Income tax doesn't fund a single named program — it goes into general government revenue alongside company tax, GST and other sources, and Parliament then allocates spending across categories each budget. Here's how that played out in the 2026–27 federal budget, a $833.2 billion spending plan.
Spending by Category, as Cents per Dollar
| Category | Share of spending | Includes |
|---|---|---|
| Social security and welfare | 37.1% | pensions, JobSeeker, disability support, aged care, family payments |
| Other purposes | 19.6% | interest on government debt, GST payments to the states, natural disaster relief |
| Health | 16.4% | Medicare, the Pharmaceutical Benefits Scheme, public hospital funding |
| Education | 6.9% | schools funding, higher education, HELP loan scheme |
| Defence | 6.2% | the Australian Defence Force and defence procurement |
| All other services | ~13.8% | housing, transport, energy, general public services and more |
Source: SBS News — "Federal budget 2026: Explained as if it were $100", based on the 2026–27 federal budget papers.
Social Security and Welfare Is the Biggest Line by Far
At 37.1% of total spending, social security and welfare dwarfs every other category. This includes the age pension, JobSeeker and other working-age payments, the National Disability Insurance Scheme, family payments like Family Tax Benefit, and aged care. The Parliamentary Budget Office projects this share growing to almost 40% by 2030, driven largely by rising demand for disability support and aged care as the population ages.
"Other Purposes" Is Bigger Than It Sounds
At 19.6%, this category isn't a leftover miscellaneous bucket — it includes interest paid on government debt, GST revenue the federal government collects and then hands to the states, and disaster relief funding. Interest on debt in particular has grown as a share of the budget as government borrowing has increased over recent years.
Health and Education
Health spending (16.4%) funds Medicare rebates, the Pharmaceutical Benefits Scheme, and public hospital funding agreements with the states. Education (6.9%) covers schools funding, universities and vocational training, and the government's share of the HELP loan scheme.
How This Has Shifted Over Time
The share going to social security and welfare has grown steadily over recent budgets, driven mainly by the National Disability Insurance Scheme's continued rollout and an ageing population increasing demand for aged care and the age pension. Interest on government debt has also grown as a share of spending as borrowing increased through recent years of budget deficits, which is part of what sits inside the "other purposes" category above.
Defence Spending
Defence (6.2%) funds the Australian Defence Force's personnel, operations, and major equipment programs, including ongoing submarine and naval capability projects. Defence spending as a share of the budget has been trending upward over recent years as several large, multi-year procurement programs move through their funding cycles.
Federal Money, State Delivery
A lot of what feels like "state" spending — public schools, public hospitals, police, and roads — is actually funded partly or largely by federal money handed to the states, either as GST revenue (which the federal government collects nationally and distributes to the states under a formula) or as specific-purpose payments tied to agreements like public hospital funding. This is one reason the federal budget's categories don't map neatly onto what a state government visibly does day to day — a lot of federal tax revenue effectively flows through to fund state-delivered services.
Where Income Tax Itself Fits In
Individual income tax (including PAYG withholding from wages) makes up roughly half of all federal government revenue — about $49.50 of every $100 collected — the single largest source, ahead of company tax, GST and excise combined. Excise on fuel, tobacco, alcohol and similar items contributes a smaller slice, around $5.80 per $100. But once collected, none of it is tracked to any particular spending category; it's pooled with every other revenue source before Parliament allocates the budget each year through the annual Budget Papers.
State and Territory Budgets Are Separate
This breakdown covers the federal budget only. Each state and territory hands down its own separate budget, funded by a mix of GST revenue passed on from the federal government, state-based taxes like stamp duty and payroll tax, and other federal grants. That's why a service like public education or policing can appear in both a state budget (as spending) and the federal budget (as a grant to the states) without double-counting — the federal figure is the money changing hands, not the final delivery of the service.
The Budget Process, Briefly
Each year's federal budget is prepared by the Treasury and handed down by the Treasurer, usually in May, then debated and passed by Parliament as a set of appropriation bills before it takes effect from 1 July. The Parliamentary Budget Office provides independent costings and analysis throughout the process, including the kind of spending breakdown used on this page.
See exactly how much income tax and Medicare levy you personally contribute with our Income Tax Calculator Australia, or your full position including HECS-HELP with our Take Home Pay Calculator Australia.
Sources: Australian Government — Budget; Parliamentary Budget Office.