Given the large scale of the modern welfare state and the involvement of governments in financing the health care sector in Australia, one of the most important ongoing policy concerns is that of revenue raising. How the government raises money brings into sharp focus several issues of equity and efficiency. What is the fairest way to distribute the burden of taxation? What is economically and administratively the most efficient way to raise revenue? These two aspects, equity and efficiency, are often at odds with each other, and in many circumstances there is a trade-off between them. Given the burden of taxes it is not surprising that designing tax systems has always been a subject of considerable controversy.