Part B - Defining revenue
Revenue is defined as all increases in net worth resulting from transactions. Revenue consists mainly of taxation revenue, sales of goods and services, property income, other current revenue, and capital revenue. Paragraph 5.1 of the IMF GFSM 2014 notes that the most common source of revenue for most general government units is from taxation revenue. Public corporations cannot levy taxes, but commonly derive the majority of their revenue from property income and the sale of goods and services. Each of the elements that comprise revenue are discussed individually below.
In Australia, government revenue is generated through the taxation of individuals, corporations, property, products, production, and other taxes. Taxes are defined in paragraph 5.2 of the IMF GFSM 2014 as compulsory, unrequited amounts receivable by government units from institutional units, which may be receivable in cash or in kind. Taxation revenue is considered to be unrequited because there is no clear and direct link between the payment of taxes by an individual or entity, and the provision of goods and services by government in exchange for the payment. The amount of tax revenue accruing in a period is the amount generated when the underlying transactions or events which give rise to the government’s right to collect the taxes occur in that period.
Governments may use the tax revenue collected to provide goods or services to other units, either individually or to the community as a whole. Where the government charges for a service such as issuing licences, but the revenue raised is clearly out of all proportion to the cost of providing the service, then it is classified as taxation revenue rather than sales of goods and services in GFS. The treatment of government taxes versus government fees for services is further discussed in Chapter 13 Part J of this manual.
The attribution of a tax refers to the arrangement where taxes are collected by one government unit and then passed on to a second government unit. Depending on the arrangement, the taxes passed onto the second government unit may be reassigned as tax revenue of that unit, or recorded as tax revenue of the collecting unit and a grant recorded from the collecting unit to the second government unit.
In Australian GFS, tax is attributed to the government unit that:
(a) Exercises the authority to impose the tax (either as principal or through the delegated authority of the principal);
(b) Has final discretion to set and vary the rate of the tax; and
(c) Has discretion over the distribution of funds.
In the case of the Goods and Services Tax (GST), the tax is levied under the authority of the Commonwealth, who has the final discretion to set and vary the rate of the tax and final discretion over the distribution of the funds. Therefore, the GST is treated as a Commonwealth tax in GFS. In Australian GFS, because GST is recorded as a Commonwealth tax, a grant is also recorded from the Commonwealth to the states and territories, as the Commonwealth distributes all of the GST.
Sales of goods and services
Sales of goods and services refer to revenues from the direct provision of goods and services by general government and public corporations, excluding GST. Sales of goods and services include fees and charges for services rendered by general government and public corporations; the sale of goods and services by market establishments; administrative fees charged for services; revenues of general government units for work done when acting as an agent for other government and private units; incidental sales by non-market establishments; and imputed sales of goods and services.
Governments may regulate certain activities by issuing licences, for which fees are payable. The service may include activities such as checking the competency or qualifications of a would-be licensee. If the service charge is clearly out of all proportion to the cost of providing the service then the revenue raised is deemed to be taxation revenue rather than revenue from the sales of goods and services. In certain circumstances it may be conceptually justifiable to split the payment, e.g. treating a portion of the payment as the sale of goods and services and the remaining portion as a tax. It may be appropriate to adopt this treatment in situations where a product of measurable benefit is provided to the payer and the case is economically significant. The treatment of sales of goods and services is further discussed in Chapter 13 Part J of this manual.
Property income refers to income accrued from the ownership of financial assets or tangible non-produced assets (mainly land and sub-soil assets). Property income accrues when the owners of such assets put them at the disposal of other entities. Revenue from property income on financial assets is in the form of interest, dividends, income from public corporations, profits from investment in investment funds or direct investment in private corporations. Revenue from property income on land and sub-soil assets is in the form of land rent and royalty income.
A common source of revenue for government units is income received from transfers. Paragraph 3.10 of the IMF GFSM 2014 defines a transfer as a transaction in which one unit provides a good, service, asset, or labour to a second unit without receiving simultaneously a good, service, asset, or labour of any value in return as a direct counterpart. In GFS, transfers are recognised as either current transfers or capital transfers, with the distinction being based on the nature of the activities or the types of assets for which the transfers are made. If the activities relate to the acquisition of assets (other than inventories) that will be used in the production of government goods and services for one year or more, then the transfers are treated as capital transfers. Otherwise, the transfer is treated as a current transfer.
Current transfer revenues are amounts receivable for current purposes for which no economic benefits are payable in return. These are reported as revenue from current grants and subsidies (ETF 1141, SDC), and include grants received for current purposes from private non-profit institutions serving households, grants from foreign governments and organisations (including grants from aid projects), and current grants from one level of government to another (e.g. Commonwealth to state / territory). Also included are subsidies, which are defined in paragraph 5.146 of the IMF GFSM 2014 as current unrequited transfers received by public enterprises on the basis of the level of their production activities, or the quantities or values of the goods and services they produce, sell, export or import. Subsidies include transfers receivable by public corporations to offset recurring losses that are a consequence of government policy to maintain the corporations’ prices at a level that does not cover the cost of production.
Capital transfer revenues are receipts of a capital nature for which no economic benefits are payable in return. Capital transfers are usually non-recurrent and irregular for donor or recipient. Capital transfer revenues are reported as revenue from capital grants (ETF 1151, SDC), and include grants received for capital purposes from private non-profit institutions serving households, capital grants from foreign governments and organisations (including grants from aid projects), and capital grants from one level of government to another (e.g. Commonwealth to state / territory). Also included are transfers received for the damage or destruction of non-financial assets, and transfers to increase financial capital.
Paragraph 3.18 of the IMF GFSM 2014 indicates that it is possible that some cash transfers may be regarded as capital by one party to the transaction and as current by the other party. So that a donor and a recipient do not treat the same transaction differently, a transfer should be classified as capital for both parties, if it involves the acquisition or disposal of an asset, or assets. However, if there is doubt about whether a transfer should be treated as current or capital, it should be treated as a current transfer.