In 2003, New Zealand proposed an agricultural emissions research levy to be collected from livestock farmers. The tax was to be used to fund research into the livestock industry's emissions of gases.
Every year, each level of government is required to prepare a budget to show how tax revenue will be collected (or 'raised') and how it will be spent. The Australian Federal Budget provides a well-known example of this process.
The Australian Federal Budget is prepared by the treasurer and presented to parliament. After the Budget has been debated and approved by both Houses of Parliament, taxes are collected in line with the Budget. The parliament decides on the levels of tax – not the Australian Taxation Office (ATO).
The first pie chart shows the revenue ('budget income') collected through various types of taxes. The second chart shows how the revenue is spent by the government ('budget expenditure').
Income tax from individuals makes up around 40% of the Australian Federal Budget income. The charts illustrate the major sources of revenue for the Australian Government and how the taxation revenue is spent.
Taxation and spending, 2016-17
Where revenue comes from
Where Taxpayers' money is spent
If there is not enough revenue to cover all of the proposed spending, then decisions have to be made about how to solve the problem. The government could decide on one of the following options:
- Cut spending so that revenue will cover expenditure. This raises questions, such as which services should be cut and how the community will be affected.
- Increase taxes to allow spending to remain at the desired level. Who will pay the increased taxes? What type of taxes should be increased?
- Keep taxes and spending as they are and borrow the money needed to cover the deficit (or shortfall). How will this money be repaid? What effect will the repayments have on the future levels of services?
- Sell national assets to increase revenue. This is sometimes done to pay back past government borrowings.
- The government may raise more income than it planned to spend (a surplus budget). In these circumstances, the government could change its decisions about how the tax revenue would be spent.