Budget Review 2020–21 Index
Phillip Hawkins
Australian Government revenue has been and will be affected by
the COVID-19 pandemic, as well as by policy measures announced by the Government.
This brief examines the scale of these impacts in the context of recent
historical trends in Government revenues. All figures in this brief are taken
from the online supplementary tables to statement 5 of Budget Paper 1 (tables 3 and 4).
Total Australian Government revenue in 2018–19 was $493.3 billion
(25.3 per cent of GDP) but declined to $486.3 billion in 2019–20
(24.5 per cent of GDP), due to the impact of COVID-19 and the bushfires
in 2020. This represents a decline of 1.4 per cent in nominal terms
and an estimated decline of 1.1 per cent in real terms.
Revenue is forecast to decline further in 2020–21 to $472.4 billion
(24.3 per cent of GDP) and in 2021–22 to $464.1 billion (23.1 per cent
of GDP). In 2021–22 Government revenue is forecast to be at its lowest level as
a share of the economy since 2011–12. Revenue is expected to recover
significantly towards the end of the forward estimates period to $538.1 billion
in 2023–24 (24.4 per cent of GDP), which is around its average share
of the economy since 2000.
Figure 1 shows that the impact of the COVID-19 pandemic
on revenues is forecast to be relatively less significant than the substantial
impacts between 2007–08 and 2010–11. These impacts were due to a number of
factors, including the global financial crisis, the end of the first phase of
Australia’s mining boom and substantial cuts in personal income tax rates over
this period.
Figure 1: total Government
revenue as a proportion of GDP
Source: Australian
Government, Budget
strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online
supplementary tables.
Components of Australian Government
revenue
Figure 2: components of
Australian Government revenue
Source: Australian
Government, Budget
strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online
supplementary tables.
Figure 2 illustrates Australian Government revenue by
its major components. Personal income tax (income tax withholding) is,
by a margin, the largest component of Australian Government revenue, accounting
for around 47.2 per cent of total Government revenue in 2019–20. Company
tax is the second largest component, accounting for around 18.1 per cent
of total revenue, followed by goods and services tax (13.4 per cent),
excise and customs duty (8.8 per cent) and non-tax revenue (8.0 per cent).
Personal income tax
Personal income tax revenues grew slightly in nominal terms
in 2019–20, from $228.4 billion in 2018-19 to $229.7 billion in
2019-20, but fell slightly as a proportion of GDP, from 11.7 per cent
to 11.6 per cent of GDP.
Personal income tax revenue is forecast to decline further
over the next two years to a low of 10.6 per cent of GDP in 2021–22,
before recovering to 11.5 per cent of GDP by the end of the forward
estimates period.
Figure 3: personal income tax
revenue as a proportion of GDP
Source: Australian
Government, Budget
strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online
supplementary tables.
Figure 3 illustrates
personal income tax as a proportion of GDP over the forward estimates period
and the last two decades. This shows that despite the impact of the COVID-19
pandemic and the bringing forward of personal income tax cuts, the decline in
personal income tax revenues are expected to be relatively modest and largely
temporary. It is worth noting, however, that the biggest tax cuts in budgetary
terms commence from 1 July 2024, beyond the forward estimates period.
The decline in personal income tax revenue between 2004–05
and 2009–10 was substantially more pronounced than the expected decline between
2018–19 and 2021–22. According to Treasury
research (p. 20), this decline was
largely driven by a succession of personal income tax reductions (with the
average rate of personal income taxation falling from 24.3 per cent
to 21.2 per cent). By the end of the forward estimates period,
personal income taxes are expected to be higher, as a proportion of GDP, than
the average level over the past two decades.
Company tax
Company tax (including company capital gains tax) fell from $94.7 billion
in 2018–19 to $87.8 billion in 2019–20, or from 4.9 per cent of
GDP to 4.4 per cent of GDP. It is expected to fall further over the
next three years, declining to 3.3 per cent of GDP in 2022–23 before
recovering sharply to 4.3 per cent of GDP in 2023–24.
Figure 4: company tax revenue
as a proportion of GDP
Source: Australian
Government, Budget
strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online
supplementary tables.
Figure 4 illustrates company tax as a proportion of GDP
over the forward estimates period and the last two decades. The data show that
the decline in company tax to 3.3 per cent in 2022–23 would be its
lowest level across the period, although in 2023–24 company tax is expected to
be around its average level across the period.
Company tax also fell sharply from 5.5 per cent of
GDP to 4.0 per cent of GDP between 2007–08 and 2010–11. However,
company tax peaked at 5.5 per cent of GDP in 2007–08, around the peak
of the first mining boom.
Indirect taxes
Indirect taxes are taxes which are generally applied to
goods and services as opposed to income or profits. They are called indirect
taxes because the ultimate burden of the tax generally does not fall on the
entity that pays the tax. For instance, GST is an indirect tax because it is
levied on suppliers of goods and services, but the incidence of the tax
generally falls on the end consumer through higher prices.
Australia’s largest indirect taxes are the GST, excise and
customs equivalent excise duties on the manufacture and importation of fuel,
alcohol (excluding wine) and tobacco products, and import tariffs. Smaller
indirect taxes include the luxury car tax and wine equalisation tax.
Indirect taxes increased from $116.9 billion in 2018–19
to $118.5 billion in 2019–20, steady at 6.0 per cent of GDP.
Indirect taxes are expected to decline slightly in 2020–21 to 5.8 per cent
of GDP. They are expected to remain around 6 per cent of GDP for the
last few years of the forward estimates period.
Figure 5: Indirect tax as a
proportion of GDP
Source: Australian
Government, Budget
strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online
supplementary tables.
Figure 5 shows that indirect taxes declined as a proportion
of GDP since the early 2000s. This was largely as a result of a decision in
2001 to cease biannual indexation of the fuel excise and excise equivalent
customs duties to the consumer price index, which meant that the real rate of
tax on these products declined over this period. Since this decision was
reversed in 2014–15, indirect taxes as a proportion of GDP have remained
relatively stable.
All online articles accessed October 2020
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