The Australian Bureau of Statistics is publishing a series of notes which describe economic measurement within Balance of Payments and International Investment Position, Government Finance Statistics, and National Accounts.
Economic measurement during COVID-19: Selected issues in the Economic Accounts
Describes economic measurement within Balance of Payments and International Investment Position, Government Finance Statistics and National Accounts
Selected issues in the economic accounts
Classifying JobKeeper payments in ABS economic accounts
JobKeeper payments will provide an estimated $70 billion of support from the Australian Government to eligible employers. The payments will be made by the Australian Taxation Office directly to eligible employers who will be directly responsible for ensuring that eligible employees receive a wage of at least $1,500 per fortnight for a maximum period of six months commencing on 30 March 2020.
Payments by eligible employers will be made through their payroll to eligible employees, within the conditions of their existing employer-employee relationships. All payments to employees will be reported through the tax system using Single Touch Payroll. Employees’ income tax liabilities will include JobKeeper payments.
Referring to international manuals and guidance, the Australian Bureau of Statistics (ABS), has considered how JobKeeper payments will be treated in ABS official economic statistics. The ABS has determined that JobKeeper payments will:
- be classified as an 'other subsidies on production’ paid from government to eligible employers
- employees whose employers are receiving the JobKeeper payment will be classified as employed and in receipt of a wage.
In accordance with the 2008 System of National Accounts (SNA08) and additional international guidance from the International Monetary Fund (IMF) and International Labour Organisation (ILO), the Australian Bureau of Statistics considered two options for classifying and treating JobKeeper payments in ABS economic accounts:
- as an other subsidies on production (SNA08 7.106)
- as a social benefit (SNA08, 8.17).
Starting from a production perspective, production is “an activity, carried out under the responsibility, control and management of an institutional unit, that uses inputs of labour, capital, and goods and services to produce outputs of goods and services” (SNA08, para 6.2).
The labour element of production is supplied by employees or self-employed persons (SNA08, 7.29).
Employed persons are involved in production and part of the labour force, which 'consists of those who are actively prepared to make their labour available during any particular reference period for producing goods and services within the production boundary' (SNA08, 19.17).
Some employers receiving JobKeeper payments will be actively involved in production and some will not. When an employer continues to pay someone, even if working zero hours, they are regarded as having a formal job attachment and employed as receiving a wage or salary (SNA08, 19.23).
This then leads to the decision to treat JobKeeper payments as an ‘other subsidies on production’. It should be noted that this will be kept under review as further information becomes available on JobKeeper payments.
'Other subsidies on production' consist of subsidies except subsidies on products that resident enterprises may receive as a consequence of engaging in production. (a) subsidies on payroll or workforce: these consist of subsidies payable on the total wage or salary bill, or total work force, or on the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods (SNA08, 7.106).
Employers in receipt of JobKeeper will be receiving an ‘other subsidy on production’. This will be passed onto eligible employees as a salary or wage.
Salaries or wages will continue to be classified as either compensation of employees or gross mixed income for e.g. self-employed persons. These payments demonstrate a formal job attachment.
In contrast, social benefits are 'received by household intended to provide for the needs that arise from certain events or circumstances', for example, sickness, unemployment, retirement, housing, education or family circumstances. Social benefits may be provided under social insurance schemes or by social assistance (SNA08, 8.17).
Early release of superannuation provisions within the Australian System of National Accounts
Referring to international manuals and guidance, the Australian Bureau of Statistics (ABS), has determined that early release of superannuation provisions will be classified as an exchange of financial assets within the Australian System of National Accounts. The exchange comprises a reduction in pension entitlements offset by an increase in cash and deposits. This note describes early release of superannuation provisions and where recent changes in these provisions can be seen within the Australian System of National Accounts.
Early release of superannuation provisions
Early release of superannuation provisions permit an eligible individual to make withdrawals from their superannuation account prior to retirement. Prior to COVID-19, these provisions comprised the First Home Super Saver scheme (footnote 1), severe financial hardship / specific medical conditions (footnote 2), and the Departing Australia Superannuation Payment (footnote 3).
From mid-April 2020, the Australian Government expanded early release of superannuation provisions in response to COVID-19. The expanded early release of superannuation provisions allow eligible individuals in financial stress as a result of COVID-19 to withdraw up to $10,000 of their pension entitlement in 2019-20, and a further $10,000 in 2020-21. By 11 May 2020, APRA regulated funds had paid $6.3 billion to members (footnote 4).
Superannuation within the Australian System of National Accounts
Superannuation is a pension entitlement within 2008 SNA. Pension entitlements within the 2008 SNA comprise ”the extent of financial claims both existing and future pensioners hold against either their employer or a fund designated by the employer to pay pensions earned as part of a compensation agreement between the employer and employee” (2008 SNA, para.11.107). Pension entitlements are a financial liability of financial corporations and a financial asset of households and rest of the world.
The Australian System of National Accounts include the following four transactions to describe superannuation:
a. Employers’ actual pension contributions: These include payments made under the Superannuation Guarantee (Administration) Act (1992) and form part of compensation of employees (income account).
b. Costs of operating the pension fund: These comprise payments to the superannuation provider. It is output of the finance and insurance industry (production account) and consumption expenditure of both households and rest of the world (income account).
c. Property income on pension entitlements: These comprise investment income on existing pension entitlements as shown in the household income (income account).
d. Net transactions in pension entitlements: The net impact of the above three items plus contributions made by households (e.g. non-concessional contributions), less pension benefits (footnote 5) and early withdrawal of superannuation are shown within the financial account.
Relevant series involving pension entitlements include those published in Australian National Accounts: Finance and Wealth (cat. no. 5232.0) as shown in the below table. Households added $19,279m to their pension entitlements during the December Quarter 2019 to increase the value of their pension entitlements to $2,663,951m. Non-residents added $132m to their pension entitlements during the December Quarter 2019 to increase the value of their pension entitlements to $2,716m.
|Quarter Ending||Net transactions in pension entitlements (footnote 6) ($ million)||Pension entitlements at end of quarter ($ million)|
|Households||Rest of world||Households||Rest of world|
2 285 203
2 361 836
2 417 159
2 304 169
2 442 115
2 544 378
2 612 265
2 663 951
Early release of superannuation provisions will be recorded as a reduction in net transactions in pension entitlements in these series. The impact of the expanded early release of superannuation provisions in response to COVID-19 is most likely to be seen during the June Quarter and September Quarter 2020 (footnote 7).
5 Pension benefits are payable at the moment of retirement (2008 SNA para 17.138). Early release of superannuation provisions are therefore not pension benefits. The distinction between pension benefits and early release of superannuation is irrelevant in the Australian System of National Accounts.
6 The difference between the change in pension entitlements and net transactions in pension entitlements is due to revaluations and other changes in volume.
7 Existing early release of superannuation provisions (e.g. the Departing Australia Superannuation Payment) are more likely to remain relevant for the rest of the world.
Classifying boosting cash flow for employers in Australia’s economic accounts
Referring to international manuals and guidance, the Australian Bureau of Statistics (ABS), has determined that Boosting Cash Flow for Employers will be classified as other subsidies on production which is a payable tax credit within Australia’s economic accounts. This note (footnote 1) describes the Boost Cash Flow for Employers scheme and the rationale for this classification.
Boosting cash flow for employers scheme
From 28 April 2020, “the Government is providing temporary cash flow support to small and medium businesses and not-for-profit organisations that employ staff during the economic downturn associated with COVID-19 (novel coronavirus)” (footnote 2). The scheme is estimated to cost $31.9 billion and provides tax-free amounts between $20,000 and $100,000 to eligible businesses delivered as tax credits based on an eligible business’s withholdings. These amounts, will be automatically credited to the eligible business and delivered as two separate “boosts” during 2020.
The Boosting Cash Flow for Employers scheme will be administered through the tax system as credits against tax liabilities calculated from the activity statement. In the event their credits exceed the eligible business’s tax liabilities, the excess will generally be paid to the eligible business (footnote 3). Payments to eligible businesses are tax free and do not need to be repaid in the event that economic conditions improve.
Eligible businesses receive at least $10,000 and no more than $50,000 per ”boost”. For those whose withholdings fall between these thresholds, credits received will be equal to their withholdings. Those whose withholdings fall below $10,000 will be “topped up” to that amount, while credits received by those whose withholdings exceed $50,000 are capped at this amount. The first “boost” is delivered following lodgement of activity statements for March, April, May, and June 2020 (monthly lodgers) and activity statements for the March and June Quarter 2020 (quarterly lodgers).
A second “boost” with same thresholds will be delivered to eligible businesses who remain active. For monthly activity statement lodgers, this will be delivered following lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements. Delivery to quarterly lodgers will occur after lodgement of their June and September Quarter 2020 activity statements.
Payable or non-payable tax credits
A tax credit is defined as “an amount subtracted directly from the tax liability due by the beneficiary household or corporation after the liability has been computed” (2008 SNA, para 22.95). The main conceptual question when classifying a tax credit is whether it is payable or non-payable (2008 SNA, para 22.96-97). The latter comprises a reduction in tax revenue, while the former is recorded as an expense (either subsidies, social assistance benefits in cash or miscellaneous current transfers) (IMF GFS, para 5.31; Table A7.4).
The difference between a payable or non-payable tax credit is the extent to which any amount that exceeds the tax liability is paid to the beneficiary. A tax credit is considered payable if any amount which exceeds the tax liability is paid to the beneficiary. Payable tax credits “should be considered as expense and recorded as such at their total amount” (2008 SNA, para 22.97). All other tax credits are considered non-payable and recorded as a reduction in the relevant tax category as they are limited to the size of the tax liability (2008 SNA, para 22.95).
The Boosting Cash Flow for Employers scheme is a payable tax credit as it is possible for the tax credit to exceed the liability of the beneficiary. Although the tax credits received by any one beneficiary (an eligible business) may not equal or exceed its liabilities, the fact there is a minimum credit of $10,000 per “boost” is sufficient to meet this requirement.
Subsidies, social assistance benefits in cash, or miscellaneous current transfers
Subsidies are defined as “current unrequited payments that government units, including non-resident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import” (2008 SNA, para 7.98). While subsidies may influence the level and/or price of goods and services, they may also influence “the remuneration of the institutional units engaged in production” (2008 SNA, para 7.98). Subsidies must have an influence on production—defined as “an activity, carried out under the responsibility, control and management of an institutional unit, that uses inputs of labour, capital, and goods and services to produce outputs of goods and services” (2008 SNA, para 6.2)—in some way.
Subsidies are either subsidies on products or other subsidies on production. The Boosting Cash Flow for Employers scheme cannot be classified as subsidies on products as “boosts” are not “payable per unit of a good or service” (2008 SNA para 7.100). Other” subsidies on production comprise “subsidies except subsidies on products that resident enterprises may receive as a consequence of engaging in production” (2008 SNA, para 7.106, emphasis added).
The Boosting Cash Flow for Employers scheme is classified to other subsidies on production. To receive “boosts”, businesses must file activity statements—which indicates a relationship with productive activities. The scheme therefore subsidises productive activities by specifically influencing the remuneration of institutional units engaged in production. This holds regardless of whether the eligible business is a market or non-market producer. Ultimately, the scheme is a mechanism through which government temporarily subsidises the productive activities of all producers—including not-for-profit entities.
Social assistance benefits in cash are defined as “current transfers payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme requiring participation usually by means of social contributions” (2008 SNA, para 8.110). Examples of social assistance benefits in cash are unemployment benefits and the age pension.
The Boosting Cash Flow for Employers scheme is not classified to social assistance benefits in cash. “Boosts” delivered under the scheme are not paid to households (they are paid to corporations as tax credits). They do not meet the definition of social assistance benefits in cash.
Miscellaneous current transfers are defined as “current transfers other than insurance-related premiums and claims, current transfers within general government and current international cooperation” (2008 SNA, para 8.129). Important examples of such transfers include current transfers between the central bank and general government, current transfers to NPISHs and current transfers to households. The amounts involved are too significant, and their nature too ill-fitting, to be classified as miscellaneous current transfers.
1 This note has been compiled by Ben Loughton
2 https://treasury.gov.au/sites/default/files/2020-04/fact_sheet-boosting_cash_flow_for_employers.pdf, p. 1.
3 https://treasury.gov.au/sites/default/files/2020-04/fact_sheet-boosting_cash_flow_for_employers.pdf, p. 4
Classifying payroll tax changes in Victoria
Payroll tax in Victoria (Graph 1) is an other tax on production in the ABS economic accounts. It is reported using the Taxation Liability Method by both the Victorian Government and ABS economic accounts. This note (footnote 1) describes payroll tax changes announced by the Victorian Government, the classification of these changes, and time of their recording in ABS economic accounts. As most state / territory governments have similar schemes, these principles can be applied more broadly.
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Payroll tax in Victoria
Payroll tax in Victoria (Graph 1) is established by Victoria’s Payroll Tax Act (2007). Rates and thresholds for financial year 2019/20 were announced in May 2019. A registered employer must pay 4.85 percent (footnote 2) of their payroll in excess of the $650,000 annual threshold. The rate and annual threshold were unchanged from financial year 2018/19.
Most registered employers (footnote 3) lodge returns and make monthly payments within seven days of the reference month’s conclusion. Monthly payments are calculated based on a proportionate share of the annual threshold (i.e. $54,166 = $650,000 / 12 months).
Returns for June relate to the financial year (not June reference month), with the final annual payment due within twenty-one days of the financial year’s conclusion. The final annual payment (or refund) reflects the difference between the payment calculated in the return for June and amounts paid over the previous eleven months. This allows the registered employer to access the full annual threshold (e.g. an employer with a seasonal payroll may fall below the monthly threshold in some months) and have revisions to their payroll reflected in their final annual payment.
A payroll tax change was announced by the Victorian Government (footnote 4) on 21 March 2020 to all registered employers with Victorian payrolls below $3 million (eligible registered employers). The payroll tax change provides "full payroll tax refunds for the 2019-20 financial year to small and medium-sized businesses (payroll less than $3 million). This assistance is a refund, not a loan." (footnote 5) The value of the payroll tax change is estimated at $550m and provided in three tranches:
- The first tranche involves identifying, and working with, eligible registered employers that make monthly payments to refund payments made since the start of financial year 2019/20. Most refunds were paid by the end of March 2020 and are estimated to comprise 50 percent of the value of the payroll tax change. Most of these eligible registered employers will receive a refund of amounts paid for July 2019 to February 2020 in March 2020, however a small number may receive refunds after March 2020.
- The second tranche involves monthly payments for eligible registered employers for March to June 2020 (notionally to be paid in April to July 2020). Eligible registered employers continue to lodge monthly returns, but will not make any payment - the Victorian Government recognises receipt of payroll tax revenue and a subsequent refund equal to this amount. Amounts refunded (to ensure no payment is required) for March to June 2020 are estimated to comprise 25 percent of the value of the payroll tax change.
- The third tranche comprises “annual payers” (registered employers expected to pay less than $40,000 of payroll tax over the entire financial year). These registered businesses lodge once (by 21 July) and make a single final annual payment, rather than lodge and pay monthly. Refunds for these eligible registered employers will be processed (to ensure no payment is required for the 2019/20 financial year) during July 2020 and are estimated to comprise 25 per cent of the value of the payroll tax change.
Time of recording
The economic accounts recommend that taxes are recorded using the accrual basis of recording - "when the related claims arise" (GFSM14, para 3.60). It ensures taxes are recorded in the same reference period as the taxable event (in this case, the payroll). It is rarely achieved in practice.
The Taxation Liability Method is an approximation which records taxes in the reference period when an assessment of a tax liability is made. As the tax authority typically issues an assessment after the period in which the taxable event occurs, this method typically records taxes in a later period. This may be significant when tax rates and/or thresholds change as their impact on the economy is deferred until a later reference period. It may also provide one explanation for the seasonal pattern in Graph 1 as September Quarter is likely to include “annual payers” who make a single final annual payment by 21 July.
Cash-based reporting is the least preferred approximation as it records taxes in the reference period when cash is received or paid (GFSM14, para 1.27). All other things equal, taxes increase (decrease) when compliance with timeliness requirements improves (deteriorates).
An example (for a hypothetical business) is provided in the Appendix to demonstrate these differences.
Classification of Victoria’s payroll tax change
The payroll tax change is not a tax refund within the system of economic accounts. Tax refunds comprise "adjustments for overestimation of taxes payable or the return of amounts to taxpayers due to overpayments" (GFSM14, para 5.27). The payroll tax change is not associated with overestimation or overpayment as payments made in the first eight months of 2020 (July 2019 to February 2020 inclusive) were calculated correctly.
The payroll tax change comprises tax relief in the form of a tax credit and therefore has a negative impact on tax revenue. Tax relief comprises "incentives that reduce the amount of tax owed by an institutional unit" (GFSM14, para 5.28). One of these incentives is a tax credit which is "an amount subtracted directly from the tax liability due by the beneficiary household or corporation after the liability has been computed". This arrangement deems the government to receive payroll tax revenue during 2019/20, and increase the tax credit (from zero) on 21 March 2020 to the value of payroll tax revenue received from eligible businesses since the start of the financial year. The tax credit is non-payable as its value cannot exceed the tax liability and limited to the size of the tax liability of the taxpayer. (GFSM14, para 5.29).
Time of recording of the non-payable tax credit
Prior to the 21 March 2020 announcement, registered businesses (footnote 6) had made eight monthly payments for 2019/20 reference period. For eligible registered businesses, the non-payable tax credit is “subtracted directly” from these monthly payments. As no further monthly payments are required, payroll tax for the 2019/20 reference period is zero.
The accrual basis of recording ensures the non-payable tax credits are deducted from the quarters of financial year 2019/20 in which tax is currently recorded. Values for September quarter and December quarter 2019 must therefore be revised (downward) to show no payroll tax was paid by eligible registered businesses in these periods.
The Taxation Liability Method ensures the non-payable tax credits are applied to the quarter when the assessments are issued allowing the credit. As refunds of payroll tax are paid in March, June Quarter and September Quarter 2020, the impact of the payroll tax change will be seen in these periods. Values for September and December Quarter 2019 remain unchanged.
Cash-based reporting ensures the non-payable tax credit is shown in the period when it is paid by the Victorian government. This is most likely to produce similar results to the Taxation Liability Method in this instance.
Appendix - Time of recording for a hypothetical registered employer
A (hypothetical) registered employer commenced in 2018/19 with an annual payroll of $12m. The annual payroll increased to $12.12m (for 2019/20) when a new employee commenced on 1 July 2019. There were no other changes and the payroll remained evenly spread across all twelve months of the financial year. The registered employer ceased operation on 30 June 2020. The employer is not an eligible registered employer as its payroll ($12.12m) exceeds the $3m threshold.
The registered employer will make:
- Eleven monthly payments during 2018/19 commencing on 7 August 2018 (for July 2018 reference month) and concluding on 7 June 2019 (for May 2019 reference month). Each monthly payment will comprise $45,872.95 [= ($1m monthly payroll - $54,166 monthly threshold) x 0.0485)].
- Twelve payments during 2019/20 comprising:
- One final annual payment on 21 July 2019 comprising $45,872.55 [= ($12m annual payroll - $650,000 annual threshold) x 0.0485 less $45,875.95 x 11 monthly payments during 2018/19].
- Eleven monthly payments during commencing on 7 August 2019 (for July 2019 reference month) and concluding on 7 June 2020 (for May 2020 reference month). Each payment will comprise $46,357.95 [= ($1.01m monthly payroll - $54,166 monthly threshold) x 0.0485)].
- The monthly payment for February 2020 was due on 7 March 2020, however the registered employer made a late payment (on 4 April 2020).
- One payment during 2020/21 comprising the final annual payment on 21 July 2020 for $46,357.55 [= ($12.12m annual payroll - $650,000 annual threshold) x 0.0485 less $46,357.95 x 11 monthly payments during 2019/20].
Table 1 - Annual other taxes on production ($)
|Taxation Liability Method|
|Cash based recording|
Table 2 - Quarterly other taxes on production for 2019/20 ($)
|Sept 2019||Dec 2019||Mar 2020||Jun 2020|
|Taxation Liability Method|
|Cash based recording|
1. This note has been compiled with assistance from by Sam Gow and David Lacy (Department of Treasury and Finance, Victoria).
2. 2.425 percent for regional employers reduced from 3.65 percent in 2018/19.
3. A subset of registered employers are identified as “annual payers” who are permitted to lodge once (by 21 July) and make a single final annual payment.
4. Payroll tax changes introduced by other state governments (eg. deferral of liabilities for a subset of businesses in NSW and South Australia) differ from Victoria.
6. Other than “annual payers”.
History of changes
03/06/2020 - The cost of the JobKeeper program cited in the note "Classifying JobKeeper payments in ABS economic accounts" has been corrected from $130b to $70b following the announcement of a revised estimate from Treasury (https://treasury.gov.au/media-release/jobkeeper-update)
28/05/2020 - An additional article; Classifying Payroll Tax changes in Victoria
21/05/2020 - Two additional articles; Early Release of Superannuation Provisions and Classifying Boosting Cash Flow for Employers