Australian Bureau of Statistics

Rate the ABS website
ABS Home > Statistics > By Release Date
ABS @ Facebook ABS @ Twitter ABS RSS ABS Email notification service
1301.0 - Year Book Australia, 2001  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 25/01/2001   
   Page tools: Print Print Page RSS Feed RSS Bookmark and Share Search this Product

TAXATION DURING THE FIRST 100 YEARS OF FEDERATION

TAXATION POLICY FROM FEDERATION TO THE YEAR 2000

Before Federation, the sources of most tax revenues for Australian colonial governments were customs duties and excises. Other taxes were also generally imposed, such as stamp duties, stock taxes, taxes on the property of deceased persons and taxes on land. When revenue from these taxes fell short of what was needed to fund expenditure programs, governments chose to levy income taxes at different times from the 1880s. All States had established income taxation by 1907.

At Federation in 1901, the Australian Constitution granted the Commonwealth a monopoly of customs duties and excises and the power to levy other taxes concurrently with the States. Individual States attempted to impose sales taxes from time to time (e.g. in 1926, 1938 and 1949), but these were ruled to be excises by the High Court. Sales taxes were first imposed by the Commonwealth in 1930 to offset falls in customs revenues. A Commonwealth land tax was introduced during 1910, aimed at financing a national old age pension which had been promised at Federation.

Commonwealth income taxes were first imposed during 1915 to make up for the fall in revenues from customs duties and excises which resulted from the disruption to world trade brought about by World War I. This income tax was designed by the Australian Statistician of the time (Sir George Knibbs). In 1942, a Commonwealth special committee on uniform taxation recommended that Commonwealth income tax take priority over any State income tax and that any State retiring from income tax collection be paid a grant in compensation for lost revenue. A further recommendation was that the scheme operate for the duration of World War II plus one year thereafter. The Commonwealth legislated to bring the recommendations of the special committee into effect. One condition in the Commonwealth legislation was that any State which did not vacate the income tax field for the duration of the war period would not receive a share of Commonwealth income tax revenues.

The States rejected this tax plan, and four States challenged the validity of the Commonwealth legislation in the High Court. The High Court ruled that the Commonwealth income tax legislation was valid, essentially giving the Commonwealth constitutional priority in taxation. A further outcome of the High Court challenge was that the Commonwealth was no longer bound to limit the duration of the uniform income tax scheme, and later decided to continue with it indefinitely. The States were not precluded from superimposing their own income taxes on top of the Commonwealth tax, but if a State did so its Commonwealth tax reimbursement payment would cease. Commonwealth income tax rates were set at a level which made it difficult for the States to raise an amount equal to Commonwealth tax reimbursements. For these reasons the States retired from the field of income taxation.

Commonwealth and State government death and gift duties were abolished by the early 1980s. Commonwealth land taxes were abolished in 1952, while State and Territory land taxes have remained in force as a source of finance for the provision of local government services, along with municipal rates. Since the discontinuation of State income taxes, gambling levies, stamp duties, payroll taxes and motor vehicle taxes have been the main taxes for the States and Territories.

The major part of the financing of State budgets since Federation has come from Commonwealth grants. The source of these grants lies in each State's and Territory’s share of Commonwealth taxation revenue (mainly income taxation up until the introduction of the goods and services tax (GST) in July 2000) as determined by Commonwealth-State financial agreements.

State and Territory Governments levied business franchise fees from 1958 until 1997 when the High Court ruled that those on tobacco were constitutionally invalid. By extension, all other State and Territory business franchise fees were also constitutionally invalid. The Commonwealth then legislated for and collected replacement excise taxes on a uniform basis and returned this revenue to the States and Territories after allowing for administration costs, to ensure that these governments were compensated for the loss of business franchise revenues (the ‘safety net’ tax arrangements). This arrangement continued up until June 2000.

Under the terms of the June 1999 Intergovernmental Agreement on Principles for the Reform of Commonwealth-State Financial Relations (IGA), the Commonwealth imposed a goods and services tax (GST), from 1 July 2000, with all GST revenue to be passed to the States and Territories. Commonwealth GST revenue grants replace the old financial assistance grants made by the Commonwealth to the States and Territories. Each government’s share of GST revenue is based on its population share adjusted by a relativity factor reflecting per capita financial needs. The IGA required the Commonwealth to permanently cease its wholesale sales tax (in addition to safety net taxes) from July 2000 State and Territory Governments were required to permanently cease bed taxes, financial institutions duties, and stamp duties on marketable securities, from July 2000 and to adjust their gambling taxes to take account of the impact of the GST on gambling operators. State debit taxes will cease on 1 July 2005 and the need to continue a number of State stamp duties on financial instruments and leases will be reviewed in 2005. The Commonwealth retains income tax revenues for its own purposes.


TAXATION AND TOTAL GOVERNMENT REVENUES

The major functions of government are the provision of mainly non-market goods and services to the community and individual households and the redistribution of incomes and wealth through transfers between sectors in the economy. Expenditures incurred in relation to these functions are generally financed out of taxation revenues.

Table 27.18 compares taxation revenues to total revenue for Commonwealth, State and Territory and local government. It shows the importance of taxation as a source of Australian government revenues. Taxation forms the majority of revenues for the Commonwealth Government and, up until the 1970s, local governments. Because State taxes are not as broad-based as Commonwealth taxes and local government taxes, the proportion of State revenue from taxes is lower. Commonwealth grants financed from Commonwealth taxation revenues have provided the main source of State revenues since Federation. Similarly, State grants have provided a major source of local government revenues. Commonwealth and State taxation revenues as a proportion of total revenues have increased over the period 1901-02 to 1998-99, while movements in local taxation revenues have been within a narrow but generally falling band.


27.18 TAXATION AND TOTAL GOVERNMENT REVENUES(a)

Taxation revenues

Total government revenues

Taxation revenues as a percentage
of total government revenues

C’wlth

$m
States

$m
Local

$m
C’wlth

$m
States

$m
Local

$m
C’wlth

%
States

%
Local

%

1901-02
18
5
5
23
56
8
78.9
9.6
55.6
1908-09
22
7
7
29
69
10
75.3
10.1
68.8
1918-19
66
24
13
89
116
21
73.6
20.6
65.5
1928-29
113
65
31
160
240
59
70.4
27.0
51.6
1938-39
148
101
28
190
267
49
77.8
37.9
56.7
1948-49
982
180
50
1,109
466
82
88.5
38.6
60.6
1958-59
2,267
276
158
2,592
1,359
261
87.4
20.3
60.4
1968-69
5,486
738
351
6,044
3,114
681
90.8
23.7
51.6
1978-79
23,395
4,746
1,215
26,281
17,516
2,558
89.0
27.1
47.5
1988-89
83,324
17,271
3,423
94,064
57,322
8,633
88.6
30.1
39.7
1998-99
137,799
34,120
6,301
176,563
119,721
14,961
78.0
28.5
42.1

(a) Some adjustments to previously published data have been made to maintain a consistent definitional coverage of taxation and total government revenues. Taxation revenue figures prior to 1998-99 have been adjusted to exclude fees and fines, and total government revenue figures prior to 1998-99 have been adjusted to include general government sales of goods and services. Data up to 1988-89 are on a cash basis and for 1998-99 they are on an accrual basis, resulting in a break in series for which no adjustments have been possible.



TAXATION REVENUE PER HEAD

Table 27.19 shows total Commonwealth, State and local government taxation revenues per head of population for the period 1901-02 to 1998-99. In current price terms, taxation revenue per head of population has increased markedly over the period (particularly since the 1970s). As expected (given the different taxes imposed by the different levels of government), Commonwealth taxes per head are much greater than the State equivalent, which is in turn greater than that for local government. The table also shows GDP per head, and total taxation revenue per head as a percentage of GDP per head. Total taxation per head as a proportion of gross domestic product per head has increased fivefold over the period.



27.19 TAXATION REVENUE AND GDP PER HEAD

Taxation revenue per head(a)

C’wlth

$
States

$
Local

$
Total

$
GDP per head(b)

$
Total taxation revenue per head as a percentage of GDP per head

%

1901-02
4.65
1.41
1.19
7.25
114.57
6.32
1908-09
5.07
1.64
1.53
8.24
132.52
6.22
1918-19
13.07
4.76
2.53
20.35
215.98
9.42
1928-29
17.77
10.26
4.75
32.78
265.99
12.32
1938-39
21.38
14.62
3.97
39.98
259.96
15.38
1948-49
125.87
23.14
6.16
155.17
558.08
27.80
1958-59
227.74
27.87
15.52
271.14
1,274.03
21.28
1968-69
450.72
60.64
28.86
540.22
2,476.32
21.82
1978-79
1,611.7
326.93
83.70
2,022.33
7,769.79
26.03
1988-89
4,955.51
1,027.15
203.58
6,186.24
20,930.43
29.56
1998-99
7,305.64
1,808.93
334.06
9,448.63
31,361.79
30.13

(a) Taxation revenue data to 1988-89 are on a cash basis, and for 1998-99 they are on an accrual basis, resulting in a break in series. (b) GDP data up to and including 1948-49 are from the historical series published in Australian National Accounts: National Income, Expenditure and Product, 1995-96 (5204.0). GDP data after 1948-49 are from Australian System of National Accounts (5204.0).


COMPOSITION OF TAXATION REVENUE

This section describes the composition of taxation revenues for the Commonwealth, State and local governments over the period 1901-02 to 1998-99.

Commonwealth Government

As table 27.20 shows, Commonwealth income taxes have been the largest part of Commonwealth taxation revenues since World War II. As noted earlier, the Commonwealth income tax was introduced to make up the shortfall in customs duties at the time of World War I. This is the reason that the proportion of income taxes for 1918-19 is higher than in the inter-war period. Customs revenues have fallen as a proportion of taxation revenues since Federation, and most notably in the post-World War II period. Excises have also generally fallen over the period 1901-02 to 1998-99, but more gradually than customs duties. Sales taxes have remained at about the same proportion in revenue since their introduction.


27.20 COMPOSITION OF COMMONWEALTH TAXATION REVENUE(a)

Income taxes

%
Payroll taxes

%
Land taxes

%
Estate taxes

%
Sales taxes

%
Excises

%
Customs duties

%
Other taxes

%
Total

%

1901-02
. .
. .
. .
. .
. .
13.8
86.2
. .
100.0
1908-09
. .
. .
. .
. .
. .
20.4
79.6
. .
100.0
1918-19
35.2
. .
6.4
2.8
. .
17.7
35.3
2.5
100.0
1928-29
17.4
. .
5.3
3.7
. .
20.5
52.4
0.6
100.0
1938-39
16.0
. .
2.0
2.6
12.6
22.2
42.1
2.4
100.0
1948-49
55.5
4.2
0.6
1.0
8.0
12.8
12.9
5.1
100.0
1958-59
53.7
4.4
. .
1.2
12.7
20.8
6.3
0.9
100.0
1968-69
62.4
4.0
. .
1.1
9.0
16.5
6.3
0.7
100.0
1978-79
68.1
0.2
. .
0.4
7.6
17.1
6.2
0.5
100.0
1988-89
70.1
1.3
. .
. .
11.3
11.1
4.6
1.6
100.0
1998-99
74.2
2.4
. .
. .
11.0
8.9
2.7
1.0
100.0

(a) Data up to 1988-89 are on a cash basis and for 1998-99 they are on an accrual basis, resulting in a break in series.


State Governments

State income taxes formed a large part of State taxation revenue up until World War II, when the Commonwealth assumed responsibility for income taxes (table 27.21). Land taxes, estate duties, stamp duties and motor vehicle taxes have also been major sources of State taxation revenues, although in aggregate the share of these taxes has fallen over time. This fall has been offset by payroll, gambling and other taxes. The significant increase in other taxes since the late 1970s is due to increases in franchise taxes, taxes on the transactions of financial institutions and taxes on insurance.


27.21 COMPOSITION OF STATE TAXATION REVENUE(a)

Income taxes

%
Payroll taxes

%
Land taxes

%
Estate taxes

%
Stamp duties

%
Gambling taxes

%
Motor vehicle taxes

%
Other taxes

%
Total

%

1901-02
27.8
. .
21.9
29.8
20.8
n.a.
n.a.
. .
100.0
1908-09
32.3
. .
10.0
26.0
22.1
n.a.
n.a.
9.7
100.0
1918-19
51.2
. .
9.9
15.2
15.8
n.a.
n.a.
8.1
100.0
1928-29
49.2
. .
5.8
12.0
12.3
3.3
13.0
4.3
100.0
1938-39
59.0
. .
2.8
9.9
6.9
3.5
13.8
4.1
100.0
1948-49
0.7
. .
3.5
27.7
18.8
12.9
28.2
8.2
100.0
1958-59
. .
. .
11.2
19.7
20.5
8.6
30.4
9.5
100.0
1968-69
. .
. .
9.5
17.1
26.2
13.6
28.0
5.5
100.0
1978-79
. .
37.2
5.8
4.3
16.9
10.1
16.3
9.4
100.0
1988-89
. .
27.0
5.5
. .
29.4
9.0
12.3
16.7
100.0
1998-99
. .
23.2
5.4
. .
17.6
12.4
11.3
30.5
100.0

(a) Data up to 1988-89 are on a cash basis and for 1998-99 they are on an accrual basis, resulting in a break in series.


Local governments

Municipal rates have been the sole source of local government taxation revenues since Federation.


DATA SOURCES AND REFERENCES

ABS publications

Australian National Accounts: National Income, Expenditure and Product, 1995-96 (5204.0)
Australian System of National Accounts, 1998-99 (5204.0).
Government Finance Statistics, Australia, 1984 to 1999 (5512.0).
Government Financial Estimates, Australia, 1984 to 1999 (5501.0).
Taxation Revenue, Australia, 1984 to 1999 (5512.0).
Year Book Australia, various issues (1301.0).


Other publications

Smith, Julie P. 1993, Taxing Popularity: The Story of Taxation in Australia, Federalism Research Centre, ANU, Canberra.
Coghlan T.A. 1902, A Statistical Account of the Seven Colonies of Australasia, 1901-02, Commonwealth and New South Wales Governments, Sydney.



Bookmark and Share. Opens in a new window

Commonwealth of Australia 2014

Unless otherwise noted, content on this website is licensed under a Creative Commons Attribution 2.5 Australia Licence together with any terms, conditions and exclusions as set out in the website Copyright notice. For permission to do anything beyond the scope of this licence and copyright terms contact us.