Our data for salary and wages from tax returns does not have the same definition for as the salary and wages series produced by the ABS. While we make adjustments to increase consistency, there are some items in the ABS data series we cannot quantify. The main variances are:
- Individuals earning under the tax free threshold are not required to lodge a return. While a significant number of people earning income under the threshold do lodge tax returns (469,000 for the 2009–10 income year), we will be missing some wage and salary data which will affect the average tax rate we apply.
- We do not have data on changes in provisions for future entitlements, such as long service leave.
- While we have Tax Expenditure Statement estimates for tax-exempt defence force payments and allowances, this does not include the value of food, clothing and travel.
- We are uncertain about the number of individuals that are under voluntary withholding agreements or labour hire arrangements where they are classified as employees.
We use National Accounts data to estimate theoretical salary and wages amounts. There are limitations with National Accounts approach which means that there will be a margin of error with the data. The limitations include:
- Sampling and non-sampling errors
- The ABS does not attempt to measure the underground economy in relation to the compensation of employees, due to a lack of sufficient data. This means the tax gap is likely to be underestimated.
- National Accounts data is often subject to revision which can vary historical trend results. Material revisions to National Accounts data will result in changes to the estimated PAYG withholding gap.
- The value of income tax concessions cannot be determined directly from ABS National Accounts data. These values are estimated by Treasury in the Tax Expenditure Statement. However the Tax Expenditure Statement only identifies major exemptions and exceptions and the list is not exhaustive.
Reliability of estimates
The PAYG withholding gap estimate is assessed to be of low reliability.
There are some issues with Compensation of Employees data in recent years – this has been raised with the Australian Bureau of Statistics by the ATO and the Treasury. The non-observed economy, including cash payments to employees and their associated superannuation entitlements, is specifically excluded from Compensation of Employees data and no adjustment has been made due to a lack of credible data.
No future developments are expected.