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  • 3. GST administration expenditure

    The ATO administers the GST on behalf of the Australian states and territories, who then reimburse the Commonwealth for the ATO’s cost of administering GST. Our obligations to the states and territories are set out in the GST Administration Performance Agreement (Performance Agreement) between the ATO and the Council on Federal Financial Relations as stated in The Intergovernmental Agreement on Federal Financial Relations | Federal Financial RelationsExternal Link.

    The cost of administering GST is calculated by using the ATO’s strategic costing framework (SCF). This is a cost attribution model consistent with the Australian Government’s accrual-based outcomes and programs costing framework. It calculates the proportion of the ATO’s total operating expenses that relate to GST administration activities on a full-cost basis.

    GST administration costs are monitored throughout the year, with oversight provided by the ATO GST Product Committee. The GST costs are endorsed by the Chief Finance Officer and are subject to an annual independent audit by the Australian National Audit Office (ANAO). Costs are reported against the Program Framework Deliverables set out in Schedule B of the Performance Agreement.

    The ATO prepares a Schedule B estimate for consideration by the states and territories ahead of each financial year. Once agreed, the estimate serves as the initial intended cost of GST administration for the upcoming financial year. The SCF maps GST activities to program deliverables to capture the direct costs to administer the GST. The percentage of direct costs is applied to the ATO’s indirect costs to calculate the GST portion of indirect costs. The direct and indirect costs are then added together to derive the full cost of administering the GST.

    There is a gap between the Schedule B estimate and actual costs that is influenced by the timing of the formulation of the Budget estimate. The estimate is calculated well before the financial year begins and when the ATO’s final budget for the financial year is settled. As such, there is an inevitable difference between the budget figure and actual costs.

    The full year actual cost for administering the GST in 2020–21 was $538.2 million, reducing by 6.5% from 2019–20 and $83.3 million below the agreed Schedule B estimate. The decrease in costs was as a result of the ATO’s continued support of the COVID-19 stimulus measures in the first 2 quarters of 2020–21. A return to usual GST business functions occurred in the final 2 quarters of the year.

    Figure 8: Administration costs

    The ATO administers the GST on behalf of the Australian states and territories, who then reimburse the Commonwealth for the ATO’s cost of administering GST. The ATO prepares a Schedule B estimate for consideration by the states and territories ahead of each financial year.
2016–17 Schedule B $682m, Actual $703m
2017–18 Schedule B $631m, Actual $685m
2018–19 Schedule B $559m, Actual $659m
2019–20 Schedule B $647m, Actual $576m
2020–21 Schedule B $622m, Actual $538m

    Figure 9: Program framework deliverables 2020–21

    The strategic costing framework is the ATO’s primary costing attribution method across all of its activities. Client engagement (ATO) 41.6%
Manage payment and debt 10.6%
Client engagement (Home Affairs) 10.4%
Other 7.7%
Compliance intelligence and risk management 5.7%
Registrations 4.6%
Resolve & Prevent disputes 4.4%
Interpretative assistance 3.6%
Customer service 3.5%
Processing and accounts 3.4%
Marketing and communication 2.9%
Tax Practitioners Board and Aust Business Register 1.6%

    The proportion of indirect costs over the past few years has trended up, reflecting the increasing drive towards digital channels and associated increased investment in information technology (IT) solutions, including IT security and data storage, IT sustainment and data analytics.

    Table 5: Breakdown of costs

     

    2019–20 $m

    2020–21 $m

    Variance $m

    Variance %

    Direct costs

    303.6

    281.2

    -22.4

    -7.4

    Indirect costs

    272.2

    257.0

    -15.2

    -5.6

    Total

    575.8

    538.2

    -37.6

    -6.5

    Cost of collection

    The cost of collection measures the cost of collecting every $100 of GST. It is often used as a broad measure of a tax administration’s efficiency and effectiveness. Movements in the ratio from year to year can also be significantly influenced by factors such as:

    • changes in tax rates
    • fluctuations in tax revenues due to economic factors
    • new administrative expenditure programs that are non-discretionary, or that may have a medium or longer-term impact on efficiency and effectiveness (e.g. investment in new technology).
    • For these reasons, it is important to understand the drivers of variations in the cost of collection ratio from year to year.

    The cost to collect $100 of GST significantly decreased from $0.92 in 2019–20 to $0.71 in 2020–21. The decrease is largely due to a 21% increase in GST collections and a 6% decrease in costs associated with collecting GST. The decrease in cost was as a result of the ATO’s continued response to COVID-19. The significant increase in revenue resulted from the recovery in economic conditions.

    Table 6: Cost to collect GST revenue and per registrant

     

    2016–17

    $

    2017–18

    $

    2018–19

    $

    2019–20

    $

    2020–21

    $

    Cost to collect $100 GST revenue

    1.12

    1.07

    1.01

    0.92

    0.71

    Cost per registrant

    264

    250

    232

    198

    176

      Last modified: 07 Feb 2022QC 67817