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METHODOLOGY FOR ALLOCATING TAXES ON PRODUCTION
This Appendix outlines the methodologies used for the estimation of taxes on production allocated in this study. A more detailed explanation of the methodology used to calculate the final incidence of taxes on production is available in Review of Methodology for Estimating Taxes on Production in the Calculation of Household Final Income (cat. no. 1351.0.55.012)
The methodology for calculating taxes on production can be summarised as follows:
Taxes on production consist of taxes on products and other taxes on production. Total taxes on production are calculated net of any subsidies received from governments.
Taxes on products are taxes payable on goods and services when they are produced, delivered, sold, transferred or otherwise disposed of by their producers. They include:
Other taxes on production consist of all taxes except taxes on products that enterprises incur as a result of engaging in production. These taxes do not include any taxes on profits or other income received by the enterprise. They are taxes payable on the land, fixed assets or labour employed in the production process or on certain activities or transactions. Other taxes on production include:
Government subsidies are netted out from taxes on production. Subsidies are defined in the System of National Accounts as current unrequited payments that government units, including non-resident government units, make to resident producers or importers on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import. Subsidies are equivalent to negative taxes on production in so far as their impact on the operating surplus of producers is in the opposite direction to that of taxes on production. Subsidies consist of subsidies on products and other subsidies on production.
CALCULATING THE INCIDENCE OF TAXES ON PRODUCTION
The incidence of taxes on production to households is the amount of taxes on production a household pays, expressed as a percentage of the household's income. It is assumed that taxes on production are fully passed on to consumers. Using Household Final Consumption Expenditure (HFCE) estimates from the ASNA, the methodology calculates tax incidences for taxes on products and other taxes on production. There are three elements to the methodology for calculating the incidence of taxes on production, namely the:
The estimation of the incidence of taxes on production to households is based on the extensive use of Input-Output tables from the ASNA. The Input-Output tables present a comprehensive picture of the supply and use of goods and services in the economy and the income generated from production. It records the flows of products from one industry to another and to final demand for consumption. Using matrix manipulation techniques utilised in standard Input-Output table analysis, it is possible to track the ultimate final use of all inputs to the production process. It is therefore possible to allocate all taxes that are levied at all stages of the production process to appropriate final use categories.
DERIVATION OF TAX RATES
A tax rate is allocated to each of the 115 Input-Output product groups. These tax rates are used to estimate the total final incidence of taxes on production on household consumption expenditure for each household. A general outline of the elements involved in the methodology, as well the underlying assumptions, is provided below.
GROSS FIXED CAPITAL FORMATION
Taxes on production increase the prices of commodities comprising GFCF since the capital costs of producers are higher than they would otherwise be, and it can be assumed that producers charge correspondingly higher prices for their output. The methodology estimates the proportion of HFCE that can be attributed to the taxes on production embodied in the capital costs of producers. To achieve this, "capital stock" is treated as a dummy industry in the Input-Output tables, and the estimation is done in an analogous way to the estimation of the impact of taxes on production on the supply of intermediate inputs to the producing industries. There are a number of assumptions underlying this approach:
TAXES ATTRIBUTED TO THE MARGIN INDUSTRIES
For most analysis using Input-Output tables, it is necessary to value commodities at "basic values". With this approach, industries that distribute goods without transforming them, e.g. industries concerned with the transport of goods, wholesaling and retailing, are treated as margin industries. The commodities that these industries distribute are not shown as the inputs and outputs of the margin industries. Instead, the commodities are shown as flowing directly from the producing industry to the user, and the margin industries are shown as providing separate services to the purchasers of the commodities. For example, the goods that households purchase from retailers are shown as flowing from the food processing industry, the oil refining industry, etc., but with a valuation that excludes the margins incurred in the transporting, wholesaling and retailing of the goods. The margins are shown as separate expenditures by households or other users along the supply chain.
METHODOLOGY FOR ALLOCATING TAXES ON PRODUCTION TO HOUSEHOLDS
The expenditure estimates of individual households have been derived using HES data. Household expenditure is classified in the HES according to the HEC. A correspondence was developed mapping the Input-Output commodities in the Input–Output product groups (IOPG) to the HEC commodities. One or more IOPG codes was mapped to each HEC code. Using the Input-Output approach outlined above, a tax rate was obtained for each of the 115 IOPG commodities. Where more than one IOPG was mapped to one HEC, the expenditure for that HEC was divided equally between each relevant IOPG to obtain the tax rate. This rate was then applied to the corresponding average weekly household expenditures reported in HES for each HEC to derive the total value of taxes on production paid by individual households.
OWNERSHIP OF DWELLINGS
In 2003–04, other costs related to home ownership, such as taxes on repairs and maintenance costs, were calculated using the method outlined above and allocated to the category 'Other taxes on production'. Due to the new method of imputing taxes on production for home owners introduced in the 2009-10 study, these costs are no longer included in 'Other taxes on production' but instead are in 'ownership of dwellings' as they are covered by the imputed rent.
COMPARISON WITH HOUSEHOLD FINAL CONSUMPTION ESTIMATES IN THE AUSTRALIAN SYSTEM OF NATION ACCOUNTS
As the scope of this study is limited to the household sector, it does not attempt to fully allocate the ASNA total, which also includes taxes paid by non-household final demand sectors e.g. government final consumption and exports. In 2015-16, taxes on production on HFCE in the ASNA was 75% of total taxes on production. Table A1 compares the total taxes on production allocated to the household sector in the ASNA with the taxes allocated in this study. The proportion of taxes on production allocated to households in 2015-16 was 55% of total taxes on production, lower than the proportion allocated in 2009-10 (64%).
Table 1. TAXES ON PRODUCTION ALLOCATED
(a) subsidies not included
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