In a country that issues its own fiat currency, taxes do not (indeed, they cannot!) fund government spending. A government that controls its currency can issue as much of it as needed to meet its obligations. Taxes, in countries like Australia, do not exist to fund Commonwealth spending. Instead, they are about shaping and managing the economy.
One key role of taxation is to create demand for ourcurrency. When the government requires that taxes be paid in its currency, it ensures that people need to earn and use that currency, giving it value and acceptance across the economy.
Taxes also help manage inflation. When government spending adds money into the economy, taxation provides a way to withdraw some of that money, keeping demand in balance with what the economy can produce. This helps to avoid excessive inflation and maintain price stability.
Beyond these economic functions, taxation is a tool for advancing policy goals. It can encourage or discourage certain behaviours — for example, through taxes on harmful activities or incentives for desirable ones. Taxation also supports fairness by enabling income and wealth redistribution, helping to reduce inequality.
Finally, taxes strengthen the connection between citizens and public institutions. Contributing through taxes helps maintain the legitimacy of government services and reinforces the shared responsibility of funding collective needs.
In summary, in a fiat currency system, taxes are not about funding spending — they are about managing the economy, supporting policy, and upholding the value of the currency.