What are the 5 major sources of revenue for the government?

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Figure 1: total Government revenue as a proportion of GDP
Components of Australian Government revenue
Figure 2: components of Australian Government revenue
Personal income tax
Figure 3: personal income tax revenue as a proportion of GDP
Company tax
Figure 4: company tax revenue as a proportion of GDP
Indirect taxes
Figure 5: Indirect tax as a proportion of GDP
What are the 5 major sources of revenue for the state government?
What are the major source of revenue of the government?
What are the types of revenues to the government?
What are the 5 major sources of revenue for the government in South Africa?

The following points highlight the nine main sources of government revenue. The sources are: 1. Tax 2. Rates 3. Fees 4. Licence Fee 5. Surplus of the public sector units 6. Fine and penalties 7. Gifts and grants 8. Printing of paper money 9. Borrowings.

Source # 1. Tax:

A tax is a compulsory levy imposed by a public authority against which tax payers cannot claim anything. It is not imposed as a penalty for only legal offence. The essence of a tax, as distinguished from other charges by the government, is the absence of a direct quid pro quo (i.e., exchange of favour) between the tax payer and the public authority.

Tax has three important features:

(i) It is a compulsory contribution, to the state from the citizen. Anyone refusing to pay tax is punished under law. Nobody can object to taxation on the ground that he is not getting the benefit of certain state services,

(ii) It is the personal obligation of the individual to pay taxes under all circumstances,

(iii) There is no direct relationship between benefit and tax payment.

Source # 2. Rates:

Rates refer to local taxation, i.e., taxation levied by (or for) local rather than central government. Normally rates are proportional to the estimated rentable value of business and domestic properties. Rates are often criticised as being unrelated to income.

Source # 3. Fees:

Fee is a payment to defray the cost of each recurring service undertaken by the government, primarily in the public interest.

Source # 4. Licence fee:

A licence fee is paid in those instances in which the government authority is invoked simply to confer a permission or a privilege.

Source # 5. Surplus of the public sector units:

The government acts like a business- person and the public acts like its customers. The government may either sell goods or render services like train, city bus, electricity, transport, posts and telegraphs, water supply, etc. The government also earns revenue from the production of commodities like steel, oil, life-saving drugs, etc.

Source # 6. Fine and penalties:

They are the charges imposed on persons as a punishment for contravention of a law. The main purpose of these is not to raise revenue from the public but to force them to follow law and order of the country.

Source # 7. Gifts and grants:

Gifts are voluntary contribution from private individuals or non-government donors to the government fund for specific purposes such as relief fund, defence fund during war or an emergency. However, this source provides a small portion of government revenue.

Source # 8. Printing of paper money:

It is another source of revenue of the government. It is a method of creating extra resources. This method is normally avoided because if once this method of financing is started, it becomes difficult to stop it.

Source # 9. Borrowings:

Borrowings from the public is another source of government revenue. It includes loans from the public in the form of deposits, bonds, etc. and also from the foreign agencies and organisations.

Budget Review 2020–21 Index

Phillip Hawkins

Australian Government revenue has been and will be affected by the COVID-19 pandemic, as well as by policy measures announced by the Government. This brief examines the scale of these impacts in the context of recent historical trends in Government revenues. All figures in this brief are taken from the online supplementary tables to statement 5 of Budget Paper 1 (tables 3 and 4).

Total Australian Government revenue in 2018–19 was $493.3 billion (25.3 per cent of GDP) but declined to $486.3 billion in 2019–20 (24.5 per cent of GDP), due to the impact of COVID-19 and the bushfires in 2020. This represents a decline of 1.4 per cent in nominal terms and an estimated decline of 1.1 per cent in real terms.

Revenue is forecast to decline further in 2020–21 to $472.4 billion (24.3 per cent of GDP) and in 2021–22 to $464.1 billion (23.1 per cent of GDP). In 2021–22 Government revenue is forecast to be at its lowest level as a share of the economy since 2011–12. Revenue is expected to recover significantly towards the end of the forward estimates period to $538.1 billion in 2023–24 (24.4 per cent of GDP), which is around its average share of the economy since 2000.

Figure 1 shows that the impact of the COVID-19 pandemic on revenues is forecast to be relatively less significant than the substantial impacts between 2007–08 and 2010–11. These impacts were due to a number of factors, including the global financial crisis, the end of the first phase of Australia’s mining boom and substantial cuts in personal income tax rates over this period.

Figure 1: total Government revenue as a proportion of GDP

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online supplementary tables.

Components of Australian Government revenue

Figure 2: components of Australian Government revenue

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online supplementary tables.

Figure 2 illustrates Australian Government revenue by its major components. Personal income tax (income tax withholding) is, by a margin, the largest component of Australian Government revenue, accounting for around 47.2 per cent of total Government revenue in 2019–20. Company tax is the second largest component, accounting for around 18.1 per cent of total revenue, followed by goods and services tax (13.4 per cent), excise and customs duty (8.8 per cent) and non-tax revenue (8.0 per cent).

Personal income tax

Personal income tax revenues grew slightly in nominal terms in 2019–20, from $228.4 billion in 2018-19 to $229.7 billion in 2019-20, but fell slightly as a proportion of GDP, from 11.7 per cent to 11.6 per cent of GDP.

Personal income tax revenue is forecast to decline further over the next two years to a low of 10.6 per cent of GDP in 2021–22, before recovering to 11.5 per cent of GDP by the end of the forward estimates period.

Figure 3: personal income tax revenue as a proportion of GDP

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online supplementary tables.

Figure 3 illustrates personal income tax as a proportion of GDP over the forward estimates period and the last two decades. This shows that despite the impact of the COVID-19 pandemic and the bringing forward of personal income tax cuts, the decline in personal income tax revenues are expected to be relatively modest and largely temporary. It is worth noting, however, that the biggest tax cuts in budgetary terms commence from 1 July 2024, beyond the forward estimates period.

The decline in personal income tax revenue between 2004–05 and 2009–10 was substantially more pronounced than the expected decline between 2018–19 and 2021–22. According to Treasury research (p. 20), this decline was largely driven by a succession of personal income tax reductions (with the average rate of personal income taxation falling from 24.3 per cent to 21.2 per cent). By the end of the forward estimates period, personal income taxes are expected to be higher, as a proportion of GDP, than the average level over the past two decades.

Company tax

Company tax (including company capital gains tax) fell from $94.7 billion in 2018–19 to $87.8 billion in 2019–20, or from 4.9 per cent of GDP to 4.4 per cent of GDP. It is expected to fall further over the next three years, declining to 3.3 per cent of GDP in 2022–23 before recovering sharply to 4.3 per cent of GDP in 2023–24.

Figure 4: company tax revenue as a proportion of GDP

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online supplementary tables.

Figure 4 illustrates company tax as a proportion of GDP over the forward estimates period and the last two decades. The data show that the decline in company tax to 3.3 per cent in 2022–23 would be its lowest level across the period, although in 2023–24 company tax is expected to be around its average level across the period.

Company tax also fell sharply from 5.5 per cent of GDP to 4.0 per cent of GDP between 2007–08 and 2010–11. However, company tax peaked at 5.5 per cent of GDP in 2007–08, around the peak of the first mining boom.

Indirect taxes

Indirect taxes are taxes which are generally applied to goods and services as opposed to income or profits. They are called indirect taxes because the ultimate burden of the tax generally does not fall on the entity that pays the tax. For instance, GST is an indirect tax because it is levied on suppliers of goods and services, but the incidence of the tax generally falls on the end consumer through higher prices.

Australia’s largest indirect taxes are the GST, excise and customs equivalent excise duties on the manufacture and importation of fuel, alcohol (excluding wine) and tobacco products, and import tariffs. Smaller indirect taxes include the luxury car tax and wine equalisation tax.

Indirect taxes increased from $116.9 billion in 2018–19 to $118.5 billion in 2019–20, steady at 6.0 per cent of GDP. Indirect taxes are expected to decline slightly in 2020–21 to 5.8 per cent of GDP. They are expected to remain around 6 per cent of GDP for the last few years of the forward estimates period.

Figure 5: Indirect tax as a proportion of GDP

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 5: Revenue—online supplementary tables.

Figure 5 shows that indirect taxes declined as a proportion of GDP since the early 2000s. This was largely as a result of a decision in 2001 to cease biannual indexation of the fuel excise and excise equivalent customs duties to the consumer price index, which meant that the real rate of tax on these products declined over this period. Since this decision was reversed in 2014–15, indirect taxes as a proportion of GDP have remained relatively stable.

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What are the 5 major sources of revenue for the state government?

What are the sources of revenue for state governments?.

19 percent from individual income taxes..

15 percent from general sales taxes and gross receipts taxes..

8 percent from selective sales taxes on purchases such as alcohol, motor fuel, and tobacco products..

3 percent from corporate income taxes..

What are the major source of revenue of the government?

Most of the revenue the government collects comes from contributions from individual taxpayers, small businesses, and corporations through taxes that get collected on a yearly or quarterly basis. The remaining sources of federal revenue consist of excise, estate, and other taxes and fees.

What are the types of revenues to the government?

For general government units, there are four main sources of revenue: taxes and other compulsory transfers imposed by government units, property income derived from the ownership of assets, sales of goods and services, and voluntary transfers received from other units.