Australia's Future Tax System

Final Report: Detailed Analysis

Chapter E: Enhancing social and market outcomes

E8. Rationalising other taxes

E8–3 Tariffs

Australia currently has comparatively low tariffs on imported goods. As Chart E8–2 shows, this reflects policy decisions to reduce tariffs taken over more than 20 years. For many goods, no tariff at all is imposed. For most goods subject to tariffs, the general rate is 5 per cent. In the textile, clothing and footwear industries, a range of ready-made garments and particular fabrics currently attract a tariff of 17.5 per cent, although this is scheduled to fall to 10 per cent in 2010 and 5 per cent in 2015. The passenger motor vehicles sector currently attracts a 10 per cent tariff, scheduled to fall to 5 per cent in 2010.24 Some automotive products and components are already subject to the 5 per cent rate.

Chart E8–2: Reductions in tariff rates in Australia, 1990–2015

Chart E8–2: Reductions in tariff rates in Australia, 1990–2015

Note: The textile, clothing and footwear (TCF) rate represents the non weighted average of six separate non-uniform tariff rate reductions among TCF products. From 1992 to 1996 there were two general tariff rates, the chart shows the higher rate which applied in this period.

Source: Industry Commission (1995); Australian Government (2008b).

For two decades until the mid-1980s, Australia and New Zealand had the most protected manufacturing sectors among OECD countries (Centre for International Economics 2009b). However, following a series of unilateral tariff reductions in the 1970s, 80s and 90s, Australia's effective rate of assistance to manufacturing fell from 36 per cent in 1970 (Garnaut 2002) to under 5 per cent in 2007–08 (Productivity Commission 2009). A further consequence of Australia's trade liberalisation efforts is the declining importance of tariffs as a source of tax revenue (see Chart E8–3).

Chart E8–3: Tariff revenue as a proportion of total tax revenue, 1973–74 to 2008–09

Chart E8–3: Tariff revenue as a proportion of total tax revenue, 1973–74 to 2008–09

Note: The series is based on receipts (cash) data, as this is the only historical data available. Although excise-like tax revenue is different in substance to other tariff revenue, it is collected through the customs duty system and included as part of the above revenue series due to the lack of disaggregated customs duty revenue data available before 2000.

Source: Treasury estimates.

In 2008–09, the Australian government raised $6.2 billion from customs duty; however, $383 million of this was returned in refunds and drawbacks. The remaining $5.8 billion is made up of $1.5 billion raised through the general 5 per cent tariff, $790 million from tariffs on passenger motor vehicles, $1.1 billion from tariffs on textiles, clothing and footwear and over $2.7 billion from taxes collected on excise-like imported goods. Although excise-like tax revenue is different in substance from other tariff revenue, it is collected through the customs duty system to ensure that such goods are taxed consistently whether they are produced domestically or overseas. Tariffs are applied to some excise-like goods; however, the total amount collected is relatively minor ($12 million in 2008–09).

General tariff rate on imported products

The general tariff raised around $1.5 billion in 2008–09, half of this from products imported from China and Japan. Both of these countries are currently negotiating preferential trade agreements with Australia. If general tariffs are eliminated for imports from these two countries, revenues from the general 5 per cent tariff will fall substantially.

The importance of tariffs as a revenue source is very likely to decline from its already low level over the next few years.

The Review has determined that industry and trade policy generally falls outside its terms of reference, and so makes no specific recommendations on tariffs. However, the likely future loss of revenue from this source will need to be taken into account in the future structure and rates of other taxes.

Finding

Over recent decades the importance of tariffs as a revenue source has declined dramatically. This is expected to continue into the future.


24 Like new vehicles, used or second-hand vehicles attract a tariff of 10 per cent, which will be falling to 5 per cent on 1 January 2010. However, high-volume imports attract an additional import duty of $12,000, which will remain in place after 1 January 2010. The additional duty does not apply to vehicles that are at least 30 years old or to individuals importing a single vehicle.