The Commonwealth Treasury

Tax Expenditures Statement 2000

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Overview of tax expenditure aggregates

2.1 Introduction

Tax expenditure aggregates are reported and analysed in this chapter, with a breakdown of tax expenditures by both function and taxpayer affected. Care must be taken when interpreting these aggregates, particularly when making comparisons across time. There are several major considerations that need to be taken account of when analysing tax expenditure aggregates.

2.2 Tax expenditures by function

The estimated cost of tax expenditures by functional category, and the total annual aggregates, are reported in Table 2.1 for the period 1997-98 to 2002-03.

Between 1997-98 and 2002-03, the underlying growth in aggregate tax expenditures is relatively modest, with total measured tax expenditures estimated to grow at an average annual rate of around 3 1/3 per cent. However, the annual rates of growth over this period vary significantly, which tends to conceal the underlying trend in tax expenditure aggregates. The inter-annual variations can be explained largely by policy decisions, particularly those related to The New Tax System and The New Business Tax System. (Tax expenditure reference codes used in Chapter 5 and Appendix A are reported in parentheses.)

These increases are partly offset by a fall in the cost of aggregate mining, manufacturing and construction tax expenditures, resulting from the removal of accelerated depreciation for businesses with an annual turnover of $1 million or more on 21 September 1999 (D61).

Table 2.1: Aggregate tax expenditures by function(a)(b)

(a) Total tax expenditures by functional category are derived by summing the individual tax expenditure estimates provided in Table 5.1, excluding items with estimates listed as being `less than' (eg. <1, <5), rounded to zero (..) or na.

(b) Relative to previous editions, this table contains an additional historical year (1997-98) at the expense of a projection year (2003-04) to facilitate comparison with the 1997-98 Tax Expenditures Statement.

(c) Includes tax expenditures that involve the deferral of revenue, which were not included in the functional table of the 1997-98 Tax Expenditures Statement.

(d) Items may not sum due to rounding.

Significant changes in functional aggregates relative to the 1997-98 Tax Expenditures Statement include:

2.3 Comparison with direct expenditure

The tax expenditure estimates for 1999-2000 by functional category are presented alongside direct government expenditure in Table 2.2. The list of direct expenditures by function is reproduced from Table 2 of the 1999-2000 Final Budget Outcome.

Comparisons between tax expenditures and direct expenditures are informative in broad terms, although the costings are not strictly comparable for the following reasons:

Table 2.2: Aggregate tax expenditures and direct expenditures
by function in 1999-2000

(a) Excludes tax expenditures with estimates listed as being `less than' (eg. <1, <5), rounded to zero (..) or na.

(b) Items may not sum due to rounding.

As reported in Table 2.2, total measured tax expenditures in 1999-2000 are valued at $27.3 billion. Aggregate social security and welfare tax expenditures comprise 62 per cent of total measured tax expenditures.

When compared to the sum of both total measured tax expenditures and total direct expenditure, 15 per cent of total government assistance is provided through tax expenditures.

The proportion of government assistance provided by tax expenditures, however, varies greatly by functional category. In most cases, the assistance provided by direct expenditure significantly exceeds the benefit provided by tax expenditures. The exceptions are:

2.4 Tax expenditures by taxpayer affected

While many tax expenditures may be accessed by more than one group of taxpayers, this section provides a broad indication of the main taxpayer group that benefit from each tax expenditure. The purpose of this analysis is to provide an overall picture of the direction of tax expenditures despite the difficulties in determining the final beneficiary of the assistance.

For the purpose of this analysis, the classification of `taxpayer affected' is by the legal incidence of the tax. Legal incidence should not be confused with the economic incidence of a tax measure. Legal incidence refers to the taxpayer upon which the tax is levied. In contrast, the economic incidence of a tax relates to the taxpayer (or taxpayers) that bear the cost of a tax, or benefit from a tax expenditure. Economic incidence will differ from legal incidence if the group bearing the legal incidence is able to pass on some or all of the cost or benefit of the tax, and thus have it feed through into prices (including factor prices, such as wages and the return on capital).

Total measured tax expenditures by taxpayer affected are reported in Table 2.3, including deferral expenditures. Major influences behind changes in taxpayer-affected aggregates are generally the same as those listed in chapter 2.2. (For example, the increase in personal income tax expenditures in 2000-01 reflects the introduction of both the capital gains discount for individuals (D38) and the Family Tax Benefit (A43).)

Table 2.3: Tax expenditures by taxpayer affected(b)

(a) Expenditures included in the `miscellaneous' category are those for which the `taxpayer affected' does not belong to any of the other identified categories.

(b) Excludes tax expenditures with estimates listed as being `less than' (eg. <1, <5), rounded to zero (..) or na.

(c) Items may not sum due to rounding.

The following provides a list of tax expenditure reference codes that correspond to each category of taxpayer affected.

Businesses B5, B6, D2, D7, D23, D32-D35, D48-D65, D74-D77, D79, D80 , D87, D91, D97-D100, E1-E5, E7, E8
Defence force personnel, including veterans and their families A10, A11, A14, A17, A19, A46, C3
Donors to approved organisations A60
Employees B2-B4
Employers C15, C19, C22, C31, C32, C41, D19
Financial Institutions D20, D21, D24, D27, D36, D39, D92
Government D28, D29
Hospitals and State and Territory Authorities C7, D10
Superannuation funds and beneficiaries, termination payment recipients B1, B7
Non-profit organisations C12, C34, C36, D1, D4, D9, D11, D18
Personal income taxpayers A9, A25-A32, A34, A37, A39, A41-A44, A50, B8, D3, D5, D6, D12, D13, D30, D31, D38, D40-D47, D78, D81-D84, D10
Retirees and allowees A33, A38, A40, A4
Primary Producers D14-D17, D66-D73, D85, D86, E6
Students A2
Non-residents A6, D22, D89, D90, D93-D96, D102, D10