The Commonwealth Treasury


ax Expenditures Statement 2001

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2

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 into account when analysing tax expenditure aggregates.

2.2 Trends in tax expenditures

Total measured tax expenditures as a share of GDP are reported in Table 2.1.

Table 2.1: Total measured tax expenditures(a)

Table 2.1 Total measured tax expenditures (a)

(a) Total measured tax expenditures 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.

Tax expenditures as a proportion of GDP are projected to fall from 4.5 per cent in 1997-98 to 3.9 per cent in 2004-05.

The decline in total measured tax expenditures as a share of GDP largely reflects the policy decision to remove accelerated depreciation for plant and equipment for businesses with an annual turnover of $1 million or more (tax expenditure reference code D70).

2.3 Tax expenditures by function

Total measured tax expenditures by functional category are reported in Table 2.2 for the period 1998-99 to 2004-05. The inter-annual variations in functional aggregates are explained largely by policy decisions, particularly those related to The New Tax System. Significant inter-annual movements in functional categories are listed below. (Tax expenditure reference codes used in Chapter 5 and Appendix A are reported in parentheses.)

Table 2.2: Aggregate tax expenditures by function(a)

Table 2.2 Aggregate tax expenditures by function (a)

(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 X million dollars (eg. <1, <5), rounded to zero (..) or not available (na).

(b) Items may not sum due to rounding.

Significant changes in functional aggregates relative to the 2000 Tax Expenditures Statement include a reclassification of the research and development tax concession (D79) from the mining, manufacturing and construction functional category to other economic affairs, not elsewhere classified.

2.4 Comparison with direct expenditure

The tax expenditure estimates for 2000-01 by functional category are presented alongside direct government expenditure in Table 2.3. The list of direct expenditures by function is reproduced from Table 3 of the 2000-01 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 2.3: Aggregate tax expenditures and direct expenditures
by function in 2000-01

Table 2.3 Aggregate tax expenditures and direct expenditures by function in 2000-01

(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 X million dollars (eg. <1, <5), rounded to zero (..) or not available (na).

(b) Items may not sum due to rounding.

As reported in Table 2.3, total measured tax expenditures in 2000-01 are valued at $29.6 billion. Social security and welfare tax expenditures comprise 60 per cent of total measured tax expenditures.

When compared to the sum of both total measured tax expenditures and total direct expenditure, 16 per cent of total government assistance is provided through tax expenditures.

The proportion of government assistance delivered through 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:

2.5 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 2.4, including deferral expenditures. Major influences behind changes in taxpayer-affected aggregates are generally the same as those listed in chapter 2.3. (For example, the increase in personal income tax expenditures in 2000-01 reflects the introduction of both the CGT discount for individuals (D44) and the Family Tax Benefit (A45).)

Table 2.4: Aggregate tax expenditures by taxpayer affected(a)

Table 2.4 Aggregate tax expenditures by taxpayer affected (a)

(a) Total tax expenditures by taxpayer affected are derived by summing the individual tax expenditure estimates provided in Table 5.1, excluding items with estimates listed as being less than X million dollars (eg. <1, <5), rounded to zero (..) or not available (na).

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

(c) Items may not sum due to rounding.

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

Businesses

B5, D18, D25, D41, D60, D62, D65, D70, D72-D80, D82-D84, D86, D100, D104, E1, E3-E5, E7-E9

Defence force personnel, including veterans and their families

A10, A11, A16, A19, A21, A48, C3

Donors to approved organisations

A63

Employees

B2-B4

Employers

C16, C20, C23, C32, C33, C42, D21

Financial institutions

D22, D26, D29, D105

Government

D31

Hospitals and State and Territory authorities

C8

Superannuation funds and beneficiaries, termination payment recipients

B1

Non-profit organisations

C13, C35, C37, D1, D6, D9, D20

Personal income taxpayers

A9, A27-A34, A36, A39, A41, A43-A46, A53, A67, A68, B9, D16, D37, D38, D44, D47, D49, D89, D91

Retirees and allowees

A35, A40, A42, A47, A52

Primary producers

D10, D13, D15, D52, D54, D56-D59, D93, D94, E6

Students

A23

Non-residents

A6, D51, D110

Miscellaneous

A2, A54, A65, C22, D27, D28