Output 2.1.1 Budget policy advice and coordination
Output 2.1.2 Commonwealth-State financial policy advice
Output 2.1.3 Industry, environment and social policy advice
Output 2.2.1 Taxation and income support policy advice
Effective government spending and taxation arrangements are crucial to achieving the Government's economic objectives and the wellbeing of Australians. Ongoing advice to the portfolio Ministers from Treasury assists in formulating, implementing and explaining government spending and taxation decisions.
In May 2002, the Government announced a major change to agency accountability for tax law design. Responsibility for the design of tax laws and regulations was shifted from the Australian Taxation Office to Treasury from 1 July 2002. The transfer created a stronger and more direct link between ministers and policy and legislation development processes. This, in turn, has resulted in a greater alignment between legislation and the policy intent set by Government.
The transfer of the tax law design functions had a number of much wider impacts on Treasury's operations. A significant consequence of the move of the law design function was the transfer of 104 staff from the Australian Taxation Office to Treasury. Treasury used the opportunity to merge these staff with the existing staff in Budget Group to create two new Groups - Fiscal Group and Revenue Group. The purpose of the new structure is to enhance Treasury's organisational capability in a number of areas and to allow it to be more flexible and responsive in delivering the Government's agenda.
The formation of Fiscal Group has enabled Treasury to increase its capacity for strategic, coordinated policy advice on government spending in order to improve the wellbeing of the Australian people. In addition, the formation of Fiscal Group has increased our flexibility and responsiveness in the face of new policy challenges, such as contributing advice on several of the Government's key strategic priorities. These benefits have been achieved by consolidating most of the advice on government spending into a single group and by bringing related program advising functions into a single division within the group.
Fiscal Group is responsible for Budget policy advice and coordination and for Commonwealth-State financial policy advice. Fiscal Group also provides advice on social policy, including health policy, industry and environment policy, defence and national security policy, and labour market participation policy.
The enhanced organisational capability has allowed Revenue Group to increase Treasury's capacity to advise the Government on taxation and income support policy. There is now a greater ability to assess policy and legislation in relation to economic efficiency, equity, income distribution, budgetary requirements and economic feasibility. There is also a closer nexus between the development of tax and income support policy and the design of legislation to give effect to these policies.
Given the restructure, the output structure in the 2002-03 Portfolio Budget Statements does not match the current Treasury structure well. Therefore, this report uses the updated output structure from the 2003-04 Portfolio Budget Statements. This means that health, social, labour market, industry, environment and defence policy advice functions are reported under Output 2.1.3 now called Industry, environment and social policy advice.
During 2002-03, Treasury contributed policy development and advice on a number of the Government's key strategic priorities, such as work and family policies, health, education, demographic change, environment, defence and national security. Treasury also conducted a comprehensive review of the Commonwealth Government Securities market, taking the view of key stakeholders into account.
Treasury also devoted significant resources to implementing the Government's business taxation reform agenda and superannuation election commitments. Priority was also given to the Government's review of international tax arrangements. Taxation reform is an important element of an integrated economic policy framework ensuring stronger economic and employment growth, thereby improving living standards.
Feedback from Treasury portfolio ministers indicated these outputs effectively contributed to their needs in formulating, implementing and explaining government spending and taxation decisions.
Key priorities in 2002-03
Fiscal Group and Revenue Group's policy advice covered a broad agenda, including many of the strategic priorities identified by the Prime Minister in November 2002, and the taxation legislative function previously held by the Australian Taxation Office. Strategies for delivery of outputs included developing specialist expertise in policy and taxation design areas, further developing key partnerships with other participants in the policy process, and focusing more on the strategic assessment of emerging core issues. Key priorities included:
- Further refining budget policy processes, producing the annual budget and mid-year review, and meeting the requirements of the Charter of Budget Honesty Act 1998;
- Delivering the Government's tax legislation program;
- Reviewing the Commonwealth Government Securities market;
- Integrating economic policy, tax policy and tax legislative functions to deliver the Government's tax reform agenda more effectively;
- Taking a leadership role in the Demographics Taskforce, which will build on the work of the Intergenerational Report;
- Implementing the Government's superannuation election commitments;
- Reviewing international tax arrangements;
- Servicing the needs of the Treasury ministers, including enhancing group-wide systems to improve service delivery to ministers; and
- Improving the effectiveness of policy advice by building stronger relationships with other departments and agencies.
Key outcomes in 2002-03
- Treasury, together with the Department of Finance and Administration, produced the 2003-04 Budget on 13 May 2003.
- Integration of the law design functions transferred from the Australian Taxation Office into the new group structure.
- Treasury delivered key elements of the Government's tax legislation program.
- Treasury reviewed and advised on whether to retain the Commonwealth Government Securities market. The Government has decided to maintain this market and will ensure sufficient Commonwealth Government Securities remain on issue to support the Treasury bond futures market.
- Treasury assisted the Department of Finance and Administration in a joint review of the budget estimates and advice system. The Government endorsed recommendations that seek to improve the accuracy, responsiveness and effectiveness of the Australian Government's budget estimates and framework system.
- Treasury was involved in a wide range policy processes, such as defence spending, regional policy, the post 2005 automotive assistance arrangements, innovation, the Work and Family Taskforce, Australian Health Care Agreements, reforms to Medicare and the Government's higher education reforms.
- Treasury implemented key elements of the Government's package of reforms to increase the security
, attractiveness and accessibility of superannuation.
- Treasury provided advice to the Government on a range of business tax policy issues, including demergers of entities, tax exempt leasing, the consolidation regime, taxation of financial arrangements and reforms to the imputation system and on the Timor Sea Treaty, double tax agreements and triangular taxation arrangements with New Zealand.
Table 3: Financial and staffing resources summary for Outcome 2
The Budget for 2002-03 is as per the 2002-03 Portfolio Additional Estimates Statements, any variations are due to internal reallocations.
The Actual for 2002-03 is as per the Audited 2002-03 Financial Statements.
The Budget for 2003-04 is as per the 2003-04 Portfolio Budget Statements (unless otherwise stated).
Budget Policy Division in Fiscal Group and Tax Analysis Division in Revenue Group are responsible for the delivery of Output 2.1.1, budget policy advice and coordination.
Fiscal Group and Revenue Group contribute to Outcome 2 by providing advice to Treasury portfolio ministers on budget policy issues, current and prospective trends in Australian Government revenue and major fiscal aggregates, the fiscal framework and debt policy. In addition, Fiscal Group coordinates the preparation of budget and related documents together with the Department of Finance and Administration.
Following Treasury's restructure, the program and policy advice functions previously undertaken by Budget Policy Division were moved to the Fiscal and Social Policy Division, except for defence and health policy advice which remained in Budget Policy Division.
The restructure enabled Budget Policy Division to focus more on its core activities of providing budget policy advice and coordination. It also improved budget coordination and information across the spending areas during the budget cycle.
Advice meets Treasury portfolio ministers' needs in administering their responsibilities and implementing government decisions as they relate to assessments of the budget position, outlook and budget strategy.
Effective presentation of budget documents for which Treasury has responsibility and other publications should adequately inform public debate.
Analysis of performance
Advice on the budget outlook
During 2002-03, Treasury provided advice to the Treasurer and other portfolio ministers on the Australian Government's budget position to inform overall policy settings and provide context for the Government's decision making. The fiscal outlook was updated in the 2002-03 Mid-Year Economic and Fiscal Outlook and the 2003-04 Budget.
Reflecting the joint responsibility for producing budget estimates, the preparation of this advice required extensive liaison with the Department of Finance and Administration, the Australian Taxation Office and other Australian Government departments and agencies. Assessments of the Australian Government's budget position incorporated changes to the economic outlook, so advice was based on the most reliable and up-to-date information available.
The 2001-02 Final Budget Outcome was published in September 2002. In 2001-02, the Australian general government sector recorded a small underlying cash deficit of $1.3 billion. This was $0.1 billion greater than estimated at the 2002-03 Budget, reflecting lower than expected income tax receipts largely offset by some slippage of defence expenditure and lower than expected personal benefit payments. The accrual fiscal deficit of $4.7 billion was $0.7 billion larger than estimated at the 2002-03 Budget. This larger fiscal deficit partly reflected the recognition in accrual terms of the Australian Government liabilities associated with post-Budget measures to address medical indemnity issues.
The 2002-03 Budget, published in May 2002, contained forecasts for 2002-03 and the next three years. The Mid-Year Economic and Fiscal Outlook, released by the Treasurer and Minister for Finance and Administration in November 2002, forecast an underlying cash surplus of $2.1 billion for 2002-03, unchanged from estimates at the 2002-03 Budget.
The 2003-04 Budget further updated these forecasts for 2002-03, with the estimated underlying cash balance being revised upwards to a surplus of $3.9 billion. This improvement reflected higher company and indirect tax collections and lower estimated payments.
Taxation revenue estimates
Treasury has prime responsibility for taxation revenue estimates and Revenue Group worked closely with the Australian Taxation Office and the Department of Finance and Administration to produce these. These estimates took into account trends in taxation revenue collections and the outlook for the economy. As familiarity with The New Tax System has increased, understanding of the patterns of revenue collection has improved.
Final taxation outcome for 2001-02
The final assessment of the taxation revenue outcome for 2001-02 was published in the 2001-02 Final Budget Outcome, published in September. Taxation receipts for 2001-02 were around $1.3 billion lower than forecast at the 2002-03 Budget. The subdued increase in wages in 2001-02 contributed to the lower than anticipated taxation revenue in 2001-02. Accrual taxation revenue was around $0.9 billion below the corresponding estimate at the 2002-03 Budget, while gross income tax withholding was $1.1 billion lower than expected at Budget 2002-03.
Budget taxation forecasts for 2002-03
The estimate for 2002-03 of total taxation revenue made at the Mid-Year Economic and Fiscal Outlook in November remained relatively unchanged from 2002-03 Budget expectations. However, the expected composition of revenue changed with gross income tax withholding revised down by $1.3 billion, while companies and gross other individuals both increased by around $0.8 billion.
The 2003-04 Budget revised up estimated total taxation revenue for 2002-03 by around $1.3 billion relative to the Mid-Year Economic and Fiscal Outlook, largely due to stronger than expected revenue from company tax and Australian Government indirect taxes.
Budget and financial frameworks policy advice
Treasury's contribution to developing policy seeks to assist ministers in making Australian Government expenditure more effective and efficient, and to ensure program policy options are considered in the context of the Government's broader economic and fiscal objectives. This included facilitating the Government's key budget decision-making processes, as well as providing accurate and timely advice to ministers throughout the year.
Treasury assisted the Department of Finance and Administration in a joint review of the budget estimates and advice system to improve its accuracy, responsiveness and effectiveness. The Government endorsed the recommendations of the review in late 2002. Treasury continues to play a leading role in overseeing implementation of the review's recommendations, which are expected to be fully implemented by 2005.
Review of Commonwealth Government Securities market
The Government indicated in the 2002-03 Budget that it would consider the future of the Commonwealth Government Securities market,
in consultation with key stakeholders. Following a public review conducted by Treasury, the Government decided to maintain the Commonwealth Government Securities market. This will entail ensuring sufficient Commonwealth Government Securities remain on issue to support the Treasury bond futures market. Retaining the Commonwealth Government Securities market to support the Treasury bond futures market will require ongoing issuance of Treasury bonds, both at the middle and long-end of the yield curve.
Financial assets will continue to be held on deposit with the Reserve Bank of Australia to meet short-term liquidity needs. These needs are assessed to be up to around $25 billion over the course of a year. If deposits held at the Reserve Bank exceed that sum for a sustained period, the Government will consider arrangements to allocate some funds to other liabilities, possibly superannuation. However, this would be the subject of further consultation.
Debt management policy
While the Australian Office of Financial Management (AOFM) is responsible for operational aspects of the management of the Australian Government debt portfolio, Treasury has primary responsibility for the development of advice to the Treasurer on strategic debt policy issues and relevant wider public policy issues. This included providing advice to the Treasurer on matters where debt management issues may carry implications for other arms of government policy or for the effective functioning of markets and/or the real economy, and where broader macroeconomic developments or public policy considerations may have implications for debt management. Treasury also played an important role in the governance structures around the management of the Australian Government debt portfolio.
During 2002-03, Treasury worked closely with the AOFM on the review of the Commonwealth Government Securities market, the review of the interest rate risk benchmark used by the AOFM to manage the Australian Government debt portfolio, the elimination of the foreign currency exposure in the Australian Government debt portfolio and continuing to strengthen the governance framework around the debt portfolio. These issues are discussed further in the AOFM's annual report.
Contribution to public debate and awareness
The Government's budget publications are available free at www.budget.gov.au. Providing widespread access to these documents helps improve policy making in Australia by ensuring the public is kept well informed of budget decisions and the fiscal outlook.
Treasury and the Department of Finance and Administration jointly prepare the Government's budget documentation. Treasury also prepares the Budget Overview and Budget at a Glance, providing more accessible summaries for non-specialist readers.
In general terms, Treasury is primarily responsible for preparing budget documentation on:
- the principal budget aggregates and the Government's fiscal strategy and objectives;
- economic assumptions underpinning the budget estimates;
- taxation revenue estimates;
- taxation expenditure estimates; and
- the conduct of Commonwealth-State financial relations.
The Government's budget reporting requirements are set out in the Charter of Budget Honesty Act 1998. These requirements are consistent with leading international practice. To help achieve better fiscal outcomes, the Charter promotes:
- disciplined budget management, with fiscal policy based on principles of sound fiscal management;
- transparency, with regular reports stating fiscal objectives and expected outcomes;
- accountability, with information allowing an informed assessment of the conduct of fiscal policy; and
- reporting against external accounting standards.
Under the Charter, budget reporting follows an annual cycle comprising the budget in May, a mid-year update around November and a final budget outcome in the following September. The Charter also stipulates that an intergenerational report be produced on a five-yearly cycle.
During the year, the Government released the 2001-02 Final Budget Outcome in September 2002, the 2002-03 Mid-Year Economic and Fiscal Outlook in November 2002 and the 2003-04 Budget in May 2003.
The 2003-04 Budget was the fifth Australian Government budget presented on an accrual basis. In 2002-03, Treasury met with representatives of countries interested in learning about the budgeting and reporting framework applied in Australia, including delegations from Japan and China. In addition, Treasury shared its budget experiences with countries within the region at the OECD-Asian Senior Budget Officials meeting in Bangkok.
Tax Expenditures Statement
Treasury publishes an annual Tax Expenditures Statement to estimate the revenue cost associated with the concessional taxation treatment of specific groups and activities. The Tax Expenditures Statement 2002, published in January 2003, reported on the cost of tax expenditures with estimates and projections to 2005-06. The production of this statement allows for independent review of whether government objectives are being met at reasonable cost and makes the Australian Government's activity more transparent.
Commonwealth-State Relations Division in Fiscal Group is responsible for the delivery of Output 2.1.2, Commonwealth-State financial policy advice.
Fiscal Group contributes to Outcome 2 by providing high quality advice on Commonwealth-State financial policy, including implementing the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, and on related State and Territory (`the States') fiscal and taxation issues.
Fiscal Group also provides the efficient administration of payments to the States, including GST revenue, Budget Balancing Assistance, National Competition Policy Payments and Special Revenue Assistance.
Advice should meet Treasury portfolio ministers' needs in administering their responsibilities and implementing government decisions as they relate to Commonwealth-State financial relations.
Effective presentation of relevant information, including in the budget documentation and other publications should adequately inform public debate.
Analysis of performance
Advice on reform of Commonwealth-State financial relations
2002-03 was the third year of full operation of the Intergovernmental Agreement. Treasury provided advice to the Treasurer on various aspects of the Intergovernmental Agreement, particularly transitional arrangements such as calculating the Guaranteed Minimum Amount and paying Budget Balancing Assistance.
The Ministerial Council for Commonwealth-State Financial Relations
The Ministerial Council, comprising the Treasurer and all State and Territory Treasurers, oversees the implementation and operation of the Intergovernmental Agreement. Treasury coordinates the agenda for the Ministerial Council. At the fourth annual meeting of the Ministerial Council, in March 2003, Treasurers discussed expected payments to the States and Territories, GST administration issues and other policy and administrative matters, including specific purpose payments. Treasury advised the Treasurer on the key issues and coordinated arrangements for the meeting.
The Loan Council traditionally meets annually in March to consider jurisdictions' Loan Council Allocation nominations for the forthcoming year. Treasury also advised the Treasurer on the key issues and coordinated arrangements for this meeting which was held in conjunction with the Ministerial Council meeting.
Heads of Treasuries
The Heads of Treasuries, comprising the Secretary to the Treasury and his State and Territory counterparts, met three times during 2002-03. These meetings are a forum for Heads of Treasuries to share information on issues common to the Australian and State governments. In 2002-03, discussions focused on issues arising under the Intergovernmental Agreement, economic conditions, demographics and longer-term fiscal issues, fiscal reporting, taxation and financial issues, Specific Purpose Payments (SPPs) and preparations for meetings of the Ministerial Council and the Loan Council.
GST Administration Subcommittee
The GST Administration Subcommittee assists the Ministerial Council in monitoring GST operation and administration. It advises the Ministerial Council on modifications to the GST base and Australian Taxation Office administration of the GST. Treasury chairs the subcommittee, which comprises officials from Treasury, the Australian Taxation Office and the State and Territory Treasuries. Participants in the three meetings monitored the operation of the GST Administration Performance Agreement between the States and Territories and the Australian Taxation Office. The subcommittee discussed GST revenue receipts and payments to the States and Territories, GST implementation issues and administrative issues.
The First Home Owners Scheme
The First Home Owners Scheme provides $7,000 grants to eligible applicants buying or building their first home. The States and Territories administer the scheme on the basis of principles agreed by all jurisdictions in the Intergovernmental Agreement. Under their legislative provision for the First Home Owners Scheme, the States provide mechanisms for adequate administrative review, appeal and prevention of abuse. Under the arrangements, all States audit their First Home Owners Scheme expenditure data and publish it in audited accounts.
In 2002-03, 135,869 grants were paid, totalling approximately $1.035 billion, including funding for additional grants. Treasury assists with First Home Owners Scheme policy issues and the Additional First Home Owners Scheme.
The Additional First Home Owners Scheme initiative doubled the grant to $14,000 for eligible first home owners purchasing new or previously unoccupied homes who entered into contracts between 9 March 2001 and 31 December 2001. The additional First Home Owners Scheme was extended with a phased-down grant of $3,000 available for contracts entered into between 1 January 2002 and 30 June 2002. Although the additional First Home Owners Scheme ended on 30 June 2002, some payments continued to be made to eligible applicants.
Payments to the States and Territories
Treasury administers payments made under Commonwealth-State financial relations to the States, totalling $32.2 billion in 2002-03, including GST revenue, Budget Balancing Assistance, National Competition Policy Payments and Special Revenue Assistance.
Goods and Services Tax Revenue
A key element of The New Tax System, introduced on 1 July 2000, is for States to receive all GST revenue. GST revenue is the largest payment made by the Australian Government to the States. The Australian Government provides all GST revenue in monthly payments, in accordance with relativities determined by the Treasurer following recommendations by the Commonwealth Grants Commission and discussion at the March 2002 Ministerial Council meeting. In 2002-03, the States received around $30.5 billion in GST revenue. All payments were calculated correctly and paid on the scheduled dates.
The Australian Taxation Office collects GST revenue on behalf of the States. The States compensate the Australian Government for this. Payments by the States to the Australian Government in 2002-03, reflecting costs incurred, amounted to around $563 million. Treasury monitored payments to ensure States made full and timely payments.
Budget Balancing Assistance
Under A New Tax System (Commonwealth-State Financial Relations) Act 1999, the Australian Government guaranteed that in the transitional years of tax reform, each State's budgetary position would be no worse than had the reforms to Commonwealth-State financial relations not been implemented. Treasury provides advice to the Treasurer on how much funding each State would have received under the previous system to enable the Treasurer to determine the Guaranteed Minimum Amount.
To meet its guarantee, the Australian Government pays the Budget Balancing Assistance to cover any shortfall of GST revenue compared with each State's Guaranteed Minimum Amount. In 2002-03, the States received $1.5 billion in Budget Balancing Assistance payments.
Treasury pays Budget Balancing Assistance in four quarterly advances based on estimates through the year. These advances are based on the States' estimated Budget Balancing Assistance entitlements at the time of each advance. Upward revisions to the GST revenue in the 2002-03 Budget resulted in the estimated entitlements for 2002-03 Budget Balancing Assistance being revised downwards. Queensland and the Northern Territory did not require Budget Balancing Assistance as their GST revenue exceeded their Guaranteed Minimum Amount. Furthermore, other States had been paid more Budget Balancing Assistance than required. These results were confirmed when final determinations of GST revenue, the Guaranteed Minimum Amount and Budget Balancing Assistance were made in June 2003.
Consistent with the provisions of the A New Tax System (Commonwealth-State Financial Relations) Act 1999, the Treasury will deduct the amount of excess Budget Balancing Assistance of $544.9 million paid in 2002-03 from payments made in 2003-04.
A number of decisions the Government took, in consultation with the States and Territories, also affected the calculation of Budget Balancing Assistance:
- from 1 July 2002, calculation of each States' Guaranteed Minimum Amount has excluded the indexation of Petroleum Revenue Replacement Payments forgone;
- at the March 2002 Ministerial Council meeting the Government and States agreed to implement a National Excise Scheme for Low Alcohol Beer from 1 July 2002;
- the Government, in consultation with the States, accepted the recommendation of the independent pricing review of the Australian Taxation Office that resulted in additional funding for tax administration functions, including GST administration.
National Competition Policy Payments
In 2002-03, National Competition Policy Payments to the States totalled $739.9 million. Each State's full entitlement to National Competition Policy Payments is subject to it satisfactorily progressing specified reform conditions in the Agreement to Implement the National Competition Policy and Related Reforms. Payments were calculated correctly and paid immediately following the Government's approval of the National Competition Council's recommendations.
Revenue Assistance for the Australian Capital Territory
The Australian Capital Territory received a Specific Purpose Payment of $14.7 million in 2002-03 for Special Revenue Assistance, paid in weekly instalments. All payments were made on the scheduled dates.
Information on the Government's financial relations with State, Territory and local governments is documented in Budget Paper No. 3, Federal Financial Relations 2003-04. This document is the main public source of information on Australian Government payments to the States. It also informs States and Territories of their expected payments in the upcoming financial year, including GST revenue, Budget Balancing Assistance, Specific Purpose Payments and National Competition Policy Payments.
Budget Paper No. 3, Federal Financial Relations also includes a calculation of each State'
s Guaranteed Minimum Amount, as well as any policy changes affecting the relationship between the Australian and State governments.
In 2002-03, the format and information included in Budget Paper No. 3, Federal Financial Relations was substantially updated to provide more readily accessible information about recent developments in Commonwealth-State relations.
Budget Policy Division and Fiscal and Social Policy Division in Fiscal Group are responsible for the delivery of Output 2.1.3, industry, environment and social policy advice.
Fiscal Group contributes to Outcome 2 by working in conjunction with other departments and agencies to develop and progress reform in industry, regional assistance, agriculture, environment, defence and national security, social, labour market participation, and health policy. The bringing together of these responsibilities in Fiscal Group has allowed for a more strategic, coordinated approach to policy advising in areas of government priority. While other departments have major responsibility for policy and programs in these areas, Fiscal Group focuses on improving productivity, economic sustainability and competitiveness, taking account of fiscal policy objectives and broader issues relating to wellbeing.
Advice meets Treasury portfolio ministers' needs in administering their responsibilities and implementing government decisions relating to industry policy.
Effective presentation of relevant information should adequately inform public debate.
Analysis of performance
Treasury contributed to policy formulation in a diverse range of industry, environment and social policy areas.
Advice on industry policy
During 2002-03 Treasury participated in policy development processes, working with other agencies to develop policy, providing coordination comments on policy for the consideration of Cabinet Ministers, and briefing the Treasurer for his participation in Cabinet.
Treasury was a lead agency in developing the Government's post-2005 automotive assistance arrangements. The Government package, announced in December 2002, will assist industry achieve long-term sustainability, while minimising the impact of continuing assistance on consumers and other industries. Tariffs are scheduled to fall from 15 to 10 per cent in 2005 and from 10 to 5 per cent in 2010.
Treasury provided advice to the Treasurer on the Government's Strategic Investment Coordination process as well as on specific proposals for strategic investment.
Treasury has also worked with agencies, and provided advice to the Treasurer, on the Tourism Green Paper: a Medium to Long-term Strategy for Tourism. The Green Paper has been released and a White Paper is scheduled for late 2003.
Treasury provided advice on future assistance arrangements for the pharmaceutical industry once the current Pharmaceutical Industry Investment Program expires. The current program is providing $300 million to the industry from 1 July 1999 to 30 June 2004. The replacement program will provide $150 million from 1 July 2004 to 30 June 2009.
Treasury was also involved, together with the Departments of Finance and Administration, Prime Minister and Cabinet, and Communications, Information Technology and the Arts, in a review of Australia's cultural agencies. The recommendations should help national cultural agencies continue to pursue efficiency and best practice.
Advice on agriculture policy
Treasury was involved in ongoing work on the Australian Government's Drought Policy and provided advice on the Government's Additional Drought Assistance Package of 9 December 2002. The package will help farmers, small business and regional communities in managing the impact of the worst drought on record, and protect Australia's agricultural and environmental resource base.
Treasury was involved in interdepartmental committees and provided advice on the Sugar Industry Reform Package, announced by the Minister for Agriculture, Fisheries and Forestry on 25 September 2002. The package improves the industry's long-term competitiveness and productivity.
Advice on environment policy
Treasury participates in the High Level Group advising the Sustainable Environment Committee of Cabinet. It also participates in a range of interdepartmental committees considering natural resource management policy issues. Treasury seeks to help ensure the development of policies promoting efficient and sustainable use of resources.
Treasury has briefed Cabinet and the Treasurer on natural resource management issues including protection of the Great Barrier Reef, integrated oceans management, salinity and land clearing. In particular, Treasury contributes to the ongoing development of a nationally consistent water-trading regime for the sustainable use of Australia's water supplies.
Treasury monitors implementation of the National Action Plan for Salinity and Water Quality and the Natural Heritage Trust to advise on policy effectiveness.
Treasury participates in a number of policy processes developing a whole-of-government position on climate change including the Interdepartmental Greenhouse Projections Group, and interdepartmental committees for International Climate Change, Climate Change Forward Strategy, and the high level sub-group as well as a number of working groups, to develop a long-term policy framework for climate change. Treasury helps bring an economy-wide focus to climate change policy and greater understanding of the economic implications. Treasury also provides advice on greenhouse programs in the budget context.
Treasury was involved in ongoing work in relation to biofuels, alternative fuels and national fuel standards.
Treasury participated in interdepartmental committees and provided advice to the Treasurer that resulted in the development of the Australian Government's response to the Johannesberg World Summit on Sustainable Development. Treasury coordinated briefings for Australia's delegate to the OECD Ad Hoc Group on Sustainable Development meeting and hosted the OECD mission aimed at integrating sustainable development into the Economic Development Review Committee review. This involved coordinating presentations by external agencies and coordinating responses to the questionnaire.
Advice on defence and national security policy
During 2002-03, Treasury provided advice and participated in a range of policy development processes on defence and other national security issues. In particular, Treasury participated in the Secretaries Committee on National Security to enhance the rigour of policy proposals to the National Security Committee of Cabinet. Treasury also provided advice to the Treasurer on major defence acquisition projects, deployments of Australian Defence Force personnel (including to Iraq and the Solomon Islands) and a range of defence operational and capability issues. In this regard, Treasury is a participant in the Government's Defence Capability Review, which is examining the balance, effectiveness and relevance of our present and planned defence capabilities.
Treasury also played a role in efforts to enhance the efficiency and transparency of Defence's financial management processes by seconding an officer to the Review of Defence Procurement. Treasury also participated in an interdepartmental committee overseeing Defence's management of its property estate and disposal program.
Treasury provided advice and participated in a range of policy development processes on domestic security, national law enforcement and other issues relating to the Attorney-General's portfolio. Since 11 September 2001 and the Bali terrorist attacks, the Government has implemented measures worth more than $
1.8 billion over six years to enhance Australia's security. Treasury participated in an interdepartmental committee that developed a package of domestic security measures which the Government considered in the 2003-04 Budget.
Advice on social policy
During 2002-03, Treasury increased the resources it devotes to social policy issues. Treasury is now more actively involved in interdepartmental committees and other working groups concerned with developing new policy and reviewing government programs in the portfolios of Family and Community Services, Attorney-General's, Veterans' Affairs, Immigration, Indigenous Affairs, Education, Science and Training.
Treasury participated in interdepartmental policy forums and provided advice to the Treasurer on the Government's $1.5 billion Our Universities: Backing Australia's Future package, announced in the 2003-04 Budget.
Treasury provides advice on immigration issues ranging from settlement services, contract renegotiation and repatriation, and is chairing an interdepartmental committee on modelling the effects of immigration on the Budget.
Treasury also contributed to the OECD's understanding and analysis of the economic benefits of Australia's migration program. Australia was the first country to participate in the OECD's review program. Subsequent reviews of some other OECD countries' programs will help provide cross-country comparisons so broader lessons can be learned.
Treasury contributed to policy formulation and provided advice on a range of social policy measures announced in the 2003-04 Budget. Details of these measures are provided in Budget Paper No. 2, Budget Measures 2003-04.
Treasury also actively participated in the interdepartmental Work and Family Taskforce which is reviewing policy and options to facilitate choice for families to help them balance their work and family responsibilities.
Advice on labour market participation policy
During 2002-03, Treasury participated in task forces and interdepartmental committees on a range of policy issues relating to labour force participation. In particular, Treasury led the Demographics Taskforce, which builds on the work of the Intergenerational Report. The Taskforce reports to the Treasurer and advises on policy options centred on an ageing society. This work includes developing policy proposals to address ageing of the population through increasing labour force participation, sustainability of retirement incomes, and managing expected increased government spending in areas affected by demographic change, particularly health and aged care. A discussion around some of these issues was included in the 2003-04 Budget, in Budget Paper No. 1, Statement 4.
Treasury is a member of the interdepartmental committee developing advice for the Government in its response to the Royal Commission into the Building and Construction Industry. The Government's initial response was announced in April 2003.
Treasury also assisted with the Government's submission and other related work associated with the Australian Council of Trade Unions' (ACTU) application to the Australian Industrial Relations Commission to increase minimum award rates of pay.
During 2002-03, Treasury provided other labour market participation advice including on work incentives associated with welfare reform proposals and the Job Network.
Advice on health policy
Treasury participated in an interdepartmental committee and advised the Treasurer on the $917 million A Fairer Medicare package that aims to make Medicare more accessible and affordable for all Australians.
Treasury participated in an interdepartmental committee that developed the new Australian Health Care Agreements with the States and Territories. These agreements will see the Government contributing up to $42 billion between 2003-04 and 2007-08 for the operation of public hospitals. This package is designed to ensure Australians can continue to access free high quality hospital services.
Treasury also participated in interdepartmental committees examining private health insurance, the Pharmaceutical Benefits Scheme and population health. The private health insurance committee examined options to make the private health insurance system more efficient, competitive and sustainable. The Pharmaceutical Benefits Scheme interdepartmental committee examined the scheme's effectiveness and the population health committee evaluated the effectiveness of population health programs and established a mechanism to inform future decisions on population health funding.
Two articles, published in the Spring edition of Economic Roundup, contributed to the public debate on sustainable development and renewable energy.
The transfer of the tax law design functions from the Australian Taxation Office to Treasury and the subsequent formation of Revenue Group has had a significant impact on the delivery of Output 2.2.1 in 2002-03. The transfer provided additional resources and skills that have allowed Revenue Group to consolidate and build its organisational capability to provide strategic advice to Government on taxation system and income support policies.
To leverage this capability the divisions that had previously handled tax and income support issues in Budget Group were restructured to allow integration of the available expertise in economic policy, tax policy and law design. This has resulted in effective multidisciplinary teams that are able to provide a more comprehensive approach to the design and development of tax policy and legislation. This includes better analysis of the economic impacts of different policy options and a more systematic approach to each stage of the policy development and law design cycle.
The benefits of the new arrangements have been demonstrated in the delivery of the Government's tax legislation program in 2002-03 and the increased investment in strategic projects, such as the community consultation processes and the good law project, that are fundamental to the delivery of the Government's tax reform agenda.
Seven divisions contribute to Output 2.2.1. The International Tax and Treaties Division, Individuals and Entities Tax Division, Business Income Division, Indirect Tax Division, and Superannuation, Retirement and Savings Division are responsible for the delivery of taxation and income support policy advice. The Tax Analysis Division contributes to this output through the preparation of costings and analysis of taxation policy proposals. Tax Design Division contributes to this output by providing key services to other Revenue Group divisions, the Treasury Executive and Ministers and developing the key strategic investment projects.
Revenue Group contributed to Outcome 2 by assessing and advising on the general design of the tax system and its components and retirement incomes policy in relation to economic efficiency, equity, income distribution, budgetary requirements and economic feasibility.
Revenue Group also provided the secretariat to assist the Board of Taxation.
Advice meets Treasury portfolio ministers' needs in administering their responsibilities and implementing government decisions relating to taxation and income support policy.
Effective presentation of relevant information, including in the budget documentation and other publications to adequately inform public debate.
Legislation delivered according to government programs.
Analysis of performance
The New Business Tax System
Treasury provided policy advice on a range of business taxation issues including demergers of entities, the consolidation regime, reforms to the imputation system, taxation of financial arrangements, and tax exempt leasing.
Treasury provided advice on the policy framework to provide taxation relief for demergers and helped develop the accompanying legislation. The provisions were included in the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002, which received Royal Assent on 24 October 2002.
The new consolidation regime, which involves taxing wholly-owned corporate groups as a single entity, is one of the most significant and far-reaching changes to the taxation of corporate groups in decades. It will deliver improved commercial flexibility, reduce on-going compliance costs and address concerns about the integrity of the tax system.
Treasury finalised the main elements of legislation for the consolidation regime. The legislation consisted of The New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 which received Royal Assent on 2 December 2002 and the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2003 which received Royal Assent on 12 April 2003. Additional consolidation rules were contained in the Taxation Laws Amendment Act (No. 6) 2003 which received Royal Assent on 30 June 2003 and in the Taxation Laws Amendment Bill (No. 7) 2003 which was introduced into Parliament on 26 June 2003.
Given the importance of the consolidation legislation, the Government undertook unprecedented consultation with industry. The consultations have been open, given taxpayers a say in designing the new rules, and have resulted in legislation responsive to business needs.
The Government introduced the core provisions of the simplified imputation system in the New Business Tax System (Imputation) Act 2002 (which received Royal Assent on 29 June 2002).
Treasury continued to develop remaining aspects of the simplified imputation system. Primary amongst these were the imputation rules for life insurance companies which were contained in Taxation Laws Amendment Bill (No. 7) 2003 (introduced into Parliament on 26 June 2003). The rules significantly streamline the operation of the imputation rules applying to life insurance companies. Treasury conducted consultation with the life insurance industry in developing these rules.
Treasury also developed imputation rules to make it easier for cooperative companies to frank distributions to their shareholders. Measures contained in Taxation Laws Amendment Bill (No. 8) 2002 (introduced into Parliament on 5 December 2002) allow cooperative companies a choice between franking distributions they make to their shareholders or to receive a tax deduction for those distributions.
Taxing of financial arrangements
Following an exposure draft released in December 2002 and consultation, The New Business Tax System (Taxation of Financial Arrangements) Bill (No. 1) 2003 was introduced into Parliament in May 2003. The Bill contains measures to:
- reform the taxation of foreign currency gains and losses, including the introduction of functional currency and other rules to reduce compliance costs; and
- remove the taxing point at conversion or exchange of traditional securities issued after 7.30pm EST on 14 May 2002.
Treasury consulted with stakeholders, provided advice on the outcome of consultations, instructed the Office of Parliamentary Counsel on the drafting of the measures and prepared the explanatory material accompanying the Bill.
Treasury also provided advice on extending the exclusion of certain `at call' loan arrangements from equity interest treatment (from 31 December 2001 to 1 July 2004), regulations concerning certain instruments for the purposes of classification under the debt/equity tax rules and treating the capital protection component of capital protected loan products as not `interest' for income tax purposes.
Tax exempt leasing
The New Business Tax System (Tax Preferred Entities - Asset Financing) Bill 2003 was publicly released in June 2003 for technical comment. Before this, Treasury consulted with stakeholders, provided advice on the outcome of consultations, instructed the Office of Parliamentary Counsel on the drafting of the measures and prepared the explanatory material accompanying the Bill.
Other business tax policy advice
Timor Sea Treaty
Treasury continued its involvement in matters related to the Timor Sea Treaty. Advice was provided on gas pricing principles to be applied in the Greater Sunrise International Unitisation Agreement and the fiscal arrangements for the production sharing contract for the Bayu-Undan gas project in the Joint Petroleum Development Area of the Timor Sea.
Petroleum Resource Rent Tax (PRRT)
Treasury provided advice on proposed amendments to the Petroleum Resource Rent Tax Act 1987 designed to provide a more equitable and uniform treatment of partial use arrangements and the appropriate determination of PRRT liability when a facility converts to an infrastructure licence. These changes ensure that the PRRT taxation regime does not hinder the economic use of petroleum facilities.
Review of international taxation arrangements
Treasury assisted in the Government's Review of International Tax Arrangements. The review focused on the dividend imputation system's treatment of foreign source income; the foreign source income rules; the overall treatment of conduit income and high level aspects of tax treaty policy. Treasury prepared a paper that addressed these issues. The paper was released by the Treasurer in August 2002.
This paper formed the basis of consultations by the Board of Taxation. The Board was assisted by Treasury with costings for the various options under consideration and with other advice. The Board reported to the Government in February 2003. Treasury provided policy advice to Government in its consideration of the Board's Report.
The Government announced wide-ranging changes to Australia's international taxation arrangements in the 2003-04 Budget.
Double tax agreements
Treasury progressed Australia's treaty program as follows:
- A tax treaty with Mexico was signed on 9 September 2002. Both countries have expressed a desire to have the treaty enter into force as soon as possible.
- The Canadian Protocol entered into force on 18 December 2002.
- The taxation code for the Timor Sea Treaty entered into force on 2 April 2003.
- Changes to tax sparing provisions under the Vietnamese agreement entered into force on 11 February 2003.
- The United States Protocol entered into force on 13 May 2003.
- Negotiations with the United Kingdom and Germany moved closer towards conclusion.
- Australian domestic requirements have been completed for the entry into force of the Malaysian and Russian treaties. These treaties are awaiting the completion of Malaysian and Russian domestic requirements.
Treasury provided advice to the Government and helped develop legislation and accompanying explanatory material to give effect to a measure to facilitate non-resident investment in the Australian venture capital industry. The Taxation Laws Amendment (Venture Capital) Act 2002 extends the tax exemption provided to certain foreign pension funds to all tax-exempt residents and foreign funds from Canada, France, Germany, Japan, the United Kingdom or the United States of America and certain taxable foreign investors. This Act also provides Australian venture capital limited partnerships with flow through taxation treatment and taxes the carried interest of certain venture capital managers as a capital gain. The venture capital legislation received Royal Assent on 19 December 2002 and applies from 1 July 2002.
Farm Management Deposits
Treasury provided advice on amendments to the Farm Management Deposits (FMD) provisions of the Income Tax Assessment Act 1936 that will allow primary producers in Exceptional Circumstances declared areas to maintain their FMD tax benefits where deposits are withdrawn within a 12 month period. Advice was also provided about an announced measure to protect primary producers who have made deposits with ineligible financial institutions provided they transfer those deposits within a specified period.
Following the Government's decision to transfer the excise administration function from the Australian Customs Service to the Australian Taxation Office, Treasury provided advice on the assignment of Ministerial responsibility for the Petroleum Excise (Prices) Act 1987 from the Minister Industry, Tourism and Resources to the Treasurer. The transfer is designed to help streamline the administration of crude oil excise.
From 1 October 2003, Australian shareholders of New Zealand companies maintaining an Australian franking account can access franking benefits arising from the payment of Australian tax by these companies. Treasury assisted the Government in the policy and legislation advice and supported trans-Tasman negotiations in this issue
The reform of what was known as the `triangular taxation problem' will improve the ease of trans-Tasman capital flows by reducing an additional layer of tax on those flows and further strengthening the existing economic integration between Australia and New Zealand.
Treasury provided advice and helped develop legislation and accompanying explanatory material in relation to other important amendments to the tax law introduced in 2002-03 including:
- measures to implement the new general value shifting regime. Legislation was included in the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002, which received Royal Assent on 24 October 2002;
- measures to amend the provisions of the uniform capital allowance system relating to mining capital and mining transport expenditures. These provisions were amended in Taxation Laws Amendment Act (No. 4) 2003, which received Royal Assent on 30 June 2003;
- measures to ensure that corporate tax entities are no longer required to use up (`waste') losses that could be deductible in a later year of income against franked dividend (effectively tax-free) income. Legislation was included in Taxation Laws Amendment Bill (No. 5) 2003, which was introduced into Parliament on 27 March 2003; and
- measures to allow a new capital gains tax roll-over to facilitate the transition by financial services providers and advisors to the new financial sector reform regime. Legislation was included in Taxation Laws Amendment Bill (No. 7) 2003, which was introduced into Parliament on 26 June 2003.
Treasury also provided policy advice to ministers on:
- the operation of tax expenditures, such as the research and development concession and concessions for film investment; and
- a number of other tax issues, such as issues surrounding the operation of the Uniform Capital Allowance system and capital gains tax.
Treasury provided advice to the Government on the design and implementation of a number of personal tax measures including:
Reductions in personal income tax
Reductions for all Australian taxpayers worth $10.7 billion over the next four years were announced in the 2003-04 Budget and took effect on 1 July 2003.
The personal income tax thresholds were increased as follows: the 30 per cent threshold was increased from $20,000 to $21,600; the 42 per cent threshold was increased from $50,000 to $52,000; and the 47 per cent threshold was increased from $60,000 to $62,500.
The low income tax offset was increased from $150 to $235 per year. The income threshold from which the low income tax offset begins to phase out was also increased from $20,700 to $21,600.
The increase in the low income tax offset means that taxpayers who receive the Senior Australians Tax Offset (SATO) will be able to earn an additional $500 annual income before they have a tax liability. Consequently, the Medicare levy threshold for single seniors was increased from $20,000 to $20,500 to ensure that they do not pay Medicare levy until they are liable for income tax.
These changes mean that Australian taxpayers can keep a higher proportion of the earnings they receive after tax, providing improved incentives to pursue work, advancement and higher skills.
Increase in Medicare levy thresholds
To ensure that low-income families and individuals are exempt from paying the Medicare levy, the low-income thresholds were increased to $15,062 for individuals and $25,417 for families, with effect from 1 July 2002. The additional threshold for each dependent child or student also increased to $2,334. This change takes into account movements in the CPI.
To ensure that pensioners below age pension age do not pay the Medicare levy until they have an income tax liability, this threshold was increased to $17,164.
Incentives to encourage conservation and philanthropy
A number of incentives to encourage conservation and philanthropy in Australia were implemented, including income tax deductions for landowners who enter into perpetual conservation covenants and an extension of the list of organisations to which donations may be tax deductible.
Employee share schemes (ESS)
To further encourage the growth of employee share ownership in Australia, from 1 July 2004, employees who have deferred their employee share scheme income tax liability will be able to roll-over their ESS income taxing point in the event of a corporate restructure such as a merger, demerger or takeover.
This measure was part of the Government's response to the report of the Inquiry into employee share ownership in Australia (the Nelson Report).
Medical expenses offset
Payments for the maintenance of properly trained dogs for guiding or assisting the hearing impaired or other disabled individuals will now be included as eligible medical expenses under the medical expenses tax offset, with effect from 1 July 2002.
Payments for maintaining properly trained guide dogs for the blind can currently be claimed under the offset. This measure ensures that similar treatment is available for expenses incurred in maintaining properly trained dogs for the guidance or assistance of the hearing impaired or other disabled individuals.
Tax exemption for Second World War compensation payments
Payments received from Second World War compensation funds will now be exempt from tax, with effect from 1 July 2001.
A number of specific Second World War funds were receiving income tax or capital gains tax exemptions. This measure ensures that all payments received by Australian residents from Second World War compensation funds are not subject to income tax or capital gains tax.
Tax exemption for structured orders
A tax exemption was introduced for certain annuities and deferred lump sums ordered by a court as compensation for catastrophic injuries, known as structured orders, with effect from 26 September 2001.
This measure extends the exemption provided to certain annuities or deferred lump sums as part of a settlement between the injured person and the defendant (structured settlements).
Fringe Benefits Tax exemption for employee entitlement funds
Certain payments to approved worker entitlement funds are exempt from fringe benefits tax (FBT) from 1 April 2003. This exemption ensures that payments into such funds are not taxed twice - once as a fringe benefit when paid into the fund and onc
e in the hands of the employee when paid out of the fund.
Following the Government's response to the Report of the Inquiry into the Definition of Charities and Related Organisations, Treasury developed exposure draft legislation which is intended to codify the definition of a charity. The Treasurer announced in his Press Release No. 49 of 2002 that the Board of Taxation would undertake consultations on the workability of the legislative definition.
Taxation of Trusts
In response to the Board of Taxation's report on the Taxation of Discretionary Trusts, the Treasurer announced in his press release of 12 December 2002 that the Government would improve the effectiveness and fairness of the deemed dividend rules contained in Division 7A of the Income Tax Assessment Act 1936. After developing options to give effect to the Treasurer's press release, Treasury consulted with industry and provided advice to the Government on the outcome of consultation.
Tax administration policy
Treasury provided advice on, and prepared legislation relating to systemic issues in the administration of the tax system. Matters addressed by tax administration policy include the tax assessment process, tax offences and penalties, tax collection and recovery systems, tax relief, tax identity, access, record keeping obligations, and tax agent matters. Tax administrative systems must contribute to the tax policy outcomes intended by Parliament, while avoiding the pitfalls of unnecessary risk, complexity, and high transaction costs.
Foreign resident withholding arrangements
The Government introduced this measure, which applies Pay As You Go withholding arrangements to certain payments to foreign residents, to improve the compliance of foreign residents with their Australian income tax obligations. The payments covered by this measure will be prescribed in regulations. Treasury assisted the Government in developing the legislative framework for the measure.
This measure was contained in Taxation Laws Amendment Act (No. 4), which received Royal Assent on 30 June 2003. The framework legislation can apply to payments made on or after 1 July 2003, but so far no payments have been prescribed.
Treasury has held targeted confidential consultations to assist the Government to develop the proposed regulations.
Release from taxation liabilities in cases of serious hardship
A new, more efficient and accountable system for affording release from taxation liabilities in cases of serious hardship will commence from 1 September 2003. The system will be streamlined by transferring the existing authority to grant release from Tax Relief Boards to the Commissioner of Taxation. Consistent with contemporary review practices, the amendments will also introduce a new right to have tax relief decisions reviewed internally under the Australian Taxation Office objections process, and externally by the Administrative Appeals Tribunal sitting as the Small Taxation Claims Tribunal. Also, the scope of the release arrangements will be expanded to cover instalments of Pay As You Go and fringe benefit tax under The New Tax System. The measure received the Royal Assent on 30 June 2003, as part of Taxation Laws Amendment Act (No. 6) 2003.
Treasury advised and assisted the Government in further progressing its superannuation election commitments, announced in A Better Superannuation System in November 2001. In summary, Treasury assisted the Government in:
- establishing the regulations to complement legislation requiring employers to make quarterly Superannuation Guarantee contributions. From 1 July 2003, employers must make Superannuation Guarantee contributions on behalf of their eligible employees, at least quarterly rather than annually;
- refining the legislation to give employees a choice of superannuation fund and consulting with industry on enhancing the portability of existing benefits. Treasury has continued to advise the Government on the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002. The Bill would allow employees to choose the superannuation fund to which their employers' superannuation contributions are made. Following consultations on the Government's commitment to allow individuals to transfer existing benefits to their fund of choice, draft amendment regulations were circulated for public comment. The draft regulations have been referred to the Senate Select Committee on Superannuation;
- consulting on the splitting of superannuation contributions. Under the measure, members of accumulation funds will be allowed to split future personal and employer contributions with their spouse. Receiving spouses will have access to their own eligible termination payment tax-free threshold and reasonable benefit limit. The Government is currently considering the responses received;
- progressing a reduction of the superannuation and termination payment surcharge rates from the current level of 15 per cent. Legislation to implement the measure was defeated in the Senate and the Government has announced an alternative proposal which would see the surcharge reduced by 1 per cent per year for 3 years as opposed to the original 1.5 per cent per year for 3 years;
- progressing an improvement in the retirement savings of low-income people. A more generous government co-contribution to match the personal undeducted contributions made by low-income earners will replace the existing rebate for personal undeducted superannuation contributions. Legislation to implement the measure has been introduced to Parliament, however, to increase the proportion of the benefit going to low-income earners from the combined measures of surcharge reduction and co-contribution, the Government has announced an increase in the upper threshold for people to receive co-contributions from $32,500 per year to $40,000;
- undertaking industry consultations in relation to the Government's commitment to examine whether to provide tax and social security benefits to a new class of market-linked `complying' pension, often called a growth pension; and
- introducing legislation to reduce the tax rate on excessive eligible termination payments. The tax rate applying to eligible termination payments from a superannuation fund which are above the reasonable benefit limit will be reduced from 48.5 per cent to 39.5 per cent (including Medicare levy).
Treasury also assisted the Government in:
- reforming family law to help couples divide their superannuation assets in a marital breakdown. Superannuation regulations were amended to provide further options to facilitate the splitting of superannuation interests between a person who holds a superannuation interest and the spouse, if they separate;
- amending the tax law to ensure that roll-overs within the same superannuation fund are treated as eligible termination payments. This change allows internal roll-overs to be reported to the Australian Taxation Office for reasonable benefit limit purposes, thereby avoiding the potential adverse tax consequences that arose under the previous treatment. Amendments will also be made to improve the integrity of the standards for the payment of income streams. Minimum amounts will be required to be paid as income when income streams are commuted and rules allowing the deferral of the first income payment from an allocated pension or annuity in the last quarter of a financial year will also be tightened;
- negotiating agreements to avoid double superannuation coverage for employees working temporarily overseas or in Australia. Agreements with the USA, Portugal and the Netherlands have commenced, agreements with Chile, Belgium and Croatia have been settled but are yet to commence and a number of others are bein
- its final response to the Productivity Commission's review of the Superannuation Industry (Supervision) Act 1993 and other superannuation legislation;
- relation to the report by the Senate Select Committee on Superannuation and Financial Services on Early Access to Superannuation Benefits. The Government is considering the Committee's recommendations;
- relation to the report by the Senate Select Committee on Superannuation on Taxation of Transfers from Overseas Superannuation Funds. The Government is considering the Committee's recommendations; and
- responding to the High Court decision regarding superannuation surcharge and State judges and consulting with the States on a legislative solution.
Treasury also made submissions to:
- the Senate Select Committee on Superannuation inquiry into Planning for Retirement.; and
- the Senate Select Committee inquiry into Superannuation and Standards of Living in Retirement.
GST and indirect taxation measures
Treasury provided ongoing policy advice on GST, excise and fuel grants issues, including: GST treatment of financial supplies, education and charities; excise collections and grants systems; and the wine equalisation tax.
As part of whole of government actions to address the priority areas announced by the Prime Minister in 2002, Treasury provided extensive advice about reform options for fuel excise to the Energy Task Force. The Government has since announced that all fuels used in internal combustion engines will be brought into the excise net by 1 July 2008, with phased offsetting production grants to produce phased effective excise rates which will rise in equal steps to a final rate from 1 July 2012.
Treasury advised on the GST treatment of Compulsory Third Party insurance and compensation schemes including the development of accompanying legislation. The new provisions address many of the substantive issues identified by the Compulsory Third Party insurance industry, which were expected to arise when the special three-year transitional rule concluded on 30 June 2003.
Treasury also provided advice on extending the GST grouping rules for partnerships and trusts and helped develop the accompanying regulations. The extended regulations allow a broader range of business structures to access the benefits of forming a GST group.
Building on the 1999 Measures for a Better Environment commitments, Treasury also developed legislation to implement the Energy Grants (Credits) Scheme, which replaced the Diesel Fuel Rebate Scheme and the Diesel and Alternative Fuels Grants Scheme on 1 July 2003.
Together with Environment Australia, Treasury also provided policy analysis and advice to inform the announcement of measures to support clean fuels, including production grants, the introduction of the ultra low sulphur diesel excise differential and approval of LNG and biodiesel as alternative fuels for the Energy Grants (Credits) Scheme. These measures further deliver against the Government's Measures for a Better Environment commitments.
The Board of Taxation reported in July 2002 that there was strong community support for the establishment of an Inspector-General of Taxation. Legislation to establish an Inspector-General was subsequently developed by Revenue Group based on, inter alia, the recommendations made by the Board of Taxation. The Inspector-General of Taxation Bill 2002 was introduced into Parliament in October 2002 and the Senate Economics Legislation Committee undertook further community consultation in its inquiry on the Bill (see December 2002 Report). Treasury provided a submission to the Senate inquiry and participated in the public hearing conducted by the Senate Committee.
Following Government amendments, the Bill was passed by Parliament and received Royal Assent in April 2003.
The Inspector-General of Taxation Act 2003 outlines the powers of the Inspector-General to review administration systems established both by the Australian Taxation Office and under tax legislation, and report on how the system reviewed could be improved. Reports of the Inspector-General must be released to the public.
Revenue Group provided support to Ministers in establishing the office of Inspector-General of Taxation. The first Inspector-General of Taxation, Mr David Vos, was appointed in August 2003.
Work has continued on implementing the Government's reforms, announced on 2 May 2002, to community consultation processes on tax design. These changes were designed to enhance consultation on tax issues.
The Board of Taxation monitors the consultation process. Reports to the Board indicate that there has been consultation on nearly all announced measures since that time. Of those measures on which there was no consultation, all but one was of a minor or technical nature and the other was politically sensitive. In the main, feedback from those consulted has been positive.
Treasury contributed to the preparation of Budget documents on taxation measures, which are published on the budget website ( www.budget.gov.au).
Informing the public on personal taxation and superannuation policies
An ongoing role is for Treasury to communicate Government superannuation policy to the superannuation industry, key stakeholders and the public. It undertook significant consultation in 2002-03 on implementing the Government's remaining 2001 superannuation election commitments and a number of other measures.
As part of its communication processes, Treasury also prepares and issues consultation papers for public comment. It provides these directly to key superannuation industry associations but they are available on Treasury's website for public comment. Treasury officials also present papers at relevant industry and academic conferences, respond to inquiries from the general public and inform the public on how to pursue any superannuation-related queries.
An officer attended a China-Australia symposium on pension reform in Shanghai, and a number of international visitors were received in Australia, to discuss Australia's retirement income system and to compare it with international experience.
Treasury prepared a booklet titled A Brief Guide to Superannuation that provides an overview of superannuation including recent developments in the area.
Inspector-General of Taxation
Treasury provided a submission to the Economics Legislation Committee's inquiry into the Inspector-General of Taxation Bill 2002. A copy of the Treasury Submission was made available on the Parliament of Australia website.