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How Systems Work

Taxes: Where the Money Goes

Ages 10–14 25 min read Intermediate

Government doesn't have its own money. Every dollar it spends comes from taxes — money collected from citizens and businesses. Understanding where taxes come from and where they go is essential to understanding how your country actually works.

Where the Money Comes From

The Australian Federal Government collects approximately $600 billion per year in revenue. The main sources:

  • Income tax (individuals): ~50% of revenue. The more you earn, the higher your rate (progressive taxation). Earn under $18,200 = 0%. Earn over $190,000 = 45% on income above that threshold.
  • Company tax: ~20% of revenue. Companies pay 25-30% of their profits.
  • GST: ~14% of revenue. The 10% goods and services tax on most purchases. Collected by the federal government but distributed to states.
  • Excise: ~5% of revenue. Extra taxes on specific goods: fuel, alcohol, tobacco.
  • Other: Capital gains tax, customs duties, superannuation taxes, etc.

Where the Money Goes

The biggest areas of federal spending:

  • Social security and welfare: ~35% (Age Pension, JobSeeker, NDIS, family payments)
  • Health: ~16% (Medicare, hospitals, PBS)
  • Education: ~8% (school funding, universities)
  • Defence: ~6% (Australian Defence Force)
  • Infrastructure: ~5% (roads, rail, NBN)
  • Interest on government debt: ~4%

The Tax Debate

Tax is one of the most debated topics in politics:

  • "Tax is too high": Takes money from productive people and businesses, reducing incentives to work and invest.
  • "Tax is too low": We need more revenue for healthcare, education, and infrastructure. The wealthy should pay more.
  • "Tax is unfair": Some argue the system favours the wealthy (through capital gains discounts, negative gearing, trusts) while workers pay their full rate.

There's no objectively "right" tax rate. It's a values question: how much should government do, and who should pay for it?

Tonight's Question

"If you were in charge of the budget, would you spend more on health, education, or defence? Where would you cut?"

This is the question every government wrestles with. There's never enough money for everything.

Family Budget Government

  1. Print the Australian federal budget breakdown (simplified version from budget.gov.au).
  2. Give each family member $100 in play money.
  3. Each person allocates their $100 across the spending categories.
  4. Compare: who spent more on health? Defence? Education?
  5. Discuss: where did your values show up in your spending?

Go Further

  • Website: ATO Tax Calculator (ato.gov.au) — see how much tax you'd pay at different income levels.
  • Research: What is "negative gearing" and why is it controversial in Australia?
  • Question: Should corporations pay the same tax rate as individuals?
  • Interactive: ABC's Budget Calculator tool lets you redesign the federal budget.

What We Simplified

  • The tax system is far more complex. We've covered the basics, but tax law fills thousands of pages.
  • Government also borrows. When spending exceeds revenue, governments borrow (issue bonds). Australia's federal debt is approximately $900 billion.
  • State taxes exist too. Payroll tax, stamp duty, land tax, and gambling taxes are major state revenue sources.

Sources

  • Australian Government. "Budget 2023-24 Overview." budget.gov.au
  • ATO (2023). "Tax Rates for Individuals." ATO
  • Parliamentary Budget Office. "Australian Government Budget Snapshot." PBO

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