Statement 5: Revenue
The unfolding global crisis and government revenues
Since the 2008‑09 Budget, the unfolding global financial crisis and subsequent onset of the global recession has resulted in a rapid deterioration in Australia's economic outlook. Australia's forecast economic growth has been successively revised down as the contraction in the world economy worsened and commodity and asset prices fell markedly. These changed economic circumstances have unleashed a number of adverse forces on government revenues.
The evolution of taxation receipts over the past 12 months provides insights into how the economic crisis can be expected to affect government revenues in the period ahead. The crisis has implications for the quantum of revenues, and their composition and timing.
The deteriorating world outlook last year had its initial domestic impact chiefly on asset and commodity prices, with losses primarily contained to capital gains and company tax receipts. However, as the financial crisis deepened and countries around the world slipped into recession, expected revenue losses became far more significant and broadly based including, most recently, individuals' income tax receipts.
While downward revisions in nominal GDP have been marked, the revisions to tax receipts have been sharper. It is typically the case that tax receipts vary by a greater amount than changes in economic growth because of the progressivity of the tax system. Tax receipts play an important role in acting to 'automatically stabilise' and cushion the economy during a downturn.
In the present cycle, receipts have fallen more quickly in response to the economic and financial downturn than was the case in previous recessions. This reflects changes in the composition of tax revenues and accumulated structural changes to both the tax system and the economy.
That said, while tax revenues will begin to grow again as the economy recovers, the full benefit of economic growth on revenues will be felt with some delay. Stocks of tax losses are expected to be used to offset new tax liabilities, reducing growth in taxes in the initial stages of an economic recovery.
If www.budget.gov.au responds slowly or you are having trouble downloading a document, try one of the Budget Website Mirrors
Note: Where possible, Budget documents are available in HTML and for downloading in Portable Document Format(PDF). If you require further information on any of the tables or charts on this website, please contact The Treasury.
