Statement 8:
Statement of Risks
(Continued)
Fiscal risks
Fiscal risks comprise general developments or specific events that may affect the fiscal outlook. Some developments or events raise the possibility of some fiscal impact. In other cases, the likelihood of a fiscal impact may be reasonably certain, but will not be included in the forward estimates because their timing or magnitude is not known.
The estimates and projections of revenue are subject to a number of general risks that can affect taxation collections. These general pressures include tax avoidance, court decisions and Australian Taxation Office rulings. These pressures may result in a shift in the composition of taxation collected from the various tax bases and/or a change in the size of the tax base.
Major taxes such as company and personal tax fluctuate significantly with economic activity. Capital gains tax is particularly volatile and is affected by both the level of gains in asset markets and the timing of when those gains are realised. The existing Petroleum Resource Rent Tax and the recently announced Resource Super Profits Tax will vary with commodity prices and output.
There are also specific risks to expense estimates and projections. For example, major technological advances in medicines and medical practices may lead to changes to the Medical Benefits Schedule and the Pharmaceutical Benefits Scheme, which have in the past resulted in unexpected increases in expenses and may do so again.
Another fiscal risk is the Government's commitment to the introduction of a Carbon Pollution Reduction Scheme (CPRS). The Government will not introduce a CPRS until after the end of the current commitment period of the Kyoto Protocol and only when there is greater clarity on the actions of other major economies, including the United States, China and India.
This means that the Government will not move to legislate a CPRS before the end of 2012 and will only do so after this time if there is sufficient international action.
The financial impact of a future CPRS will depend on the timing of its commencement. As the timing is uncertain, no financial implications of the scheme have been included in the forward estimates.
The commitment to proceed with the CPRS is entirely consistent with the Government's commitment to its fiscal strategy, as the CPRS is the least cost means of delivering on the bipartisan emissions reduction commitment.
Another specific fiscal risk is Australia's contribution to the IMF quota. A member's shareholding in the International Monetary Fund (IMF) is determined by its allocated quota which broadly reflects its weight in the global economy. As at 30 March 2010, Australia's IMF quota was SDR 3.2 billion — estimated value A$5.4 billion.
The IMF is currently undertaking its 14th General Review of Quotas, covering both the size and distribution of its quota resources. In response to a call by G‑20 Leaders in April 2009, the timetable for completion of this review has been brought forward by two years, to January 2011. Australia's IMF quota is expected to increase as a result of the review, although the amount is unquantifiable at this time. Consent by Australia to an increase in its quota will require parliamentary approval.
A quota increase is considered a financing transaction for Australia and would have no direct budget impact. However, there could be an increase in the public sector borrowing requirement at the time of payment of around a quarter of the amount of the quota increase — the component that is paid in Special Drawing Rights or in currencies of other members acceptable to the Fund. The balance would be covered through the issue of promissory notes in domestic currency.
The Australian Government has established NBN Co to build and operate the National Broadband Network (NBN). The implementation study confirms NBN can be built for less than $43 billion, and recommends no private equity before privatisation, to preserve policy flexibility.
The Government has made appropriate provision in the Budget for the roll out of NBN, subject to a final response to the study.
The Government, in considering its final response to the study, and NBN Co in further developing its operational plans for roll out, may require changes to the size and timing of equity injections.
Importantly, the study indicates the Government can expect to generate a rate of return on its equity investment sufficient to cover its cost of funds.
Other fiscal risks that may affect expenditure include natural disasters, emergency foreign aid and contingent liabilities and contingent assets.
Information on fiscal risks takes account of Parliament's decisions and other developments until the close of parliamentary business on 30 April 2010.
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