Australia's Future Tax System

Architecture of Australia's tax and transfer system

6.1 Australian government and state taxes on labour, capital and consumption

Australia's tax mix is slightly skewed towards the direct taxation of labour income, accounting for around 40 per cent of revenue raised (Chart 6.1). This includes taxes on salary and wages and fringe benefits, taxes on superannuation contributions and payroll taxes. Taxes on capital income account for around a third of revenue, while taxes on consumption account for slightly more than a quarter. Taxes on capital include company tax, taxes on individual capital income (interest, dividends, capital gains and some business income), the petroleum resource rent tax, crude oil excise and taxes on property such as land taxes and stamp duties on conveyances. Taxes on consumption include the GST, excises on tobacco, alcohol and fuels and other taxes on consumer goods.

The allocation of revenue according to capital, labour and consumption differs between the two levels of government (Chart 6.1). At the Australian Government level the contribution from taxes on labour is around 50 per cent higher than the contributions from taxes on capital and consumption. At the state government level, the contribution from taxes on consumption and labour are roughly equal, while taxes on capital are around 50 per cent higher.

Chart 6.1: Tax revenue from labour, capital and consumption

Australian Government and States — 2006‑07

Chart 6.1: Tax revenue from labour, capital and consumption - Australian Government and States — 2006-07

Source: ABS (2008a); Australian Treasury estimates.

Australian Government tax mix — recent history

The boom in the terms of trade is estimated to have generated around $87 billion in additional revenue over the five years to 2008‑09 (Australian Government 2008a). Around $33 billion is expected to accrue in 2008‑09 (Chart 6.2).

The components of this estimated increase in revenue are shown in Panel B of Chart 6.2. In 2008‑09, company tax revenue is estimated to be $10.7 billion, or 14 per cent, higher than would otherwise be the case. This reflects higher company profits flowing from increased bulk commodity prices. Personal tax collections have also increased as a result of higher income tax payments from individuals arising from higher wages and employment.

Chart 6.2: Estimated increase in tax revenue due to the terms of trade boom

A: Tax revenue impact of terms of trade

A: Tax revenue impact of terms of trade

B: Additional tax revenue by source

B: Additional tax revenue by source

Source: Australian Treasury estimates, Australian Government (2008a), Statement 5, see Box 2.

Relative to 2006‑07, the Australian Government share of revenue from individuals' income and fringe benefits tax is projected to decline, to be around 43.5 per cent by 2011‑12 (Chart 6.3). This reflects the recent and announced future cuts in the personal income tax scales. Company income tax is expected to account for a higher share of Australian Government tax revenue in 2011‑12 than in 2006‑07, along with taxes on superannuation funds and resource taxes. GST revenue is also projected to increase slightly as a share of Australian Government revenue, but overall, indirect taxes are expected to decline slightly in importance.

Chart 6.3: Shares of Australian Government tax revenue in 2006‑07 and 2011‑12

Chart 6.3: Shares of Australian Government tax revenue in 2006-07 and 2011-12

Source: Australian Government (2008a).