What is tax and how does the government use it?

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Tax is money charged by a government on items (such as wages, goods and services) to provide money for government services. Taxes are paid by people and businesses in Australia and include:

  • the Goods and Services Tax (GST)
  • income tax (tax paid on money people earn)
  • custom charges (taxes on goods entering or leaving the country)
  • other taxes, such as company tax.

The Australian Government uses this tax money to pay for running the country. For example, taxes are used to fund Australia’s defence force, national parks, pension payments and interstate railways.

Each year the Australian Government details how it plans to collect taxes and spend tax money in a set of documents called the Budget. The Budget details:

  • the ways the government intends to raise money
  • the amount of money is expected to be raised
  • how the government intends to spend this money.

The Budget documents are prepared by the Treasury Department and presented to the Australian Parliament by the Treasurer. They begin the process early each year. The Treasurer works with other ministers to develop spending policies for each government department.

The steps of the Australian federal budget.

Federal Budget process

Parliamentary Education Office (peo.gov.au)

Federal Budget process

The steps of the Australian federal budget.

Parliamentary Education Office (peo.gov.au)

Description

This diagram illustrates the development and operation of the Budget:

  1. Budget documents are prepared by the Treasurer and Treasury department.
  2. The Treasurer makes a speech to the House of Representatives to introduce the budget bills. 
  3. Members of parliament examine and debate the Budget bills.
  4. The Senate closely examines the use of the Budget throughout the year in Senate estimates committees.

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