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 2013‑14. The following statement updates fiscal risks and contingent liabilities and assets that have materially changed since the 2013‑14 Budget. Risks updated in the Pre‑Election and Fiscal Outlook 2013 (PEFO) have also been included and, where appropriate, updated in the following statement for completeness.
The forward estimates of revenue and expenses in the Mid‑Year Economic and Fiscal Outlook 2013‑14 (MYEFO) incorporate assumptions and judgments based on the best information available at the time of publication together with 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 in particular.
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. Consistent with Government policy, the MYEFO estimates include the impact of the repeal of the carbon tax and the minerals resource rent tax from 1 July 2014. The timing of the passage of the repeal bills beyond 1 July 2014 could cause variations in the revenues forecast for these taxes.
In addition, revenue forecasting relies heavily on the observed historical relationships between the economy, tax bases and tax revenues. Such relationships 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 programmes. 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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