Appendix C: Statement of Risks
Full details of fiscal risks and contingent liabilities are provided in Budget Paper No. 1, Budget Strategy and Outlook 2014‑15. The following statement updates fiscal risks and contingent liabilities and assets that have materially changed since the 2014‑15 Budget.
The forward estimates of revenue and expenses in the Mid‑Year Economic and Fiscal Outlook 2014‑15 (MYEFO) incorporate assumptions and judgments based on the best information available at the time of publication, together with a range of economic assumptions and other forecasts and projections.
To the extent that unanticipated changes in economic circumstances occur, their impact will flow through to government expense and revenue forecasts in particular.
Major taxes such as company and individuals' income taxes fluctuate significantly with economic activity. Capital gains tax is particularly volatile and is affected by both the level of gains in asset markets and the timing of when those gains are realised.
In addition, revenue forecasting relies heavily on the observed historical relationships between the economy, tax bases and tax revenues. Such relationships may shift over time as the economy changes, presenting a further risk to the estimates. Revenue forecasts also incorporate costings for new policies that typically have a margin of uncertainty.
The estimates and projections of revenue are subject to a number of general risks that can affect taxation collections. These general pressures include failure of the tax system to keep pace with changes in the business environment, tax avoidance, court decisions and Australian Taxation Office rulings, and the outcome of compliance programmes. These pressures may result in a shift in the composition of taxation collected from the various tax bases and/or a change in the size of the tax base.