Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics, and more. I'm Michael Thompson and hello Sean Ailmer.

Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics, and more. I'm Michael Thompson and hello Sean Ailmer.

Hello Michael.

Hello Michael.

You will be excited about this question today, Sean, because you love you love economics, you love politics, and everything of this. It just all collides in this question. Good for you, Sean. In the federal budget, broadly, where does the money come from and what is it spent on? And I'm particularly interested first of all if we can do it chronologically where the money comes from, and then we'll get to the bit where you spend it.

You will be excited about this question today, Sean, because you love you love economics, you love politics, and everything of this. It just all collides in this question. Good for you, Sean. In the federal budget, broadly, where does the money come from and what is it spent on? And I'm particularly interested first of all if we can do it chronologically where the money comes from, and then we'll get to the bit where you spend it.

Yes, I always think this is really interesting. So the government clicks about six hundred and ninety billion dollars a year in taxes fair chunk yep. Forty seven percent comes in income tax. That's much more than just a few years ago. It is frighteningly high. How much income tax we pay, that's huge, forty seven percent. Twenty percent comes in company and resource rent tax, the big one there, so company taxes, and companies do well, they pay more tax, but the taxes on resources. So you know, when the federal Treasury talks about the price of iron ore, making a difference to the budget bottom line. That's where this fits in. And in fact, Federal Treasury estimates that a ten US dollar per ton increase in the price of iron ore helps the bottom line by about five hundred million dollars. So when iron ore goes from one hundred dollars to one hundred and thirty, that's one point five billion dollars for the bottom line. It's pretty significant.

Yes, I always think this is really interesting. So the government clicks about six hundred and ninety billion dollars a year in taxes fair chunk yep. Forty seven percent comes in income tax. That's much more than just a few years ago. It is frighteningly high. How much income tax we pay, that's huge, forty seven percent. Twenty percent comes in company and resource rent tax, the big one there, so company taxes, and companies do well, they pay more tax, but the taxes on resources. So you know, when the federal Treasury talks about the price of iron ore, making a difference to the budget bottom line. That's where this fits in. And in fact, Federal Treasury estimates that a ten US dollar per ton increase in the price of iron ore helps the bottom line by about five hundred million dollars. So when iron ore goes from one hundred dollars to one hundred and thirty, that's one point five billion dollars for the bottom line. It's pretty significant.

That is huge. So that is I mean, we should pay a lot of attention then to the iron ore price, to.

That is huge. So that is I mean, we should pay a lot of attention then to the iron ore price, to.

The iron Yeah. So we've got forty seven percent income tax, twenty percent company resource rent tax, thirteen percent sales tax GST. That is basically what's interesting about GST at the moment is Trumpet administration could argue it is a tariff on US goods and so we're watching that one very closely. There's seven percent in x SIS and customs duties. Now XCISE is tax on goods produced in Australia, alcohol fuel, tobacco. What's interesting in that area those stories we're talking about that the black market in tobacco is taking off and the legal market is suffering. So we're actually losing XCISE tax as a result of fewer sales of tobacco products, throwing more ev sales, less petrol being sold. Not looking good there either.

The iron Yeah. So we've got forty seven percent income tax, twenty percent company resource rent tax, thirteen percent sales tax GST. That is basically what's interesting about GST at the moment is Trumpet administration could argue it is a tariff on US goods and so we're watching that one very closely. There's seven percent in x SIS and customs duties. Now XCISE is tax on goods produced in Australia, alcohol fuel, tobacco. What's interesting in that area those stories we're talking about that the black market in tobacco is taking off and the legal market is suffering. So we're actually losing XCISE tax as a result of fewer sales of tobacco products, throwing more ev sales, less petrol being sold. Not looking good there either.

Oh yeah, the tobacco one is really interesting, isn't it because there have been moves in the past to increase the x SIS on there in the hope that a it would kind of increase revenue but also try and discourage people from smoking, and all that's done is kind of push people towards the black market. That's fine.

Oh yeah, the tobacco one is really interesting, isn't it because there have been moves in the past to increase the x SIS on there in the hope that a it would kind of increase revenue but also try and discourage people from smoking, and all that's done is kind of push people towards the black market. That's fine.

But the other one, like customs duty, so it's excising. Customs always go together. So excise is tobacco customs is really interesting because that effectively is a tariff and typically it's about five percent of goods coming into Australia. Now, we have free traded agreements with a bunch of companies including the US, where these customs duties aren't levied, but from many many products we actually have tariffs on them as well, about five percent, so we should keep that in mind. There's about twenty percent other taxes, things like superannuation taxes, fringe benefit tax all that sort of stuff. Okay, all right, so that's where it comes from.

But the other one, like customs duty, so it's excising. Customs always go together. So excise is tobacco customs is really interesting because that effectively is a tariff and typically it's about five percent of goods coming into Australia. Now, we have free traded agreements with a bunch of companies including the US, where these customs duties aren't levied, but from many many products we actually have tariffs on them as well, about five percent, so we should keep that in mind. There's about twenty percent other taxes, things like superannuation taxes, fringe benefit tax all that sort of stuff. Okay, all right, so that's where it comes from.

That's all the money coming in, right, So you've got this great big pot of money. Where does the government spend the money? And this could go on for some time sean it could, it won't.

That's all the money coming in, right, So you've got this great big pot of money. Where does the government spend the money? And this could go on for some time sean it could, it won't.

So thirty seven percent social security and welfare. Now when the two big ones is the NDIS and Assistance to Age care, and we talk a lot about that because the government is trying to reign in the cost of those. Not only are they expensive, they're rising as well. The PBS pharmaceutical benefits scheme and many care is up there as well. That's very expensive, and especially when the NDIS didn't actually exist kind of twenty years ago, like it only started with fifteen years ago, yeah, twenty thirteen or so. Yeah, So it's a relatively new expense and it has grown and grown grown one of the biggest hits to the budget or cost to the budget. It's not a hit, it is a cost to the budget. The flip side though, so in this Social security and welfare is that the government estimates how much they have to pay out on unemployment benefits. And we've actually done really well on that because the government hasn't had to pay it anywhere near as much because the unemployment rate been so low, So it's actually been beneficial on that front.

So thirty seven percent social security and welfare. Now when the two big ones is the NDIS and Assistance to Age care, and we talk a lot about that because the government is trying to reign in the cost of those. Not only are they expensive, they're rising as well. The PBS pharmaceutical benefits scheme and many care is up there as well. That's very expensive, and especially when the NDIS didn't actually exist kind of twenty years ago, like it only started with fifteen years ago, yeah, twenty thirteen or so. Yeah, So it's a relatively new expense and it has grown and grown grown one of the biggest hits to the budget or cost to the budget. It's not a hit, it is a cost to the budget. The flip side though, so in this Social security and welfare is that the government estimates how much they have to pay out on unemployment benefits. And we've actually done really well on that because the government hasn't had to pay it anywhere near as much because the unemployment rate been so low, So it's actually been beneficial on that front.

Okay, so they're the big ones.

Okay, so they're the big ones.

They're the big ones. Health gets about sixteen percent, payments to states and territories about thirteen percent. There's a big chunk in there of education. So yesterday there was a deal between Queensland and the federal government on education funding for example. That fits into that. So thirty percent the state and territories. Defense is about six percent of the budget or thereabout, which is the one that Donald Trump would like all countries to increase. Yeah, so he's talking about is it two percent of GDP or maybe three percent of GDP ye, So that would actually mean we'd have to up our defense spending.

They're the big ones. Health gets about sixteen percent, payments to states and territories about thirteen percent. There's a big chunk in there of education. So yesterday there was a deal between Queensland and the federal government on education funding for example. That fits into that. So thirty percent the state and territories. Defense is about six percent of the budget or thereabout, which is the one that Donald Trump would like all countries to increase. Yeah, so he's talking about is it two percent of GDP or maybe three percent of GDP ye, So that would actually mean we'd have to up our defense spending.

Goodness may and then I mean, the thing is that you can keep going. You can go further and further and break it all the way down, can't you.

Goodness may and then I mean, the thing is that you can keep going. You can go further and further and break it all the way down, can't you.

But those are the big they're really big, chunky ones. Yeah.

But those are the big they're really big, chunky ones. Yeah.

Yeah. And it's amazing how much you can argue and fight over, even just when we are talking about the division of payments to states and territories and when the GST revenue is carved up, so how much that gets people all riled up across Gosh, there is so much debate and so much discussion that we could be having over this, but I reckon we'd cover this comprehensively enough for today, I think.

Yeah. And it's amazing how much you can argue and fight over, even just when we are talking about the division of payments to states and territories and when the GST revenue is carved up, so how much that gets people all riled up across Gosh, there is so much debate and so much discussion that we could be having over this, but I reckon we'd cover this comprehensively enough for today, I think.

So I actually find the incoming the seats more interesting than the spending because forty seven percent of the revenue from income tax, that's outrageous.

So I actually find the incoming the seats more interesting than the spending because forty seven percent of the revenue from income tax, that's outrageous.

That is huge. And you said that has increased significantly.

That is huge. And you said that has increased significantly.

Yeah, hugely, And so bracket creep when this is introduced, like the sixties and seventies, the government allowed bracket creep, so as people earn more money, they move into a higher tax bracket and the government doesn't move the tax brackets. So in the sixties and seventies, that's how actually how they increased their taxes. But then people said, no, you've got to move the tax brackets as wages increased, which is fair enough, but it just seems that there've been a bit slow on moving those tax brackets. So we've got this bracket creep and forty seven percent in income tax way too much.

Yeah, hugely, And so bracket creep when this is introduced, like the sixties and seventies, the government allowed bracket creep, so as people earn more money, they move into a higher tax bracket and the government doesn't move the tax brackets. So in the sixties and seventies, that's how actually how they increased their taxes. But then people said, no, you've got to move the tax brackets as wages increased, which is fair enough, but it just seems that there've been a bit slow on moving those tax brackets. So we've got this bracket creep and forty seven percent in income tax way too much.

That is huge, sounds like and this is going to be music to the ears of our Fear and Greed colleague Adam Lang. There might be a need for some tax reform.

That is huge, sounds like and this is going to be music to the ears of our Fear and Greed colleague Adam Lang. There might be a need for some tax reform.

Show maybe some need from tax Everyone agrees with that one yeah, good one, even Adam, especially Adam.

Show maybe some need from tax Everyone agrees with that one yeah, good one, even Adam, especially Adam.

Good stuff. Thank you very much, Sean, Thanks Michael. And remember, if you have something you would like to know, it can be as detailed as that one or as quick and easy. We'd love to We would love to answer one of these questions in one minute flat. It has not yet happened. If you've got something that you would like to know, then send through a question on LinkedIn, Instagram, Facebook, or at Fearangreed dot com dot au. I'm Michael Thompson and this is ask Fear and Greed.

Good stuff. Thank you very much, Sean, Thanks Michael. And remember, if you have something you would like to know, it can be as detailed as that one or as quick and easy. We'd love to We would love to answer one of these questions in one minute flat. It has not yet happened. If you've got something that you would like to know, then send through a question on LinkedIn, Instagram, Facebook, or at Fearangreed dot com dot au. I'm Michael Thompson and this is ask Fear and Greed.