The four functions of the taxation system:

To Raise Revenue: Different types of taxation much up for a large majority for the source of government revenue. Taxation accounts for more than 90% of federal government revenue in Australia.

To Redistribute Income and Wealth:

The theory behind this is that people who earn more income pay a higher tax within the dollar to people who earn less income which pay a smaller tax within the dollar. This is so Australia has a smaller income distribution gap between rich and small. One problem with this issue is that once one person earns over a certain amount of money each year they must pay a fixed amount of tax within the dollar e.g. someone who earns $60,000 a year might pay 48¢ tax within the dollar and another person who earns $80,000 a year will pay the same amount of tax within the dollar. This creates a disadvantage for the person earning $60,000 in that he earns less through tax that the person who earns $80,000.

Resource Allocation: Taxation can be used to encourage or even discourage the use for certain resources. Such taxes like Excise can be placed on a product so it becomes less attractive because of the higher price. An example of this is cigarettes, when they became unhealthy and fatal to your health excise taxes where placed on these products so a withdrawal of resources from this activity occurred and the higher price was placed onto the value of cigarettes. This should work in theory but in reality cigarettes are very price inelastic which means demand for this product doesn’t change in relevance to price. Also taxation can have a positive effect on such products which benefit the economy an example of this is Taxation Incentives which can increase the number of resources to certain programs which have a overall benefit on the community of economy.

To Stabilise the Economy: To stabilise the economic activity by reducing the cyclical fluctuations in the level of aggregate demand this may occur from time to time. This