Taxation has existed since the late 19th century and plays an important role in society. That governments require revenue to finance their activities is an economic fact. Without taxes a government would not be able to function properly as a government needs to raise revenue, and the most effective way of doing so is by the imposition and collection of taxes. "At the most basic level, taxes operate to redirect economic resources from the citizen to the government for use in its spending programs."In addition to its revenue raising function taxation is used as a powerful social and political engineering device. The Government can use the tax system to influence or modify aspects of society or societal behaviour.For example, the government introduced a Medicare levy surcharge on high income earners to encourage private health insurance to lessen the burden on the publicly funded health system.
There are three main factors which create a need for taxation :-
• The need for governments to provide social and merit goods
• the need for governments to support those for whom a free market would not otherwise provide; and
• the intentional use of taxation to correct other free market imperfections.
Social goods relate to such items as roads and street lighting. In order for such items to be supplied adequately they must be provided for by the state rather than by the market per se. Merit goods relate to goods which are deemed to be "beneficial" such as education. The government might attempt to discourage consumption of certain goods by imposing heavy discriminatory taxes upon such goods, or the government might promote consumption by providing subsidies or tax benefits. This is how the government might use taxation to "modify patterns of supply and consumption of goods and intangible items."
Support for those whom a free market would not otherwise provide
Unfortunately there are…

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