Appendix C: Statement of risks
Overview
Full details of fiscal risks and contingent liabilities are provided in Budget Paper No. 1, Budget Strategy and Outlook 2012‑13. The following statement updates those fiscal risks and contingent liabilities that have changed since the 2012‑13 Budget.
The forward estimates of revenue and expenses in the Mid‑Year Economic and Fiscal Outlook 2012‑13 (MYEFO) incorporate assumptions and judgments based on the best information available at the time of publication and are based on a range of economic assumptions and other forecasts and projections.
To the extent that unanticipated changes in economic circumstances occur, their impact will flow through to government payments and revenue forecasts.
Major taxes such as company and individuals' income taxes 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. Resource rent taxes may vary quite significantly, particularly with movements in commodity prices and the level of the Australian dollar. Revenue from carbon permit sales for the flexible price period may also vary owing to changes in the world price of carbon permits.
In addition, revenue forecasting relies heavily on the observed historical relations between the economy, tax bases and tax revenues. Such relations may shift over time as the economy changes, presenting a further risk to the estimates.
The estimates and projections of revenue are subject to a number of general risks that can affect taxation collections. These general pressures include failure of the tax system to keep pace with changes in the business environment, tax avoidance, court decisions and Australian Taxation Office rulings and the outcome of compliance programs. 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.
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