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  • The performance of the tax system – 2019–20

    Understanding the tax gap allows us to understand the overall performance of the tax system. Viewing the performance of the tax system with the economic environment at the time, means we can better understand what may have influenced performance.

    We have measured the tax gap across all the key revenue products and administered programs for the 2019–20 financial year.

    Australia recorded its first recession in almost 30 years in 2019–20 with negative growth in GDP recorded for both the March and June quarters. In response to COVID-19 and subsequent severe economic shock, unprecedented levels of fiscal and monetary support flowed through to households and businesses to offset declines in income and aid economic recovery.

    Containment measures introduced from mid-March triggered an immediate and significant rise in job losses alongside a record fall in hours worked, reducing individual income tax collections in 2019–20. Increased work from home deduction claims coupled with ongoing personal tax relief for low and middle-income earners saw more people receiving refunds or paying less tax. Meanwhile, subdued property and financial market conditions gave rise to weakness in capital gain taxes, further lowering income tax collections.

    Company income tax collections also fell as COVID-19 severely impacted profits of the tourism, banking, superannuation, and insurance sectors. Companies could vary PAYG instalments early on to better reflect their lower than expected profits and access ATO assistance by deferring tax payments to a later date, delaying collection of tax receipts. Company income tax collections would have fallen further if not for strong international demand for commodities and elevated iron ore prices driving robust growth in mining profits.

    In 2019–20 household consumption growth was the slowest in a decade. This was reflected in lower than forecast goods and services tax (GST) and excise duties collections. Public health restrictions had a profound impact on consumption patterns and demand for fuel. Households shifted spending away from discretionary goods and services to more essential goods, including GST-free goods and higher rates of saving, magnifying the impact of the steep decline in consumption on GST collections.

    Despite this, the performance of the tax and superannuation system remained robust.

    There are 9 income tax gaps and 6 transactional tax gaps that together give us complete coverage of the tax and superannuation systems.

    For the 15 published tax gaps, we expect to receive $479.8 billion in overall tax revenue for 2019–20 and a tax gap estimate of $33.4 billion. This gives us an overall estimate of tax gap of 7%.

    This indicates that for 2019–20, we received 93% of the tax that should have been reported, 91.5% was reported voluntarily (including results of sustained improvements in compliance from prior year interventions) and 1.5% was the result of compliance amendments and voluntary disclosures (see Figure 1).

    Figure 1: Tax performance for published tax gaps in 2019–20

    Figure 1 is a doughnut chart reflecting tax paid voluntarily of 91.5%, amendments of 1.5% and a tax gap of 7.0%.

    Across our tax gap program, only 2 out of the 15 tax gaps have gap estimates above 10%. This means we received more than 90% of the tax that is expected to be collected for the majority of segments/taxes.

    ATO compliance action continues to be important in ensuring high levels of tax performance. We can see this when we compare the gross tax performance (voluntary performance) to the net tax performance (after compliance intervention). For example, looking at the large corporate groups tax gap, the performance in this market improves from 92.6% before our engagement, to 95.8% after.

    For our transactional taxes, compliance action has the biggest impact for tobacco duty, where the performance improves from 85.7% before the action of illicit tobacco taskforce, to 91.1% after. Find out more about the drivers for each tax gap and what we are doing about it.

    Figures 2 and 3 below show a breakdown of the tax performance ratios for the 15 tax gaps. It shows the tax performance before any ATO-initiated action (gross performance) and the result after ATO-initiated action (net performance). Figure 2 includes both indirect taxes and excises. Figure 3 includes all income-based taxes.

    Figure 2: Tax performance for transaction-based tax gaps in 2019–20

    Figure 2 is a bar graph showing the tax performance for transaction-based tax gaps all over 90%.

    Figure 3: Tax performance for income-based tax gaps in 2019–20

    Figure 3 is a bar graph showing the tax performance for income-based tax gaps with fringe benefits tax sitting at 80% and all others sitting at 85% or higher.

    In the 5-year period between 2015–16 and 2019–20, our overall tax gap estimates have been showing a downward (improving) trend. When viewing the tax gap estimates, we suggest a focus on the longer-term trends rather than the year-on-year changes. This is due to statistical variation and revisions.

    Figure 4: Tax gap trend from 2015–16 to 2019–20

    Figure 4 shows the 5-year trend for the overall tax gap falling from 8.1% in 2015–16 to 7.0% in 2019–20.

      Last modified: 31 Oct 2022QC 53161