previous year's assessed income by a provisional tax uplift factor (referenced to the year-average growth rate of nominal GDP for the preceding calendar year). 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 instalments. Current year tax revenue for other individuals is made up of provisional tax instalments, where necessary, together with any balance on assessment.

Gross revenue from this item is expected to rise by 2.6 per cent in 1999-2000. The relatively slow growth in forecast revenue in 1999-2000 is largely due to expected slow growth in 1998-99 incomes. However, strong debit assessments in 1998-99 are expected to contribute positively to revenue in 1999-2000 via higher provisional tax (arising from both a higher tax base and the uplift factor).

Gross Prescribed Payments System (PPS)

The PPS is a withholding system for income tax collection, which applies to certain payments made under contracts for the performance of work. The PPS operates in certain industries (eg building and construction). A payer who makes a prescribed payment is required to make tax instalment deductions from the payment and remit the amount deducted to the Australian Taxation Office. The payee claims a credit for the amount deducted in his or her tax return. For the PPS to apply, the relationship between the payer and the payee must not be one of common law employment, in which case the PAYE system will operate.

Revenue from this item in 1999-2000 is expected to increase by 2.3 per cent, reflecting ongoing growth in residential construction activity, partly offset by weaker non-residential construction.

Medicare Levy

Revenue from the Medicare levy in 1999-2000 is expected to rise by 4.1 per cent, mainly reflecting growth in the taxable income of individuals.

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 credits 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 1999-2000 are estimated to grow by 14.7 per cent, largely due to ongoing growth in income tax collected from individuals during 1998-99, and a number of measures. These include the savings rebate announced in the 1997-98 Budget and the 30 per cent private health insurance rebate announced in A New Tax System.

Company and Other Income Tax

Table 2 contains estimates for 1998-99 and 1999-2000 for company and other income tax items.

Table 2: Company and Other Income Tax

1. Includes tax on realised capital gains.
   
2. Includes superannuation contributions surcharge.

Company Income Tax

The general tax rate for companies is 36 per cent, with concessional rates applying to certain income of life assurance companies, registered organisations, pooled development funds, small credit unions and offshore banking units.

Company tax revenue is recognised as accruing to the Commonwealth when a liability for a taxation instalment arises, either through assessment by the Australian Taxation Office or through self-assessment by the taxpayer. Companies, other than small companies, are required to make one or two quarterly instalment payments (depending on the size of the company's estimated tax liability) in the year income is earned, with the remainder paid in the following year (or substituted accounting period). Small companies are required to make a single instalment payment in the financial year (or substituted accounting period) following the year income is earned. From the 2000-01 income year, the new company tax payment arrangements announced in A New Tax System will bring payments of company tax forward.

Company income tax is forecast to grow by 7.9 per cent in 1999-2000, largely reflecting the estimated growth in company taxable income in 1998-99. The new company tax payment arrangements will also begin to take effect for companies with early balancing dates, resulting in higher revenue in 1999-2000.

Superannuation Funds Tax

Superannuation funds are generally taxed at the 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. Payments are made according to the same schedule as applies to company income tax.

Superannuation funds tax is expected to rise only slightly in 1999-2000. While contributions to superannuation funds in 1998-99 are expected to continue to rise, taxable earnings are expected to slow following strong growth in the previous income year.

Withholding Tax

Withholding tax is levied on:

• income payments to residents who, when making an investment, do not supply the investment body with a tax file number;
• 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.

The estimated increase in withholding tax in 1999-2000 of 8.3 per cent is largely due to the introduction of deferred company tax (announced in A New Tax System) on dividends paid to non-residents.

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 license 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 71.4 per cent in 1999-2000 mainly due to a recovery in Bass Strait oil production following the disruption to Victorian gas supplies in late 1998.

Indirect Tax

Table 3 shows estimates for 1998-99 and 1999-2000 of various indirect taxes.

Table 3: Indirect Tax

1. Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene, and refunds/drawbacks relating to petroleum products excise.
   
2. Customs duty collections include customs duty imposed on imported petroleum products, tobacco, beer and spirits, which is akin to excise duty on these items (around $870 million in 1998-99 and around $890 million in 1999-2000).

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 1999-2000, taxable goods will continue to be variously subject to tax rates of 12, 22, 26, 32 and 45 per cent, depending on the classification of the goods involved. These rates do not include the surcharge rates on alcohol arising from the safety net arrangements implemented following the High Court decision invalidating State and Territory business franchise fees (which are collected by the Commonwealth on an agency basis for the States and Territories). The 32 per cent WST rate (other than that applying to furs and jewellery) will be reduced to 22 per cent 21 days after Royal Assent is given to the Goods and Services Tax (GST) legislation. This seeks to remove the incentive for consumers to delay purchases of items which they expect will fall in price under the GST.

The estimated increase in WST revenue of 3.8 per cent in 1999-2000 mainly reflects forecast growth in the nominal value of taxable goods, partly offset by changes in consumption patterns prior to the introduction of the GST. Due to the difficulty in predicting the likely behavioural responses of consumers to the expected relative price changes, there is greater than usual uncertainty associated with the 1999-2000 WST estimate.

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 excise includes excise collected from offshore fields in the North West Shelf production license areas which are not subject to PRRT, and onshore fields and coastal waters.

Excise revenue from other petroleum products, which include aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene, is expected to grow by 11.7 per cent, primarily reflecting the introduction of new excise rates for aviation gasoline and aviation turbine fuel. The introduction of these new excise rates will partly fund the implementation of air safety programmes and help maintain air navigation services at regional and general aviation airports (see Part I of Budget Paper No. 2).

Excise revenue from total petroleum products is expected to increase by 1.2 per cent in 1999-2000 mainly reflecting an expected increase in consumption of 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 that exclusively use leaded petrol.

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 by volume and on the distilled alcohol in other products such as spirits and mixed drinks. Wine, wine products and other fermented alcohol are exempt from excise.

Excise revenue from these products is expected to increase by 11.3 per cent in 1999-2000, largely reflecting moderate growth in alcohol consumption and a rise in the value of tobacco excise resulting from the reform to tobacco taxation announced in A New Tax System (also see Part I of Budget Paper No. 2).

Excise Indexation

The rates of duty for excisable commodities (with the exception of crude oil) are adjusted each August and February in line with half-yearly Consumer Price Index (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 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).

Existing excise rates are shown in Table 4.

Table 4: Excise Rates^(a)

1. These rates refer to the Commonwealth component of excise.

Customs Duty

Ad valorem tariffs are applied to many categories of imports. Customs duty revenue is affected by the Australian dollar 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 60 per cent of total imports by value enter duty free.

Customs duty revenue is expected to remain almost unchanged in 1999-2000, with moderate growth in the value of imports being offset by continuing tariff rate reductions.

Other Taxes, Fees and Fines

Table 5 shows estimates for 1998-99 and 1999-2000 of the various categories of other taxes, fees and fines.

Table 5: Other Taxes, Fees and Fines

1. Includes all other tax revenue collected by Commonwealth agencies.

Fringe Benefits Tax (FBT)

FBT applies to a range of benefits provided by employers to their employees or associates of their employees. FBT is expected to rise by 1.6 per cent in 1999-2000, with the effect of general remuneration growth being partly offset by the effects of fringe benefits being included on employee group certificates, as announced in A New Tax System. This change is expected to result in some conversion of fringe benefits into ordinary income, resulting in lower FBT and higher individuals income tax.

Primary Industry Charges and Levies

Domestic primary industry charges and levies are expected to fall by 23.1 per cent in 1999-2000, mainly due to the privatisation of the Wool and Wheat Boards, and restructuring of the red meat industry. Primary industry charges and levies are used to fund various boards and bodies that operate in the primary industry sector.

Non-Taxation Revenue

Table 6 shows estimates for 1998-99 and 1999-2000 of the various categories of non-taxation revenue.

Table 6: Non-Taxation Revenue

1. Includes mainly interest revenue from swaps (around $1.5 billion in 1998-99 and around $1.7 billion in 1999-2000, which have been netted off from swap interest payments in previous budgets) and interest revenue from cash balances.
   
2. Includes all other non-tax revenue collected by Commonwealth agencies.

Interest

Interest from Other Governments

This item mainly comprises 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 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 revenue from the States and Territories is matched by a reduction in public debt interest expense. Interest will be lower in 1999-2000 compared to 1998-99, reflecting repayments of outstanding debt to the Commonwealth in 1998-99.

The Commonwealth also 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 1999-2000 compared to 1998-99, reflecting repayments of advances to the Commonwealth in 1998-99.

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 component of debt management operations. Interest revenue from swaps is included on a gross basis for the first time. Previously interest revenue from swaps was netted off from swap interest payments.

Dividends

The main providers of dividends to the Commonwealth are its Government Business Enterprises (GBEs) and the Reserve Bank of Australia (RBA).

Dividends are expected to rise by 43.2 per cent in 1999-2000, mainly due to higher dividend payments from some GBEs and an above average dividend payment from the RBA. Dividend payments received from the RBA are affected by movements in interest rates and the exchange rate over the course of the financial year and hence can be quite volatile.

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 the profits the Mint makes as the manufacturer of these products. An increase in revenue mainly reflects anticipated increases in circulating coin sales and higher numismatic royalties and profits associated with growth in the Sydney 2000 Olympic Coin Programme.

Other Sources of Non-Tax Revenue

This item is expected to increase by 19.1 per cent in 1999-2000, in part due to slippages in the expected timing of the sale of Special Drawing Rights (SDRs), from an International Monetary Fund SDR allocation, to the RBA. Approximately $470 million of revenue that was originally expected to accrue in 1998-99 is now expected to accrue in 1999-2000. There is an offsetting movement on the expenses side.

In addition, the Australian Taxation Office will accrue $350 million in revenue from the States in the form of GST administration costs in 1999-2000. However, the cash payment will not be received until 2000-01.

[1] All references to `revenue' in this Statement refer to accrual revenue unless explicitly noted otherwise. Totals and sub-totals in tables may not add due to rounding.