Variations in the revenue estimates since the 2006-07 Budget

Table 2 is a reconciliation of this budget's revenue estimates with those at the 2006-07 Budget and the 2006-07 MYEFO.

Table 2: Reconciliation of total Australian Government general government revenue estimates from the 2006-07 Budget and the 2006-07 MYEFO

Total revenue for 2006-07

Since MYEFO, estimated total revenue for 2006-07 has been revised up by $3.7 billion, largely reflecting stronger than anticipated growth in company profits and employment, and strong capital gains realised by superannuation funds.

Total revenue for 2007-08

Since MYEFO, total revenue for 2007-08 has been revised up by $4.0 billion. The upward revision flows-on from higher estimates in 2006-07 for individuals and companies and also incorporates the stronger outlook in 2007-08 for employment and company profits.

The Government's decision to provide additional personal tax relief has partly offset the upward revisions in total revenue.

Effect of policy decisions

Policy decisions since the 2006-07 MYEFO are expected to reduce taxation revenue by around $5.6 billion in 2007-08 and around $31.1 billion over the forward years.

The Government's decision to provide additional personal income tax relief will reduce revenue by $5.3 billion in 2007-08, and $31.5 billion over the forward estimates period.

From 1 July 2007, the 30 per cent threshold will increase to $30,001. In addition, the low income tax offset will increase from $600 to $750 and will begin to phase-out from $30,000.
From 1 July 2008, the 40 per cent threshold will increase to $80,001 and the 45 per cent threshold will increase to $180,001. For 2008-09, the top marginal tax rate will apply to only around 2 per cent of taxpayers.

The budget also contains a number of other major policy decisions:

Increasing the dependent spouse rebate from $1,655 to $2,100 with effect from 1 July 2007, at a cost to revenue of $425 million over the forward estimates.
Not proceeding with the Review of Business Taxation recommendation relating to the taxation of finance leasing which will reduce revenue over the forward estimates period by $260 million.
Relaxing the beneficial ownership provisions of the premium 175 per cent research and development (R&D) tax concession, to allow certain entities to claim deductions for their incremental R&D expenditure where the resulting intellectual property is held overseas. The measure is expected to have a cost to revenue of $200 million over the forward estimates period.
Removing the $100 million cap on the Same Business Test and improving the company loss recoupment rules, at a cost to revenue of $175 million over the forward estimates period.
Increasing the Medicare levy low income thresholds from $16,284 to $16,740 for individuals and from $27,478 to $28,247 for families, with effect from 1 July 2006. This measure will have a cost to revenue of $150 million over the forward estimates period.
Aligning the eligibility criteria for taxpayers to pay Pay-As-You-Go (PAYG) tax instalments annually with the criteria for paying goods and services tax on an annual basis. This measure is expected to have a cost to revenue of $140 million over the forward estimates period.
Converting the Child Care Tax Rebate to a direct payment administered through the Department of Families, Community Services and Indigenous Affairs, which will increase revenue collections by $1,430 million over the forward estimates period. This increase in revenue is more than offset by the increased expenditure under this measure.
Providing the Australian Taxation Office with $125.7 million over four years to help reduce the existing stock of taxation debt and outstanding superannuation guarantee charge payments owed by employers. The enhanced debt recovery is expected to result in additional revenue collection of $140 million over four years.
Allowing investors in forestry managed investment schemes to trade both existing and future interests is expected to result in additional revenue of $140 million over four years.

A detailed description of the policy decisions is provided in Budget Paper No. 2, Budget Measures 2007-08. A summary of revenue policy decisions since the 2006-07 MYEFO is provided in Table 3.

Table 3: Revenue policy decisions since the 2006-07 MYEFO

Effect of parameter and other variations

In addition to new policy decisions, revisions to expected revenue may be driven by recent economic data and tax collections, and the updated economic outlook.

Since MYEFO, parameter and other variations have increased estimated revenue by $3.7 billion in 2006-07 and $9.6 billion in 2007-08.

The increased strength in revenue in 2006-07 largely stems from stronger than expected economic outcomes in the labour market and for company profits. Revenue for 2006-07 is expected to be 6.1 per cent above the 2005‑06 level. This compares to MYEFO expectations of 4.5 per cent. The increased strength in company profits, although moderating, is expected to continue through 2007-08, further raising revenue.

Looking ahead, economic conditions remain supportive of continued strength in underlying revenue, particularly through compensation of employees and the realisation of capital gains by investors.

Further detail on how the revised outlook for the economy has affected individual revenue heads over the forward estimates is provided later in this statement. An analysis of the sensitivity of the taxation revenue estimates to changes in the major economic parameters is provided in Statement 2.