Chapter 3
Allocation of government revenue
3.1
This chapter examines the alternative sources of revenue for the
government that exist in addition to income tax revenue, and considers the
implications for preparing a tax receipt of any ongoing pledges or
understandings that revenue from certain taxes will be allocated to specific
areas of government expenditure.
Background
3.2
The amendments would require any breakdown of how an income tax payment
contributes to government expenditure be calculated by 'applying the proportion
of the Budget expenditure on each function to the amount of the assessment'.[1]
3.3
While revenue from taxation and other sources automatically contributes
to the Consolidated Revenue Fund upon receipt (in accordance with section 81 of
the Constitution), in practice, it is common that a number of indirect taxes
are allocated by governments for specific functions or purposes.
3.4
Tax receipts which are calculated by using the overall allocations of
expenditure reported in the Budget papers, as would be required by this tax
receipt proposal, may not represent the degree to which income taxpayers
are contributing to certain government functions. Although other areas may be
affected, the health function and transfers to the States and Territories are
particularly relevant when considering these types of issues.
Taxes related to specific government functions
3.5
In his submission, Professor John Quiggin noted the issues associated
with accounting for hypothecated taxes, but suggested that revenue from these
taxes be treated as general revenue.[2]
3.6
Treasury officials submitted that there are not many hypothecated taxes
in Australia. However, issues associated with appropriately accounting for
taxes that are allocated to certain areas of government expenditure were
acknowledged. When discussing how the Medicare levy could be accurately
reflected on a tax receipt, Treasury acknowledged that:
We are not sure. As Senator Bushby has said, all of these
issues could be addressed but, on the basis of what is actually before the
committee and what we have been asked to respond to, they still remain to be
addressed.[3]
Medicare levy
3.7
The Medicare levy is used to fund Australia's national health programme.
Most taxpayers pay this levy which is currently set at 1.5 per cent of an
individual's taxable income. A Medicare levy surcharge is paid by taxpayers
whose income is above a certain threshold and do not meet other requirements
regarding their level of private patient hospital cover.
3.8
Whether an individual is liable to pay the levy, and the surcharge, is
calculated when their income tax return is assessed. As it is based on tax
assessable income, the Medicare levy payment for which an individual is liable
is recorded on their income tax notice of assessment.
3.9
Officials from Treasury advised the committee that the Medicare levy is
not hypothecated.[4]
Given this, upon receipt by the government, revenue associated with the
Medicare levy would be treated conceptually in a similar way to the revenue
raised from income tax.
3.10
However, under the new format of notices introduced by the ATO in 2010,
an individual's Medicare levy liability is recorded as an additional liability,
not as part of the total assessed tax payable. A question therefore arises as
to whether Medicare levy payments should be accounted for on a tax receipt. Other
payments are also recorded in this category, such as repayments under the Higher
Education Loan Programme, which would not be considered by a tax receipt.
Goods and services tax
3.11
Total GST revenue raised in 2009–10 was approximately $47 billion
(equivalent to about 15.9 per cent of total revenue). Although more revenue is
raised from income tax (about $123 billion was raised in net individuals
and other withholding taxation in 2009–10), the GST is clearly a significant
source of funds.
3.12
Under the Intergovernmental Agreement on Federal Financial Relations,
the Commonwealth is committed to making GST payments to the States and
Territories which are equivalent to the revenue received from the GST. However,
the GST revenue for a certain financial year may vary from the amount actually
transferred to the States and Territories for several reasons, such as a gap
between when payments are recognised and received by the Commonwealth.[5]
3.13
The structure of financial relations between the Commonwealth and the
States and Territories is summarised in the Budget papers as follows:
Commonwealth financial assistance to the States comprises all
GST revenue, plus a small amount of other general revenue assistance, and
payments for specific purposes.[6]
3.14
General revenue assistance from the Commonwealth to the States and
Territories was approximately $45 billion in 2009–10 (about 13.2 per cent of
total government expenditure). This consists of the 'untied' payments, or
payments which are provided without condition. The payments that are provided
for specific purposes by the Commonwealth are reported in the Budget papers
under their relevant functions (i.e. payments related to education are reported
under the education function).[7]
Committee view
The committee notes that the amendments aim to provide a simple
representation of an individual's contribution to government expenditure and their
share of government debt. Although the government has many sources of revenue in
addition to income tax, most of these would not complicate representations of
government expenditure on a tax receipt as they are treated in the same way as
income tax by the government's revenue framework. The committee considers that,
for simplicity, all direct and indirect taxes should be assumed to apply
equally and proportionally to all areas of government expenditure when
calculating the tax receipt.
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