April 4, 2019

Where Does My Tax Money Go?

One of the most common gripes small business has is about the level of taxation and the cost of complying with complex regulation. These regularly top the list of small business growth-inhibitors.

So, where do all those small business taxes actually go? Well, one of the main functions of Australia’s federal budget is to raise money from those who have it to give to those who need it.

Simple in principle! Rather more complex to implement in reality. However, with another Federal election looming, how can we as voters from the small business constituency make informed decisions about where we think our tax money should be spent, if we don’t know where our taxes are actually spent?

Where Do Your Taxes Go?

What do you think is the biggest area of Federal Government spending? Health? Education? Defence?

Wrong! By far the biggest line item in every federal budget happens to be Social Security and Welfare. Of the billions the government spends every financial year, more than a third, or roughly 36 per cent, is destined for welfare.

Sound scary to you? It might help to understand all the world’s major developed countries have some form of a redistributive tax system.

Maintaining Australia’s social contract by providing a basic safety net is the government’s biggest cost area in most of today’s advanced economies.

So where does Australia’s welfare largess go? Does the Canberra bureaucracy fritter it all away on dole bludgers and welfare cheats? Actually no.

This may come as a surprise, but by far the biggest line item in the welfare budget is the cost of Australia’s aged pension system.

Australia’ Aged Pension Obligations Continue Growing

The Australian government is expecting to spend around $180.1 billion on social security and welfare from 2019 to 2020. Estimates forecast a further 220,000 older Australians will qualify for an aged pension in the coming few years.

As Australian hairs keep turning increasingly grey and our population continues to age, our aged pension scheme is only going to prove more and more expensive.

The second biggest welfare line item is family benefits. Roughly $20 billion in benefit payments are distributed to Australian families each year.

Currently, around 60 per cent of Australian families receive some form of family benefit from our government. Therefore forming a cornerstone of government spending.

National Disability Insurance Scheme (NDIS)

Finally, we come to some of our neediest and poorest members of society who struggle to care for themselves and make ends meet.

The National Disability Insurance Scheme (NDIS) is one of Australia’s landmark welfare reforms since launching Medicare. The NDIS provides funding assistance for people aged under 65 with a permanent impairment that significantly reduces their physical, intellectual and social functioning.

An estimated 4.3 million Australians aged 16 to 65 currently have some form of disability, however, the majority of people with a disability will not qualify for NDIS funded packages. Roughly 460,000 Australians are expected to be participating in the NDIS by 2020.

From 2018–19 to 2021–22, the Australian Government is expected to contribute $43.2 billion to the NDIS.


Following welfare, the next biggest chunk of the Federal budget is directed to healthcare. Around the world, governments have been struggling to contain both the rising expectations people have of healthcare and its ever-rising costs.

Once more, our greying hairs are proving to be a drag not just for us, but for the Federal budget too. The Medicare system ($18 billion) and pharmaceutical benefits scheme ($10 billion) are two of the biggest and fastest rising costs area in Australia’s budget.

All up, the Federal Government budgeted $81.8 billion for health over 2019 – 2020. As a developed country, Australia is spending more on health as new technologies and new drugs come onto the market.

Many economists refer to Health spending as a “luxury good” as government spending seems to rise as our national income also rises.

After all, without your health, what do you really have?

Education General Services and Defence Spending

The third big item in Australia’s Federal budget is education. Spending in this department comes in at almost $36.4 billion in the 2019 – 2020 budget, including funding for universities, non-government schools and public-school initiatives and research.

In fourth place comes Defence accounting for a hefty $32.2 billion. That’s a lot of bullets and beans!

The anonymous-sounding “general public services,” includes the cost of running the government administration, parliament and the Governor-General comes in fifth. This department is projected to soak up $23.6 billion in the 2019 to 2020 budget.

These Departments absorb around two-thirds of all Federal government spending.

Final Observation

So, where does the money come from to fund these competing priorities you may well ask? The Federal Government hauls in revenue from several sources. Topping the list is you and me, thanks to our personal income taxes. Every year around 45 per cent, of the Federal Government revenue comes from ordinary Australians. Food for thought next time you’re grappling with your taxes!

Filed Under: Financial Awareness, Tax

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