FISCAL INCIDENCE STUDY
The Fiscal Incidence Study (FIS) shows the effects of government benefits and taxes on the distribution of income among private households in Australia. Data for FIS will be available in Government Benefits, Taxes and Household Income, Australia, 2015-16 (cat. no. 6537.0) expected to be released in early 2018.
Household income is increased directly by the Australian government through social assistance benefits in the form of cash payments, such as the age pension and family tax benefit, and indirectly by government expenditures such as those on health and education. On the other hand, household income is reduced by taxes on personal income (direct taxes) and by taxes on production (indirect taxes) passed on in the prices households pay for goods and services.
The FIS excludes government taxes and expenditure that do not relate directly to particular types of households or household expenditure, such as government revenue from corporate taxes and spending on defence, public order and safety, transport and communications.
The most restricted concept of income used in the FIS is referred to as private income, while the most extensive is final income. Private income is all current receipts, whether monetary or in kind, received excluding social assistance benefits in cash. Private income includes wages and salaries, profit/loss from own unincorporated business, net investment income and private transfers. It also includes net imputed rent for owner occupied dwellings and for subsidised private rentals to allow for more meaningful comparisons of the income circumstances of people living in different tenure types.
Gross income is the sum of private income and Australian government social assistance benefits in cash (direct Australian government benefits) such as age pension, disability support pension, Veterans' Affairs pension, family tax benefit, parenting payment, unemployment and student allowances. Disposable income is derived by subtracting estimates of taxes on personal income from gross income.
The value of government social transfers in kind for education, health, housing, social security and welfare, and electricity concessions and rebates (indirect benefits) is added to disposable income to derive disposable income plus social transfers in kind. Final income is equal to disposable income plus social transfers in kind less taxes on production.
The following diagram illustrates the different income concepts:
The three major data sources used in the FIS were the 2015–16 ABS Household Expenditure Survey (HES), ABS Government Finance Statistics (GFS), and Input-Output tables from the Australian System of National Accounts (ASNA).
Social transfers in kind
Social transfers in kind consist of goods and services provided free or at subsidised prices by the government. In the FIS, these are restricted to those arising from the provision of education, health, housing, social security and welfare services, and electricity concessions and rebates. STIK includes reimbursements of approved expenditures such as the Medicare rebate, the Private Health Insurance Rebate, the Child Care Benefit and the Child Care Rebate. The cost of administering the provision of social assistance benefits in cash is included. For more information see the 'Social transfers in kind' section of this publication.
Taxes on production
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.
In allocating the taxes on production, it is assumed that industries will pass the burden of the taxes on production they pay to the purchasing industries and/or final consumers through higher prices. Also, the burden of the tax will be passed from one industry to another until the total burden of the tax is passed on to a final demand sector, one of which is the household sector.
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 goods and services tax (GST), taxes and duties on imports, and other taxes on products such as fuel and tobacco excises.
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 taxes on payroll or workforce, land taxes, business and professional licences and stamp duties.
The amount of taxes on production paid by HES households are calculated as follows:
- the incidence of taxes on production to households is estimated using Input-Output tables from within 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. For this study, the Input-Output tables are used to calculate a tax rate for each of the 115 Input-Output product groups (IOPG)
- the Household Expenditure Classification (HEC) is used to classify household expenditure in the HES. The approximately 700 HEC codes are mapped to the 115 IOPG codes
- household expenditure classified to each HEC code is multiplied by the relevant tax rates to estimate the total final incidence of taxes on production for each household.
A more detailed description of the methodology used to allocate taxes on production is available in Government Benefits, Taxes and Household Income, Australia, 2015-16
(cat. no. 6537.0), due for release in early 2018.
COMPARISON WITH AUSTRALIAN SYSTEM OF NATIONAL ACCOUNTS
A comparison between the FIS estimates of social assistance benefits in cash and social transfers in kind and the aggregate estimates of household income published in Australian System of National Accounts
(cat. no. 5204.0) is included in the Explanatory Notes in Government Benefits, Taxes and Household Income, Australia, 2009–10
(cat. no. 6537.0).
It also compares taxes on income and taxes on production allocated in the study with the relevant taxation revenue estimates published in Taxation Revenue, Australia, 2010–11
(cat. no. 5506.0).