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FEATURE ARTICLE: RECENT TAXATION REVENUE TRENDS IN AUSTRALIA


INTRODUCTION

The purpose of this article is to present experimental measures of taxation revenue which take account of the level of government at which the revenue is used, as well as an experimental measure of the total revenue available to governments after direct and indirect transfers to households. The article is presented in two main parts. The first part presents the methodology used to derive these experimental measures. The second part presents the results, and provides some background on how the introduction of The New Taxation System affected the sources of taxation revenue in Australia. The analysis commences in 1998-99, as this was the year accrual reporting was introduced into ABS government finance statistics.

The ABS is interested in feedback on the usefulness of this presentation. Comments can be provided to Jason Annabel, Public Finance Section on (02) 6252 5227 or or Heather Olley on (02) 6252 6718 or email <client.services@abs.gov.au>.


METHODOLOGY

The ABS releases Taxation Revenue statistics on an annual basis. The conceptual basis for these statistics is set out in the ABS publication Australian System of Government Finance Statistics: Concepts, Sources and Methods (CSM) (cat. no. 5514.0). The ABS CSM is consistent with the International Monetary Fund’s Government Finance Statistics Manual 2001 (IMF GFSM 2001). This article takes as its starting point the compilation of taxation revenue as set out in both these manuals. Users should note however that the experimental measures developed in this article are not themselves part of the Government Finance Statistics (GFS) framework.

The taxation revenue statistics presented by the ABS as part of its GFS framework reflect taxation revenue collected by each level of government. What is not evident from those statistics are the flows that occur between the levels of government in Australia, and the subsequent revenue available for ‘own use’ at each of these levels after the transfers by way of current grants have occurred. To aid in the understanding of these flows, this article presents three new experimental analytical measures:

• taxation revenue for own use;

• total revenue for own use; and

• total revenue for own use less transfers to households.

Framework for Analytical Measures of Taxation and Total Revenue

		1998-99				1999-2000				2000-01
Type of Tax		Commonwealth $m	State and Local $m	All Australian governments $m (b)		Commonwealth $m	State and Local $m	All Australian governments $m (b)		Commonwealth $m	State and Local $m	All Australian governments $m (b)
Income tax
	Levied on individuals	77,518	-	77,518		83,788	-	83,788		77,425	-	77,425
	Levied on enterprises	25,472	-	25,472		29,516	-	29,516		42,221	-	42,221
	Levied on non-residents (c)	1,070	-	1,070		1,215	-	1,215		1,215	-	1,215
	Total	104,060	-	104,060		114,520	-	114,520		120,861	-	120,861
Employers' payroll taxes
	General (payroll tax)	-	8,433	8,186		-	8,935	8,684		-	9,484	9,215
	Other employers' labour force taxes	3,376	-	3,259		3,521	-	3,423		3,577	-	3,487
	Total	3,376	8,433	11,444		3,521	8,935	12,107		3,577	9,484	12,702
Taxes on property
	Immovable property	-	8,051	8,047		-	8,441	8,438		-	9,061	9,061
	Financial and capital transactions	5	8,387	8,391		10	9,657	9,667		12	9,736	9,748
	Total	5	16,437	16,438		10	18,099	18,105		12	18,797	18,809
Taxes on provision of goods and services
	General taxes (sales tax)	15,083	-	15,083		15,644	-	15,644		1,976	-	1,976
	Goods and Services Tax (GST)	-	-	-		-	-	-		23,854	-	23,854
	Excise and levies	14,521	17	14,538		14,922	18	14,940		19,751	17	19,768
	International trade	3,643	-	3,643		3,799	-	3,799		4,606	-	4,606
	Gambling	-	4,146	4,146		-	4,420	4,420		-	3,568	3,568
	Insurance	-	2,009	2,009		-	2,139	2,139		-	2,403	2,403
	Total	33,246	6,172	39,419		34,365	6,576	40,941		50,186	5,987	56,173
Taxes on use of goods and performance of activities
	Motor vehicle taxes	20	3,901	3,921		21	3,891	3,911		-	4,033	4,033
	Franchise taxes	-	5,688	5,688		-	5,819	5,819		-	325	325
	Other	392	510	902		432	564	997		670	418	1,088
	Total	412	10,099	10,511		453	10,274	10,727		670	4,776	5,445
Total		141,100	41,142	181,873		152,869	43,883	196,400		175,306	39,044	213,990
GDP (d)				607863				645153				689,340
Total taxation as a percentage of GDP (%)		23.2	6.8	29.9		23.7	6.8	30.4		25.4	5.7	31.0
(a) As published in Taxation Revenue, Australia, 2003-04 (cat no 5506.0).
(b) The sum of individual levels of government may not agree with totals for all levels of government, due to inter-governmental taxation.
(c) From 2001-02, withholding taxes on non-residents are no longer separately identifiable under the PAYG system. The values shown for 2001-02 and subsequent years are estimates based on methodologies developed by the Balance of Payments area within the ABS.
(d) As published in Australian System of National Accounts, 2004-05 (cat.no. 5204.0), Table 5.

		2001-02				2002-03				2003-04
Type of Tax		Commonwealth $m	State and Local $m	All Australian governments $m (b)		Commonwealth $m	State and Local $m	All Australian governments $m (b)		Commonwealth $m	State and Local $m	All Australian governments $m (b)
Income tax
	Levied on individuals	86,112	-	86,112		91,484	-	91,484		98,979	-	98,979
	Levied on enterprises	31,782	-	31,782		38,696	-	38,696		41,990	-	41,990
	Levied on non-residents (c)	1,138	-	1,138		1,098	-	1,098		1,097	-	1,097
	Total	119,032	-	119,032		131,278	-	131,278		142,067	-	142,067
Employers' payroll taxes
	General (payroll tax)	-	9,654	9,367		-	10,137	9,828		-	10,820	10,501
	Other employers' labour force taxes	3,831	-	3,730		3,085	-	2,968		3,658	-	3,526
	Total	3,831	9,654	13,097		3,085	10,137	12,796		3,658	10,820	14,027
Taxes on property
	Immovable property	-	9,511	9,509		-	10,385	10,381		-	11,459	11,455
	Financial and capital transactions	12	9,672	9,684		13	10,989	11,001		13	12,879	12,891
	Total	12	19,184	19,192		13	21,374	21,383		13	24,338	24,346
Taxes on provision of goods and services
	General taxes (sales tax)	791	-	791		896	-	896		1,002	-	1,002
	Goods and Services Tax (GST)	27,389	-	27,389		31,257	-	31,257		34,121	-	34,121
	Excise and levies	20,489	5	20,494		21,645	3	21,648		21,903	4	21,907
	International trade	5,214	-	5,214		5,573	-	5,573		5,622	-	5,622
	Gambling	-	3,707	3,707		-	3,843	3,843		-	4,040	4,040
	Insurance	-	2,836	2,836		-	3,132	3,132		-	3,231	3,231
	Total	53,883	6,548	60,431		59,371	6,977	66,348		62,646	7,275	69,922
Taxes on use of goods and performance of activities
	Motor vehicle taxes	-	4,291	4,291		-	4,691	4,690		-	5,126	5,126
	Franchise taxes	-	13	13		-	10	10		-	12	12
	Other	722	381	1,103		757	401	1,158		811	456	1,267
	Total	722	4,685	5,407		757	5,102	5,859		811	5,594	6,405
Total		177,481	40,071	217,160		194,504	43,590	237,664		209,195	48,028	256,767
GDP (d)				735,783				782,798				838,251
Total taxation as a percentage of GDP (%)		24.1	5.4	29.5		24.8	5.6	30.4		25.0	5.7	30.6
(a) As published in Taxation Revenue, Australia, 2003-04 (cat no 5506.0).
(b) The sum of individual levels of government may not agree with totals for all levels of government, due to inter-governmental taxation.
(c) From 2001-02, withholding taxes on non-residents are no longer separately identifiable under the PAYG system. The values shown for 2001-02 and subsequent years are estimates based on methodologies developed by the Balance of Payments area within the ABS.
(d) As published in Australian System of National Accounts, 2004-05 (cat.no. 5204.0), Table 5.

• As part of the Intergovernmental Agreement (IGA) on the Reform of Commonwealth-State Financial Relations of June 1999, signed by the Prime Minister, all Premiers and Chief Ministers, the Commonwealth Government enacted legislation to impose the GST from 1 July 2000 and to ensure that all of the GST revenue be provided to the states. The states fully compensate the Commonwealth for the agreed costs of administering the GST.

• Under the IGA, the Commonwealth permanently ceased the Commonwealth wholesale sales tax and the so-called safety net taxation arrangements from 1 July 2000. State governments also permanently ceased bed taxes from 1 July 2000, and financial institutions duties and stamp duties on quoted marketable securities on 1 July 2001. State gambling taxation was adjusted to take account of the impact of the GST on gambling operators. Debits tax ceased to be levied in any state from 1 July 2005. Commonwealth income tax arrangements were outside the scope of TNTS and, as such, the Commonwealth continues to retain income tax for its own purposes.

• Associated with the introduction of the GST were reductions in income tax rates for individuals, and changed arrangements for the payment of income taxes for individuals and companies with the introduction of the Pay As You Go (PAYG) system. Changes to company income tax rates were also introduced as a result of the Review of Business Tax.

• Under the IGA, the Commonwealth guaranteed that, in each of the transitional years following the introduction of TNTS, each state’s budgetary position would be no worse off than had tax reform not been implemented. This transitional assistance was known as Budget Balancing Assistance (BBA). As at 2003-04 only New South Wales was still in need of BBA. The Commonwealth’s Final Budget Outcome document for 2004-05 indicates that no state was receiving BBA in that financial year. This transitional assistance from the Commonwealth Government should be taken into account when analysing the time series.

• A 7.6% fall in income taxes on individuals in 2000-01. The fall in personal income tax rates associated with TNTS was partially offset by growth in underlying income. Income tax collections from individuals increased by 11.2% in 2001-02, 6.2% in 2002-03 and 8.2% in 2003-04, due primarily to increases in PAYG withholding collections as well as increases in revenue from the Medicare Levy, both as a result of growth in wages and increased employment. The growth rates for these years are distorted by other elements of TNTS including the impact of moving provisional taxpayers into PAYG.

• Despite a fall in the company tax rate from 36% to 34% on 1 July 2000, tax payments by enterprises increased by 43% in 2000-01, due mainly to strong growth in company profits and the overlap of tax liabilities arising from the introduction of PAYG. Tax obligations for 1999-2000 (under the previous taxation arrangements) in addition to PAYG instalments for 2000-01 (under TNTS) both occurred during 2000-01 resulting in a one-off boost to taxation revenue that was unwound the following year. The 24.7% decrease in taxes on enterprises in 2001-02 also reflects a reduction in the company tax rate from 34% to 30% on 1 July 2001.

• An 87.4% decrease in general sales tax in 2000-01 reflecting the abolition of Wholesale Sales Taxes from 1 July 2000.

• The collection of $23,854m in GST revenue in 2000-01. In ABS statistics (and consistent with the IMF GFSM 2001), GST is classified as a Commonwealth tax, as the Commonwealth has the ultimate role in establishing the mechanism of GST collection, the rate of tax, and the distribution of GST revenue. The disbursement of these amounts to state governments as grants is examined in more detail later in this article. GST revenue in 2001-02 was $27,389m, up 14.8% from 2000-01, $31,257m in 2002-03, up 14.1%, and $34,121m in 2003-04, up 9.2%. It should be noted that, in 2000-01, GST collections were on the basis of only 11 statement months and three statement quarters, compared with the full year period of collection in 2001-02.

• An increase of 32.3% in revenue from excises and levies in 2000-01. The main reason for this growth was rolling franchise tax revenue (which includes gas, petroleum product, tobacco and liquor taxes) into excise revenue. Revenue from excises and levies increased a further 3.7% in 2001-02, an additional 5.6% in 2002-03 and 1.2% in 2003-04.

• A fall of 19.3% in gambling taxes (which are levied by states) in 2000-01, partly due to adjustments to take account of the impact of the GST on gambling operators. Taxation on gambling increased by 3.9% in 2001-02, 3.7% in 2002-03 and 5.1% in 2003-04.

• The increase of 13.9% for taxes on property levied by state and local governments in 2003-04 was due to growth in the areas of commercial and residential real estate prices and an increase in the number of real estate transactions.

		1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04
		$m	$m	$m	$m	$m	$m
Commonwealth government
	1. Taxation revenue (b) (c)	141,100	152,869	175,306	177,481	194,504	209,195
	2. Current grants to state government (d)	31,408	33,000	44,268	49,283	51,170	54,109
	3. Current grants to local government	226	205	102	490	274	351
	4. Current grants to multi-jurisdictional sector (e)	4,237	3,990	4,118	4,327	4,381	4,893
	Taxation revenue for own use = 1-2-3-4 (f)	105,229	115,674	126,818	123,381	138,679	149,842
As % of GDP		17.3	17.9	18.4	16.8	17.7	17.9
As % of Total Taxation revenue		57.9	58.9	59.3	56.8	58.4	58.4
State government
	1. Taxation revenue (b)	35,435	37,893	32,677	33,342	36,406	40,394
	2. Current grants from Commonwealth government (including GST receipts)	31,408	33,000	44,268	49,283	51,170	54,109
	3. Current grants to local government	1,740	1,922	2,056	1,981	1,810	1,996
	4. Current grants to multi-jurisdictional sector (e)	115	121	142	219	214	240
	Taxation revenue for own use =1+2-3-4 (f)	64,988	68,850	74,747	80,425	85,552	92,267
As % of GDP		10.7	10.7	10.8	10.9	10.9	11
As % of Total Taxation revenue		35.7	35.1	34.9	37	36	35.9
Local government
	1. Taxation revenue (b)	5,725	6,017	6,394	6,758	7,215	7,663
	2. Current grants from Commonwealth government	226	205	102	490	274	351
	3. Current grants from state government	1,740	1,922	2,056	1,981	1,810	1,996
	Taxation revenue for own use =1+2+3 (f)	7,691	8,144	8,552	9,229	9,299	10,010
As % of GDP		1.3	1.3	1.2	1.3	1.2	1.2
As % of Total Taxation revenue		4.2	4.1	4	4.2	3.9	3.9
GDP (g)		607,863	645,153	689,340	735,783	782,798	838,251
(a) Experimental analytical measure - refer to methodology section of this article.
(b) As published in Taxation Revenue, Australia, 2003-04 (cat. no. 5506.0).
(c) A break in series occurred in 2001-02 in relation to the treatment of the Family Tax Benefit (FTB) scheme. Prior to 2001-02, disbursements related to the FTB were treated as tax offsets, and as such the FTB was not reflected in estimates of Commonwealth taxation revenue. In 2001-02, the treatment was changed, such that FTB refunds to recipients claiming a higher tax free threshold, or as a reductions in remitted tax through the PAYG withholding and instalment systems, are now recorded as expenses.
(d) Part of the Commonwealth grants paid to states are onpassed to local government.
(e) The multi-jurisdictional sector contains units where jurisdiction is shared between two or more governments, or classification of a unit to a jurisdiction is otherwise unclear. The main type of units currently falling into this category are the public universities.
(f) The sum of taxation revenue does not equal the sum of taxation revenue for own use owing to grants paid to the multi-jurisdictional sector.
(g) As published in Australian System of National Accounts, 2004-05 (cat. no. 5204.0), Table 5.

		1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04
		$m	$m	$m	$m	$m	$m
Commonwealth
	1. Taxation revenue (b)	141,100	152,869	175,306	177,481	194,504	209,195
	2. Taxation revenue for own use (c)	105,229	115,674	126,818	123,381	138,679	149,842
	3. Non-taxation revenue collected, excluding current grants (d)	12,163	13,889	10,196	12,446	11,876	12,409
	4. Total revenue for own use = 2+3	117,392	129,563	137,014	135,827	150,555	162,251
	5. Direct benefits to households (e)	47,814	51,904	58,940	61,580	63,464	71,390
	6. Indirect benefits to households (f)	14,350	15,717	15,997	17,060	17,765	19,590
	7. Total revenue for own use less transfers to households = 4-5-6	55,228	61,942	62,077	57,187	69,326	71,271
As % of GDP		9.1	9.6	9	7.8	8.9	8.5
State
	1. Taxation revenue (b)	35,435	37,893	32,677	33,342	36,406	40,394
	2. Taxation revenue for own use (c)	64,988	68,850	74,747	80,425	85,552	92,267
	3. Non-taxation revenue collected, excluding current grants (d)	25,002	24,335	24,321	24,204	26,275	29,465
	4. Total revenue for own use =2+3	89,990	93,185	99,068	104,629	111,827	121,732
	5. Direct benefits to households (e)	590	567	721	826	822	993
	6. Indirect benefits to households (f)	1,750	1,764	1,907	1,868	1,960	1,859
	7. Total revenue for own use less transfers to households = 4-5-6	87,650	90,854	96,440	101,935	109,045	118,880
As % of GDP		14.4	14.1	14	13.9	13.9	14.2
Local
	1. Taxation revenue (b)	5,725	6,017	6,394	6,758	7,215	7,663
	2. Taxation revenue for own use (c)	7,691	8,144	8,552	9,229	9,299	10,010
	3. Non-taxation revenue collected, excluding current grants (d)	7,193	8,164	8,530	8,883	9,695	10,273
	4. Total revenue for own use =2+3	14,884	16,308	17,082	18,112	18,994	20,283
	5. Direct and indirect benefits to households (g)	n/a	n/a	n/a	n/a	n/a	n/a
	6. Total revenue for own use less transfers to households = 4-5	14,884	16,308	17,082	18,112	18,994	20,283
As % of GDP		2.4	2.5	2.5	2.5	2.4	2.4
(a) Experimental analytical measure. Refer to methodology section of this article.
(b) As published in Taxation Revenue, Australia, 2003-04 (cat. no. 5506.0).
(c) As derived in Table 3 above.
(d)Non-taxation revenue includes revenue from sales of goods and services, interest income, other property income (such as dividends, income tax equivalents, land rents and royalties), fines, capital revenue, and all current revenue other than grants.
(e) Direct benefits to households are monetary transfers.
(f) Indirect benefits to households are transfers ‘in kind’ via goods and services.
(g) Local government does not make transfers of this kind to households.